The West African nation of Ghana can now breathe a sigh of relief after months of deteriorating economic fortunes thanks to an IMF bailout.
This is a follow-up to an IMF team’s trip to Accra, Ghana, under the direction of Mr. Stéphane Roudet, Ghana Mission Chief. The IMF’s support for Ghana’s policy and reform plans was discussed during the visit, which took place between December 1 and December 13, 2022, with the country’s authorities.
A staff-level agreement on economic policies and reforms was reached between the IMF staff and the Ghanaian government, which will be supported by a new, $3 billion, three-year Extended Credit Facility (ECF) arrangement.
The authorities’ comprehensive reform plan aims to lay the groundwork for a robust and inclusive recovery while protecting the weak, preserving financial stability, and restoring macroeconomic stability and debt sustainability.
The authorities have started a comprehensive debt operation to support the goal of restoring public debt sustainability.
The programme includes a frontloaded fiscal consolidation, steps to lower inflation and rebuild external buffers, as well as broad reforms to address structural weaknesses and improve shock resilience.
IMF’s statement Mr. Roudet made the following announcement following the mission:
“I am pleased to announce that the IMF team reached staff-level agreement with the Ghanaian authorities on a three-year program supported by an arrangement under the Extended Credit Facility (ECF) in the amount of SDR 2.242 billion or about US$3 billion. The economic program aims to restore macroeconomic stability and debt sustainability while laying the foundation for stronger and more inclusive growth. The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances by Ghana’s partners and creditors.
“The Ghanaian authorities have committed to a wide-ranging economic reform program, which builds on the government’s Post-COVID-19 Program for Economic Growth (PC-PEG) and tackles the deep challenges facing the country.
“Key reforms aim to ensure the sustainability of public finances while protecting the vulnerable. The fiscal strategy relies on frontloaded measures to increase domestic resource mobilization and streamline expenditure. In addition, the authorities have committed to strengthening social safety nets, including reinforcing the existing targeted cash-transfer program for vulnerable households and improving the coverage and efficiency of social spending.
“Structural reforms will be introduced to underpin the fiscal strategy and ensure a durable consolidation. These include developing a medium-term plan to generate additional revenue and advancing reforms to bolster tax compliance. This will help create space for growth-enhancing measures and social spending. Efforts will also be made to strengthen public expenditure commitment controls, improve fiscal transparency (including the reporting and monitoring of arrears), improve the management of public enterprises, and tackle structural challenges in the energy and cocoa sectors. The authorities are also committed to further bolstering governance and accountability.
“To support the objective of restoring public debt sustainability, the authorities have announced a comprehensive debt restructuring. Sufficient assurances and progress on this front will be needed before the proposed Fund-supported program can be presented to the IMF Executive Board for approval.
“Reducing inflation, enhancing resilience to external shocks, and improving market confidence are also important program priorities. Accordingly, the Bank of Ghana will continue to strengthen its monetary policy framework and promote exchange rate flexibility to rebuild external buffers. As part of the authorities’ debt strategy, a domestic debt exchange has been launched. The authorities are committed to taking the necessary mitigation measures to ensure financial sector stability is preserved.
“IMF staff held meetings with Vice President Bawumia, Finance Minister Ofori-Atta, and Bank of Ghana Governor Addison, and their teams, as well as representatives from various government agencies. The IMF team has also continued to engage with other stakeholders. Staff would like to express their gratitude to the Ghanaian authorities, Parliament’s Finance Committee and all the private sector, trade union, and civil society representatives for their open and constructive engagement over the past few months.”
For the record, the agreement allows the government to address its shaky public finances and supports the cedi, the worst-performing currency in the world this year. It still needs to be approved by the IMF board.
Investor apprehension over the country’s soaring public debt—which is expected to surpass the size of its economy this year—led to a selloff of its government securities this year, effectively cutting it off from global capital markets.
A bailout from the IMF also comes with strict requirements, which Ghana would have agreed to follow.
