The Ministry of Finance and the Bank of Ghana have commenced discussions with the IMF for an IMF-supported programme.

A statement issued by the Ministry of Finance, noted that a key prerequisite for the programme is a confirmation that Ghana’s debt is on a sustainable path. This, according to the Ministry, will require a comprehensive Debt Sustainability Analysis (DSA), which is currently ongoing.

“The Government of Ghana is putting together a comprehensive post Covid-19 economic programme which will form the basis for the IMF negotiations. The programme seeks to establish a macro-fiscal path that ensures debt sustainability and macroeconomic stability underpinned by key structural reforms and social protection.

“Government negotiations with respect to the IMF-supported programme is commencing this week and we are optimistic about making progress in our discussions.”
Ministry of Finance

Government reassured Ghanaians that it remains committed, and shall continue to actively engage all stakeholders, both public and private, in a clear and transparent manner “as we seek to fast-track this process”.

Basis for Ghana requesting an IMF program

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 percent to 80 percent of GDP, according to the IMF.

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 (33.9 percent year-on-year inflation in August) and pressure on foreign exchange reserves in the past months.

In this context, the government has requested assistance from the IMF which has kick-started with initial discussions on how to best address Ghana’s challenges.

An IMF-supported program 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.

This program, according to the IMF, 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.

Free SHS needs to be protected

There are several speculations that the program will result in scrapping the free senior high school program, or other flagship social programs and infrastructure projects that have been initiated by the government.

However, the IMF indicated that the social program is laudable and needs to be protected.

“We are still at an early stage in the discussions, but we believe that the free Senior High School (SHS) is an innovative policy that needs to be protected. In general, IMF-supported programs seek to boost social spending while encouraging both efficiency and sustainability.”
IMF

The goal of the government’s home-grown program, 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.

The IMF’s various lending instruments are tailored to different types of balance of payments need as well as the specific circumstances of a member country.

The current discussions with the ministry of finance and the central bank will determine 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.