Ghana, IMF negotiations underway
The International Monetary Fund (IMF) stands ready to assist Ghana in restoring macroeconomic stability; anchoring debt sustainability; promoting inclusive and sustainable growth; and addressing the impact of the war in Ukraine and the lingering COVID-19 pandemic.
Following several visits in recent months to engage with the authorities on their home-grown reform programme broader stakeholders’ consultation, an IMF staff team will visit Accra, starting on September 26, to continue discussions on policies and reforms that could be supported by an IMF lending arrangement. IMF staff will also further engage with other stakeholders.
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Can the IMF confirm reports that Ghana is seeking a three-year Extended Credit Facility programme of about $3 billion?
The Extended Credit Facility (ECF) is the fund’s main tool for medium-term support to countries facing protracted balance of payments problems, similar to Ghana’s. The duration of such arrangement is between three to four years and extendable to five years. Ghana requested a similar arrangement in 2014 and which lasted four years. However, the level of access and the final programme design is ultimately decided by the IMF Executive Board. Since negotiations for the programme are starting now, it is too early to comment on the final form the programme will take.
Why is Ghana requesting an IMF programme?
Ghana’s fiscal and debt vulnerabilities are worsening fast amid an increasingly difficult external environment. During the COVID-19 pandemic, Ghana’s public debt increased from 65 per cent to 80 per cent of Gross Domestic Product (GDP). At the same time, the government’s fiscal efforts to preserve debt sustainability were not seen as sufficient by investors, leading to credit rating downgrades, non-resident investors’ exit from domestic bond market and loss of access to international capital markets. These adverse developments, further exacerbated by the price and supply-chain shocks from the war in Ukraine, have led to a large exchange rate depreciation, a surge in inflation (29.8 per cent year-on-year inflation in June) and pressure on foreign exchange reserves in the past months. In this context, the government has requested assistance from the IMF, and we have kick-started the initial discussions on how to best address Ghana’s challenges.
An IMF-supported programme aims to provide space for Ghana to implement policies which will restore macroeconomic stability and anchor debt sustainability while protecting the most vulnerable parts of the population. It should help create the conditions for inclusive and sustainable growth and job creation. This will help strengthen policy credibility, alleviate exchange rate pressures and provide catalytic effect on financing.
What type of programme is Ghana eligible for?
The IMF’s various lending instruments are tailored to different types of balance of payments need, as well as the specific circumstances of a member country. (See the IMF Lending web page for different types of BOP need and the available instruments).
We are discussing with the Ministry of Finance and the central bank about the type of facility that will best fit Ghana’s needs.
By way of background, the previous arrangement in Ghana was a three-year ECF in 2015-2018, which was extended by a year to April 2019.
Is the programme a result of the spillover from the war in Ukraine?
The war in Ukraine has triggered a global economic shock that is hitting Ghana at a time when the government’s room for manoeuvre is already greatly limited. The shock compounds other pressing policy challenges, including debt vulnerabilities, the COVID-19 pandemic’s social and economic legacy and the ongoing tightening of global monetary policy conditions which increase the cost of international borrowing.
What will be the objectives of an IMF programme with Ghana?
The goal of the government’s home-grown programme, which will be supported by IMF financing, is to restore macroeconomic stability and anchor debt sustainability, support the credibility of government policies, restore confidence in the central bank’s ability to manage inflation and accumulate foreign exchange reserves to help the currency withstand headwinds. Specifically on the fiscal sector, an important policy objective will be to increase revenues, critical for debt sustainability while safeguarding spending on health, education and social protection.
Does Ghana need debt restructuring? When will a new Debt Sustainability Assessment (DSA) be published?
When a member country requests financing from the IMF, the fund assesses whether the country’s policies are consistent with debt sustainability. This assessment is based on a Debt Sustainability Assessment (DSA), conducted jointly by the IMF and World Bank, to determine whether the government is able to meet all its current and future payment obligations.
The DSA is forward-looking and considers steps being taken by the member to ensure sustainability over the medium term. In cases where a country’s debt is assessed as unsustainable, the IMF is precluded from providing financing unless the member takes steps to restore debt sustainability, including by seeking a debt restructuring from its creditors. The IMF and World Bank still need to conduct a thorough update of the debt situation through a new DSA, which will then be presented to our Executive Board when it considers the authorities’ programme request.
As background, the last DSA published in the 2021 Article IV Staff Report concluded that: “Public debt was sustainable conditional on a rigorous and credible implementation of the authorities’ medium-term consolidation plan to put debt on a declining trajectory and ensure continued market access.”
Will the programme result in cut in the Free Senior High School programme or other flagship social programmes and infrastructure projects?
We are still at an early stage in the discussions, but we believe that the Free Senior High School (SHS) is an innovative policy that needs to be protected. In general, IMF-supported programmes seek to boost social spending while encouraging both efficiency and sustainability.
As discussed above, the IMF-supported programme will aim at protecting the vulnerable and creating conditions for an inclusive growth.