IMF to give West African country $3 billion bailout
The West African country of Ghana can now exhale after several months of declining economic conditions thanks to an IMF financial aid package.
This follows an IMF delegation’s visit to Accra, Ghana, led by Mr. Stéphane Roudet, Chief of the Ghana Mission. During the visit, which occurred from December 1 to December 13, 2022, discussions focused on the IMF’s endorsement of Ghana’s policy and reform initiatives with the country’s officials.
A staff-level consensus on economic policies and reforms was established between IMF personnel and the Ghanaian authorities, backed by a new $3 billion, three-year Extended Credit Facility (ECF) arrangement.
The authorities’ comprehensive reform strategy aims to establish a foundation for a resilient and inclusive recovery while safeguarding the vulnerable, maintaining financial stability, and reinstating macroeconomic balance and debt sustainability.
The authorities have initiated a detailed debt operation to support the objective of retaining public debt sustainability.
The program consists of rapid fiscal consolidation, measures to decrease inflation and replenish external reserves, along with broad reforms to address structural deficiencies and enhance resilience against shocks.
In a statement by the IMF, Mr. Roudet made the following declaration following the mission:
“I am happy to declare that the IMF team has reached a staff-level agreement with the Ghanaian authorities on a three-year program supported by an arrangement under the Extended Credit Facility (ECF) amounting to SDR 2.242 billion or approximately US$3 billion. The economic framework aims to restore macroeconomic balance and debt sustainability while establishing a foundation for stronger and more inclusive growth. This staff-level agreement is subject to approval from IMF Management and the Executive Board as well as the receipt of essential financing guarantees from Ghana’s partners and creditors.
“The Ghanaian authorities have pledged to a broad economic reform initiative that builds upon the government’s Post-COVID-19 Program for Economic Growth (PC-PEG) and addresses the significant challenges facing the nation.
“Key reforms will focus on ensuring the viability of public finances while safeguarding the vulnerable. The fiscal strategy depends on upfront measures to boost domestic resource mobilization and optimize expenditure. Furthermore, the authorities have vowed to enhance social safety nets, including strengthening the existing targeted cash-transfer initiative for at-risk households and improving the effectiveness and coverage of social spending.
“Structural reforms will be implemented to support the fiscal strategy and facilitate durable consolidation. These include devising a medium-term plan to generate added revenue and advancing reforms to enhance tax compliance. This will help create room for growth-enhancing initiatives and social expenditure. Efforts will also be made to bolster public expenditure oversight, improve fiscal transparency (including the reporting and monitoring of arrears), enhance the management of public enterprises, and tackle structural challenges within the energy and cocoa sectors. The authorities are also dedicated to further enhancing governance and accountability.
“To aid the aim of restoring public debt sustainability, the authorities have announced a thorough debt restructuring. Adequate assurances and advancements in this area will be necessary before the proposed Fund-supported program can be submitted to the IMF Executive Board for approval.
“Lowering inflation, boosting resilience to external shocks, and enhancing market confidence are also significant program priorities. Accordingly, the Bank of Ghana will continue to strengthen its monetary policy framework and promote exchange rate flexibility to rebuild external reserves. As part of the authorities’ debt strategy, a domestic debt swap has been initiated. The authorities are committed to implementing necessary mitigation measures to ensure that financial sector stability is maintained.
“IMF staff met with Vice President Bawumia, Finance Minister Ofori-Atta, and Bank of Ghana Governor Addison, along with their teams, as well as representatives from various governmental agencies. The IMF team has also continued to engage with other stakeholders. Staff would like to express their appreciation to the Ghanaian authorities, the Parliament’s Finance Committee, and all private sector, trade union, and civil society representatives for their open and constructive engagement over the recent months.”
For the record, the agreement enables the government to address its unstable public finances and supports the cedi, the weakest-performing currency globally this year. It still awaits endorsement by the IMF board.
Investor concern regarding the country’s escalating public debt—which is anticipated to exceed the value of its economy this year—resulted in a sell-off of its government securities this year, effectively isolating it from global capital markets.
An IMF bailout also comes with stringent stipulations, which Ghana is expected to adhere to.
