The Executive Board of the International Monetary Fund (IMF) on Wednesday approved Ghana’s request for a $3 billion loan-support programme.
The approval would result in an “immediate” disbursement of $600 million to support the Post COVID-19 Programme for Economic Growth (PC-PEG), a three-year initiative to restore macroeconomic stability and debt sustainability.
This follows ten months of meetings and negotiations between Ghanaian authorities, the Fund, and other stakeholders, including creditors, following the official announcement of Ghana’s accession to the Fund in July 2022.
The government reached a Staff-Level Agreement (SLA) with the IMF in December 2022, completed a Domestic Debt Exchange Programme (DDEP) in February 2023, and received financing assurance from external creditors on Friday.
This made possible the Board’s consideration and approval of the loan-support program on Wednesday.
In a press release issued after the approval, the IMF stated, “The Executive Board’s decision will permit an immediate disbursement to Ghana of SDR 451.4 million (approximately $600 million).”
It was noted that a timely debt restructuring agreement with Ghana’s external creditors will be crucial for the successful implementation of the new Extended Credit Facility program.
“With a view of fostering lasting fiscal discipline, the authorities are also advancing reforms to enhance domestic revenue mobilisation, strengthen public financial management, and tackle the deep challenges in the energy and cocoa sectors,” Ms Kristalina Georgieva, Managing Director, IMF, said.
Regarding the impact of DDEP on the balance sheets of financial institutions, she stated that authorities would devise and implement a comprehensive strategy to rapidly rebuild the buffers of financial institutions and end temporary regulatory forbearance measures.
The programme would also emphasize “containment of inflation and replenishment of foreign reserves buffers” as the Bank of Ghana increases exchange rate flexibility and restricts foreign exchange interventions.
As part of a larger effort to expedite Ghana’s recovery from an economic crisis brought on by a pandemic, the Russia-Ukraine war, and internal structural problems, the loan-support program will provide a balance of payment financing.
It would aid Ghana in implementing domestic policies that restore macroeconomic stability and ensure debt sustainability while safeguarding the most vulnerable segments of its population.
It would also help create the conditions for inclusive and sustainable growth and job creation, alleviate exchange rate pressures and currency depreciation, and catalyze the development of new sources of financing.
The Fund stated that, in implementing the loan support program, structural reforms would be implemented to underpin the fiscal strategy and ensure a durable consolidation, including the development of a medium-term plan to generate additional revenue and the advancement of reforms to strengthen tax compliance.
This, according to the Fund, would help create room for growth-enhancing measures and social spending.
In addition, the reforms would strengthen controls on public expenditure commitments, enhance fiscal transparency (including the reporting and monitoring of arrears) and the management of public enterprises, and address structural challenges in the energy and cocoa sectors.
Regarding social protection for the vulnerable, the Fund stated that, in the course of implementing the program, it would seek to increase social spending in order to improve socioeconomic outcomes and promote inclusive growth.
To achieve such results, the Fund noted that social spending measures must be adequate, efficient, and financed in a sustainable manner, and they offered their assistance to the government.
Some economists and financial institutions, such as the World Bank, have asserted that the IMF loan-support program would not be the ultimate panacea for Ghana’s economic crisis.
However, they believe that it would provide Ghana with the necessary policy credibility, capital market confidence, and short-term economic management assistance.
On this issue, Pierre Frank Laporte, World Bank Country Director, Africa, in an interview in February this year said the Fund’s loan-support programme would help Ghana renegotiate some of its debts with creditors, guarantee more loans, and give the country an economic framework that would help shore up its reserves.
While acknowledging that confidence in the economy would increase under the IMF program, Dr. Patrick Assuming, an economist, stated, “We must reduce waste and force the government to live within its means.”
Dr. Asuming, a senior lecturer at the University of Ghana Business School (UGBS), stated, “We must eliminate all of the free taxes we give to our government officials.”
The IMF described Ghana, Africa’s second-largest gold producer, as Sub-Saharan Africa’s economy with the highest rate of growth prior to the recent economic difficulties.
However, the economic fortunes of the West African country with a population of approximately 31 billion began to change when the COVID-19 pandemic impacted the economy, resulting in an economic crisis.
At the height of the economic crisis, citizens, academics, and economic and financial professional organizations demanded that the government act swiftly to prevent the worst-case scenario.
Hundreds staged a demonstration in Accra, the regional capital, at the beginning of July 2022 to express their displeasure with the government over rising inflation, food and transportation price increases, and other economic woes.
The President, Nana Addo Dankwa Akufo-Addo, assured Ghanaians that the Government would work hard to “revive and revitalise the economy and put our nation back on the path of rapid economic growth.”