IMF approves Ghana’s bailout

After 10 months of discussions and negotiations, Ghana has finally received approval from the Executive Board of the International Monetary Fund (IMF) for a three-year budget support programme aimed at restoring macroeconomic stability and debt sustainability.

The extended credit facility (ECF) which would see the country receive $3 billion is also expected to support structural reforms and help its economic recovery after two years of economic challenges.

In a statement after the Executive Board approval, the IMF Managing Director, Kristalina Georgieva, said the approval “will enable an immediate disbursement to Ghana equivalent to SDR 451.4 million (about $600 million)”.

The statement said the programme would also help Ghana to overcome immediate policy and financing challenges, including through its catalytic effect in mobilising external financing from development partners and providing a framework for the successful completion of the ongoing debt restructuring.

“Fiscal consolidation is a core element of the programme.

A substantial and front-loaded fiscal adjustment has started with the 2023 budget.

Enhanced revenue and streamlined expenditure will be combined with policies to protect vulnerable households and create room for higher social and development spending in the medium term,” the statement added.

The Minister of Finance, Ken Ofori-Atta, and the Governor of the Bank of Ghana, have been in Washington DC in the United States since last week with a delegation for meeting towards the presentation of the programme for approval.

The approval yesterday was widely received within the business and investor community with optimism for stability and modest growth in the medium term.

A source, who is part of the delegation, told the Daily Graphic that Ghana’s IMF programme is backed by the Post-COVID-19 Programme for Economic Growth (PC-PEG) which is the government’s blueprint to address the economic challenges, restore macroeconomic stability, bring debt to sustainable levels in the medium term, support structural reforms, promote growth and ensure that the poor and vulnerable are protected.

The key objectives of the PC-PEG are to, among others, restore fiscal sustainability as well as minimise fiscal risks including risk from contingent liabilities from state-owned enterprises (SOEs).

It is also expected to achieve low and stable inflation, strengthen the exchange rate regime, restore investor confidence, regain market access while unlocking other financing sources.

The PC-PEG is also designed to build buffers to strengthen resilience to economic shocks, improve the country’s sovereign credit ratings and regain international capital market access.

The IMF

Ghana’s economy has been battling severe challenges in the last two years, with inflation hitting a 22-year high of 54.1 per cent in December 2022, and an unsustainable public debt of GH¢575.7 billion, which represents 93.5 per cent of the country’s Gross Domestic Product (GDP).

In July 2022, the government formally approached the IMF for a fund programme and was able to secure a staff level agreement in December.

An Executive Board level approval which would pave the way for the disbursement of the $3 billion support, was, however, dependent on the country’s ability to restructure both its domestic and external debts.

The Domestic Debt Exchange Programme (DDEP) which was announced by the government in December was met with stiff opposition from stakeholders but after months of engagements, the government was finally able to reach an agreement with more than 85 per cent of its domestic debtors to enable it to take part in the programme.

The DDEP saw the government swap over GH¢82 billion of old bonds for 12 new ones at a reduced coupon rate and longer tenors.

What was therefore holding back the IMF deal was the restructuring of the external debt, with China, which holds $1.9 billion of Ghana’s debt, also coming on board the

Paris Club to agree to a debt treatment.

However, the country received good news last Friday that the Creditor Committee, co-chaired by China and France, had granted financial assurances, paving the way for the Executive Board of the IMF to approve Ghana’s programme.

Ghana is seeking to restructure bilateral debts, totalling $5.4 billion with the Creditor Committee and negotiations expected to begin soon.

The government has already started negotiations with its commercial creditors to restructure its $14 billion debt.

Aside from the restructuring of the country’s debt, the government also met all the five prior actions required by the IMF to get a deal.

The prior actions included the publication of the COVID-19 audit report, the implementation of electricity tariff adjustment, the signing of a Memorandum of Understanding (MoU) between the Ministry of Finance (MoF) and the Bank of Ghana to eliminate monetary financing of the central bank, and the enactment of the necessary legislation to boost revenue.

With the approval yesterday, the first tranche of $600 million is expected to be disbursed to the country in days.

The second tranche of another $600 million is also expected to hit the accounts of the Bank of Ghana in November this year after the country completes the first phase of the three-year ECF programme.

The rest will be released in five tranches of $360 million, after each of the semi-annual reviews have been successfully concluded.

Unlocking financing  

The approval of Ghana’s programme is also expected to help unlock the much needed financing from development partners, as the country has already started negotiations for a $900 million three-year development policy budget support programme with the World Bank.

When concluded, $300 million would be disbursed to the country each year.

There is also a discussion with the World Bank and African Development Bank (AfDB) for up to $350 million to operationalise the Financial Sector Stability Fund which is aimed at supporting financial institutions which were affected by the DDEP.

The fund is made up of $250 million from the World Bank and $100 from the AfDB.

The approval of Ghana’s deal will therefore give a major boost to these discussions.

Reactions — trading community

Kester Aburam Korankye reports that the President of the Ghana Union Traders Association (GUTA), Dr Joseph Obeng, said the trading community was excited about the approval and remained optimistic that the implementation of the programme would bring stability to the economy.

However, he told the Daily Graphic that the IMF support must trickle down to reduce the cost of doing business in the country.

For a start, he said, the Bank of Ghana must consider reducing the policy rate which would help traders to secure the needed funding to revitalise their businesses.

Dr Obeng said the only reservation of the trading community over the bank’s approval was how the government would be able to sustain the stability envisaged to come with the implementation of the programme and the financial support that would come with it.

“Inflation, lending rates and the exchange rates have all worked against the growth of businesses so whatever stability this programme may bring, it is our hope that we are able to sustain it,” he said.

Investors

There were loud applause, smiles and excitement at a forum attended by participants made up of German firms operating in the country and their Ghanaian counterparts, when it was announced that the IMF had approved Ghana's $3 billion support programme, reports Maclean Kwofi.

The President of the Ghanaian German Economic Association, Stephen Antwi, after the forum, stated that the excitement on the faces of the participants were premised on the fact that businesses have had long period of currency fluctuations, volatility and instability, impacting negatively on the growth of their operations.

He said businesses were of the view that once the deal was completed and Ghana's programme took off, it would create a fresh regime of stability for business to thrive.

"This is exciting news for any real business person because we have had a situation where the exchange rate went up to GH¢15 per dollar on the international market and it dropped to about GH¢8 and it is now staying around GH¢12.

"If this deal had not been done the expectation is that we are going to see that trend we experienced with the currency again," he said.