The International Monetary Fund (IMF) has revealed that the Bank of Ghana’s (BoG) net equity is expected to improve significantly over time and eventually return to positive territory.
According to the IMF, the Central Bank suffered losses due to its participation in the Domestic Debt Exchange Programme (DDEP), which was a key element of the government’s plan to restore macroeconomic stability and public debt sustainability.
It noted that the BoG is participating in the DDEP to share some of the burden the DDEP 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.”International Monetary Fund
The IMF stated that Ghana has been facing a severe economic and financial crisis, with a debt burden assessed as unsustainable. It indicated that 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.
This, it explained, occasioned the need for the country to go to the IMF. To reach Ghana’s economic program objectives, the IMF stated that a number of policy priorities have been laid out by the government:
First, it revealed that there is the need for 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.”International Monetary Fund
Furthermore, IMF explained the need to support the fiscal adjustment and enhance resilience to shocks, ambitious structural reforms to be implemented in the areas of tax policy, revenue administration, public financial management, as well as 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.”International Monetary Fund
Protecting the vulnerable under IMF program
Commenting on how the program will benefit the vulnerable, the IMF indicated that protecting the vulnerable is a core objective of IMF programs. In general, it highlighted that 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.”International Monetary Fund
Moreover, the IMF disclosed that the Ghanaian authorities are committed to improve governance and transparency under the Fund-supported program in its bid to promote transparency with the program and fight corruption. For example, it emphasized that 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.”International Monetary Fund