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.
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.
Source: Graphic Online