Ghana-IMF relations:Time for regular health checks of economy

BY: Dr Albert Touna-Mama
The writer is the IMF Resident Representative to Ghana
The writer is the IMF Resident Representative to Ghana

The December visit to Ghana of Madam Christine Lagarde—the first by an IMF Managing Director in almost two decades—shed light on the ultimate goal of the Fund’s work in member countries.

That is, to improve living standards for all. Nowhere more than during Madam Lagarde’s call on a group of kayeyei at the Agbogbloshie market, the urgency to improve living conditions could be felt.

Macroeconomic stability is a stepping stone to better living standards.

Certainly, Ghana has come a long way in this respect.

Fund bailout

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When Ghana officially requested the Fund support on August 8, 2014, the cedi had depreciated by 40 percent, inflation was in the double-digits, and the Bank of Ghana only had around seven days’ worth of imports in net foreign exchange reserves, equivalent to $400 million.

In the first half of 2014, the fiscal deficit was almost exclusively financed by BoG printing money for an amount equivalent to 22 percent of the previous year’s fiscal revenue, as alternative financing sources were drying up fast.

Critical issues

The generous terms of the Fund financing provided Ghana with the needed breathing space to avoid resorting to measures that are harmful to national prosperity.

This IMF loan carries a zero-interest rate, with a Five and half years moratorium, and a final maturity of 10 years.

By comparison, Ghana issued a $1 billion Eurobond on September 11, 2014 at a coupon rate of 8.125 percent for 12-year maturity.

Of course, some measures—such as the freeze on public sector wages, were less accommodative.

This is sometimes the reality of putting an economy on strong footing.

The people of Ghana need to be commended for these sacrifices, and the Government and Bank of Ghana for their resolve to tackle difficult reforms.

More broadly, the programme has been a useful platform: (i) to anchor fiscal discipline; (ii) to improve control over public spending; (iii) to reduce inflation to a single digit; (iv) to reduce the interest bill; (v) to strengthen the banking sector; and (vi) to build external buffers up.


Despite the overall success of the programme, challenges remain that require continued efforts.

For instance, stronger revenue mobilisation would go a long way in reducing large financing needs of the country and lowering the risk of debt distress.

Improved tax compliance cannot be overstated in this case, though technology offers promising avenues in this respect.

Of equal importance is the need to get a grip on off-budget spending to avoid making fiscal policy more expansionary than it should be. Otherwise, it would weaken the fundamentals of the economy, put undue pressure on the cedi and contribute to the erosion of foreign exchange reserves—though, the foreign exchange market could be more efficient.

Certainly, the planned infrastructure projects have a positive bearing on medium-term economic growth, though they should be consistent with debt sustainability and ensure value for money.

The Fund will continue to assist Ghana in addressing these challenges.

In addition, the energy sector remains a substantial drain on public finances.

But there are promising actions in train to improve the sector’s financial viability, including with the World Bank’s assistance.

Health checks

After the end of Ghana’s programme, the relationship with the IMF will now shift to surveillance centered on the Article IV consultations.

The consultations are known as “Article IV consultations” because they are required by Article IV, section 3 (b) of the IMF's Articles of Agreement.

During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country's economic and financial policies with Government and central bank officials.

IMF staff missions also often meet with parliamentarians and representatives of business, labor unions, and civil society.

In the case of Ghana, Article IV consultations will be complemented by Post-Programme Monitoring (PPM) consultations.

This is a unilateral process put in place by the Fund as a fiduciary guardian of the donor resources lent to Ghana.

It is automatically activated when the fund owed to the IMF exceeds a certain amount. For countries like Ghana, it must exceed $525 million—Ghana had $1.17 billion outstanding at end-April 2019.

The IMF will also remain engaged in Ghana through capacity development.

Its main objective is to help member countries strengthen Government institutions and capacity necessary to formulate and implement sound economic and financial policies.

Some of the Fund’s capacity development support in Ghana is delivered by its Regional Technical Assistance Center based in Accra (AFRITAC West 2).

Prudent macroeconomic policies

Going forward, the medium-term prospects for the Ghanaian economy remain supportive, especially as investments proceed as planned.

A favorable external environment would help support these prospects.

Also, the newly-ratified Continental Free Trade Area (CFTA) has the potential to be a “game changer”, and not just for Ghana.

From a policy point of view, the commitment to maintain prudent fiscal policy and monetary policy stances is paramount.

Specifically, the Financial Stability and the Fiscal Responsibility Advisory Councils and the Fiscal Reasonability Law would provide a framework to monitor policy implementation.

It empowers the people of Ghana and other stakeholders, including the Fund, to hold the policy-makers accountable.

They add to other key components such as the zero financing of Government by Bank of Ghana since 2015, the Public Financial Management Act adopted in August 2016, and the more recent Social Partnership Agreement with Organised Labour.

By all accounts, Ghana has never been better equipped to prevent slippages going into an election year.

As Madam Lagarde stated during her visit: “if there is that resolve to stay the course and to maintain [fiscal] discipline, Ghana has everything it takes to do without an IMF programme”.