Why did Ghana need an IMF program?
Ghana has been facing a severe economic and financial crisis, with a debt burden assessed as unsustainable. Specifically, a combination of pre-existing vulnerabilities and external shocks such as the COVID-19 pandemic and Russia’s war in Ukraine have resulted in acute financing pressures, a depreciating cedi, declining international reserves, slowing economic activity, and high inflation.
How much will Ghana receive and by when?
The IMF Executive Board approved, on May 17th, an SDR 2.242 billion (about US$3 billion) 36-month Extended Credit Facility (ECF) arrangement for Ghana. This decision enabled an immediate disbursement equivalent to SDR 451.4 million (about US$600 million). The rest is expected to be disbursed in tranches every six months, following program reviews approved by the IMF Executive Board.
What are the objectives of Ghana’s Extended Credit Facility arrangement?
Ghana’s economic program has three key objectives: restoring macroeconomic stability, ensuring debt sustainability, and laying the foundations for higher and more inclusive growth.
What are the policy priorities?
To reach Ghana’s economic program objectives a number of policy priorities have been laid out by the government:
First, large and frontloaded measures to bring public finances back on a sustainable path. This will be done through mobilizing more domestic revenue and improving the efficiency of public spending. Importantly, the program does – and will continue to – include efforts to protect the vulnerable. The 2023 budget has for example doubled the benefits of the existing targeted cash transfer program, the Living Empowerment Against Poverty (LEAP) and boosted the allocations towards the school feeding program.
Second, to support the fiscal adjustment and enhance resilience to shocks, ambitious structural reforms will be implemented in the areas of tax policy, revenue administration, public financial management, as well as to address weaknesses in the energy and cocoa sectors.
Third, steps are being taken to bring inflation under control – for example with the Bank of Ghana raising interest rates and eliminating monetary financing of the budget. A flexible exchange rate policy will help rebuild international reserves. Fourth, measures to preserve financial stability are very central to the program. Finally, reforms are envisaged to encourage private investment, growth, and job creation.
How will the program protect the most vulnerable? Will the program results in cut in social programs?
Protecting the vulnerable is a core objective of IMF programs. In general, IMF-supported programs seek to boost social spending to improve socioeconomic outcomes and help promote inclusive growth.
To protect the most vulnerable from the immediate impact of the crisis, the 2023 budget has doubled the benefits of the existing cash transfer program, the Living Empowerment Against Poverty (LEAP). In addition, the budgetary allocation of the Ghana School Feeding Program has been increased to compensate for the cost of inflation and make sure poor children continue to benefit from free meals at school. In the health sector, the financial resources for the National Health Insurance Scheme will be increased and made available on time to ensure the timely reimbursement of medical claims.
Spending toward key social program will be protected and monitored through an indicative target under the program.
How will the program promote transparency and fight corruption?
The Ghanaian authorities are committed to improve governance and transparency under the Fund-supported program. For example, the authorities have requested IMF technical assistance to conduct a Governance Corruption Diagnostic Assessment, which will be used as input into the ongoing efforts to update the National anticorruption Action Plan; they also will address weaknesses in the existing asset declaration system for public officials, by enacting a new Conduct of Public Officers Act. Furthermore, GRA, with support from IMF technical assistance, is developing a plan with the aim to improve the professional standards of tax administration in Ghana.
What are the next steps in the debt restructuring process?
The authorities are in the process of completing their domestic debt restructuring. Following a first debt exchange earlier this year, new debt operations are underway for USD-denominated domestic debt, Cocobills and domestic debt held by pension funds.
Regarding official bilateral debt, the next step is for the Official Creditor Committee for Ghana, under the G20 Common Framework, to reach agreement with the authorities on the specific modalities of how official creditors intend to deliver debt relief consistent with Fund-program parameters. The authorities are also engaging with their private creditors to seek relief on their external debt.
Why did the Bank of Ghana (BoG) incur losses from the authorities’ domestic debt exchange and what are their implications?
The Ghanaian authorities’ domestic debt exchange (DDE) is a key element of their plan to restore macroeconomic stability and public debt sustainability. The BoG is participating in the DDE to share some of the burden the DDE places on government debt holders, along with banks, other financial institutions, pension funds and individuals.
The loss the BoG incurred in the process has contributed to reducing its net equity to a negative value. Importantly, however, this does not prevent the BoG from fulfilling its policy mandates and ensuring inflation gradually returns toward its 8-percent target. Indeed, central bank income is expected to be sufficient to cover monetary policy operational costs. The BoG’s net equity is expected to improve significantly over time and eventually return to positive territory.
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