The Bank of Ghana has rescheduled its 108th Monetary Policy Committee (MPC) meeting to next month, with a decision on the stance of monetary policy expected to be announced on October 7, 2022.

According to statement released by the Bank of Ghana, this is to ensure that the announcement “coincide with the end of the IMF mission to allow the decision on the policy rate to benefit from the broader discussions to be held during the period”.

An International Monetary Fund (IMF) staff team, led by Stéphane Roudet, Mission Chief for Ghana, will arrive in Accra today, September 26, 2022 and continue discussions with government on policies and reforms that could be supported by a Fund lending arrangement.

The team is expected to do further engagements with other stakeholders including the Bank of Ghana, Parliament, business associations and civil society groups during the visit. The discussions with government and other stakeholders will end on October 7, 2022.

Ghana’s economy continues to face difficulties which has led to second downgrade of Ghana’s Long-Term Local- and Foreign-Currency Issuer Default Ratings (IDRs) to ‘CC’ from ‘CCC’ by rating agency, Fitch.

This moves the IDRs deeper to “junk status”, implying that the country is highly vulnerable with very speculative bonds.

The downgrade, according to Fitch, reflects the increased likelihood that Ghana will pursue a debt restructuring given mounting financing stress, with surging interest costs on domestic debt and a prolonged lack of access to Eurobond markets.

However, IMANI warned in a recent analysis that the government of Ghana is confronted with a series of Hobson’s choices regarding its current debt stock.

“The Hobson starkness of the choices facing the government is as follows: restructuring external debt will prolong the shutout from the Eurobond market forcing the overreliance on the domestic debt markets that has seen borrowing costs surge through the roof.

“Such a scenario will compound inflation and exchange rate depreciation and deepen the fiscal hole. Restructuring the domestic debt may shut the government out from the local market if investors simply fail to subscribe to any new government issuances. Not restructuring either or resorting to cosmetic measures could undermine any IMF-backed adjustment effort.”
IMANI

Debt to GDP ratio higher than official estimates

The International Monetary Fund (IMF) has reiterated that Ghana’s public debt increased from 65% to 80% of Gross Domestic Product during the period of the Covid-19 pandemic. This is contrary to the government’s figures that public debt to GDP was about 73% of GDP.

In a Frequently Asked Questions (FAQs) session, the Fund disclosed that 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% 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 macroeconomics 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.”
IMF

Type of lending programme for Ghana

The Fund said its various lending instruments are tailored to different types of balance of payments need as well as the specific circumstances of a member country.

Therefore, it pointed out that “we are discussing with the Ministry of Finance and the Central Bank about the type of facility that would best fit Ghana’s needs”.

The previous arrangement in Ghana was a three-year ECF in 2015-2018, which was extended by a year to April 2019.

The Fund disclosed that the goal of the government’s home-grown programme, which would 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, it stressed that an important policy objective would be to increase revenues, critical for debt sustainability while safeguarding spending on health, education, and social protection.