GHANA is at the verge of securing its 18th economic support programme from the International Monetary Fund (IMF) to help stabilise the economy and reboot growth.
This is after the COVID-19 pandemic and the Russia/Ukraine conflict exacerbated the country’s weak macroeconomic fundamentals, pushing the economy deeper into debt, a large deficit, spiraling inflation and the consequences of a depreciating currency.
A fact-finding team from the IMF left the country on July 13 after undertaking a data gathering exercise meant to inform the direction that a possible support would take.
In a question and answer (Q&A) released on July 13, the fund addressed issues surrounding the government’s request for a programme, including stating its position on the free senior high school (SHS) programme under a possible bailout deal.
Below are the excerpts
Has Ghana requested IMF for support for an economic programme?
On July 1, 2022, Ghana started discussions with the IMF to support a homegrown economic programme through a fund arrangement.
The IMF stands ready to assist Ghana to restore macroeconomic stability; anchor debt sustainability; promote inclusive and sustainable growth; and address the impact of the war in Ukraine and the lingering Covid-19 pandemic.
What was the conclusion of the first mission and what are the next steps and possible timing for an IMF programme?
An IMF team visited Accra from July 6 – 13 to begin initial discussions with the Ghanaian authorities about a possible IMF-supported programme.
Although we are still at an early stage in the process, the mission was constructive and kick-started the process, laying the ground for our continued engagement.
IMF staff will continue to monitor the economic and social situation very closely and engage with the authorities to formulate a homegrown reform plan that could be supported by an IMF arrangement and validated through a broader stakeholders’ consultation.
To this end, the fund and the Ministry of Finance (MoF) and the Bank of Ghana (BoG) teams will continue their work virtually in the coming weeks, while IMF experts will travel to Accra to provide technical assistance, including in tax policy and administration, and public financial management.
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 of gross domestic product (GDP) to 80 per cent of 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 (BOP) need, as well as the specific circumstances of a member country. See the IMF Lending webpage for different types of BOP need and the available instruments.
We are discussing with the MoF 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 extended credit facility (ECF) in 2015-2018, which was extended by a year to April 2019.
Is a programme the 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 increases the cost of international borrowing.
What will be the objectives of an IMF programme with Ghana?
The goal of the government’s homegrown 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 would be to increase revenues critical for debt sustainability, while safeguarding spending on health, education and social protection.
Is the request for a programme coming too late, given concerns about Ghana’s economy and debt situation over the last two years?
The economic situation is certainly challenging but there is still scope for the government to take the right steps towards restoring macroeconomic stability and preventing a deeper crisis.
Will the programme result in cutting out the free senior high school (SHS) programme, or other flagship social programmes and infrastructural projects?
We are still at an early stage in the discussions, but we believe that the free 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 would aim at protecting the vulnerable and creating conditions for an inclusive growth. — IMF, Ghana office