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IMF reaches staff-level agreement on a $3 billion credit facility with Ghana

BY: Kweku Zurek

The International Monetary Fund (IMF) has reached a reached staff-level agreement with the Ghanaian government on economic policies and reforms to be supported by a new three-year arrangement under an Extended Credit Facility (ECF) of about US$3 billion.

The IMF in a statement said the Ghanaian government’s strong reform program aims at restoring macroeconomic stability and debt sustainability while protecting the vulnerable, preserving financial stability, and laying the foundation for strong and inclusive recovery.

To support the objective of restoring public debt sustainability, the Ghanaian government has also launched a comprehensive debt exchange programme.

"In addition to a frontloaded fiscal consolidation and measures to reduce inflation and rebuild external buffers, the program envisages wide-ranging reforms to address structural weaknesses and enhance resilience to shocks," the IMF said in a statement.

What is a staff-level agreement?

A Staff-Level Agreement is reached between a country requesting for a fund support programme and the IMF Mission subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances before loans are granted.

An International Monetary Fund (IMF) team led by Mission Chief for Ghana, Mr. Stéphane Roudet, visited Accra during December 1 – 13, 2022, to discuss with the Ghanaian government IMF support for their policy and reform plans.

The IMF staff held meetings with Vice President Mahamudu Bawumia; the Finance Minister, Ken Ofori-Atta; and the Bank of Ghana Governor, Ernest Addison, and their teams; representatives from various government agencies and other stakeholders. 

At the end of the mission, Mr. Roudet announced that an IMF staff-level agreement with the Ghanaian authorities on a three-year program supported by US$3 billion had been reached.

He stressed that the staff-level agreement was 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," Mr Roudet said.

“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".

He added that reducing inflation, enhancing resilience to external shocks, and improving market confidence were important priorities of the program.

"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," Mr Roudet said.

"...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".

Why Ghana went to the IMF

Ghana requested a fund-assisted programme in July after the cedi came under intense pressure and prices of goods and services soared to record highs.

Inflation has hit a 21-year high of over 40 per cent and the cedi lost more than 50 per cent of its value to the US dollar in November this year.

A debt restructuring exercise is underway to bring the debt to sustainable levels to allow for the fund-assisted programme.