Ghana’s balance of Payment (BoP) has since experienced a deficit due to its excessive foreign borrowings. However, the future outlook of the BoP is projected to remain same as government seeks to secure an IMF loan.
Balance of payment deficit occurs when the expenditure side of a nation’s account exceeds its revenue side.
According to the Ministry of Finance, Ghana has the motive of securing a $3 billion bailout from IMF to ensure macroeconomic stability and support its Balance of payment. However, the future repayment of the principal and excessive cost (interest) of the loan will tend to lead to an outflow of cash – which will then cause the expenditure side of Ghana’s BoP to continuously exceed the revenue side, hence, still leaving the country with a deficit BoP.
“Government is seeking fund from IMF for balance of payment support in terms of concessional/cheaper financing to shore up international reserves, stabilize the cedi, continue smooth payments for imports (petroleum products, pharmaceuticals, medical equipment, among others) and restore conditions for strong economic growth (including support for government flagship programmes), while correcting underlying problems.”
Ministry of Finance
When governments’ revenue falls short of its expenditure, governments borrow. Public debt is thus a critical tool for governments to revive their economy. Nonetheless, the motive of Ghana restoring her economy and strengthening her BoP will turn to be the other way round during government’s repayment of the IMF loan.
Not limited to that, the IMF loan will initially result in higher foreign reserves with a passive monetary policy, leading to a concurrent increase in Ghana’s domestic monetary liabilities. The increase in monetary liabilities eventually will result in an increase in the level of aggregate expenditure.
More so, the increase in aggregate expenditure will be reflected domestically in higher prices and in higher nominal income, and therefore leak partly into the balance of payments through additional imports, thus widening Ghana’s current account deficit.
A persistence deficit in Ghana’s balance of payments will lead to a higher demand for foreign currency to the detriment of the national currency which would depreciate in this situation.
IMF loan, which will add up to Ghana’s public debt on its BoP may be an economic stimulant but when its accumulation gets to a very substantial level, a reasonable proportion of government expenditure and foreign exchange earnings will be used to service and repay the debt with a heavy opportunity cost even for future generations.
Ghana’s Balance of Payments Worsened To $3.64 biilion
It can be recalled that Ghana’s balance of payments – according to the central bank data was disclosed to have further deteriorated to a deficit of $3.64 billion in December from a $3.4 billion deficit the previous quarter.
Thus, Ghana faced an economic crisis that saw consumer inflation of 53.6% in January, 2023. The cedi currency has depreciated around 50% annually, and interest payments on government debt have swelled to between 70% and 100% of GDP.
Recent balance of payments woes has been largely driven by a sharp reversal in capital flows, with Ghana’s capital account deficit having worsened to $2.18 billion in December, 2022 from $1.64 billion in September,2022.
The balance of payments (BOP), also known as the balance of international payments, is a statement of all transactions made between entities in one country and the rest of the world over a defined period, such as a quarter or a year. These transactions include exports and imports of goods, services and financial assets, along with transfer payments (foreign aid – such as the IMF loan).
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