Finance Minister Ken Ofori-Atta has affirmed government’s commitment to fulfilling structural targets under the International Monetary Fund (IMF) US$3billion Extended Credit Facility Arrangement.
During a press briefing following the Executive Board approval, the Minister of Finance expressed confidence in the country’s ability to fulfil its structural targets and called upon all Ghanaians to join in the effort.
“So there is excitement, and going forward we are confident that we will fulfil the structural targets we have set; and we are really calling all Ghanaians to join in this,” he said.
The minister highlighted positive outcomes of discussions with France and China regarding external creditors and the common framework that can benefit other countries facing similar challenges. “Ghana’s successful track-record prior to the COVID-19 pandemic has bolstered optimism among external creditors and Eurobond investors.”
Key policies under the authorities’ programme include large and frontloaded fiscal consolidation to bring public finances back on a sustainable path, complemented by efforts to protect the vulnerable. The adjustment effort will be supported by ambitious structural reforms in the areas of tax policy, revenue administration and public financial management, as well as steps to address weaknesses in the energy and cocoa sectors.
Appropriately tight monetary and flexible exchange rate policies will help bring inflation back to single digit and rebuild international reserves. The programme also has a strong focus on preserving financial stability and encouraging private investment and growth.
The programme will help Ghana overcome immediate policy and financing challenges, including through its catalytic effect in mobilising external financing from development partners and providing a framework for successful completion of the ongoing debt restructuring.
The minister expressed optimism for approval of the programme and Ghanaian authorities’ unwavering dedication to its full implementation. This approval signifies the country’s strong commitment to economic stability and sends a powerful message to the international community.
He said government acknowledges the enormity of the task ahead, and draws inspiration from the current momentum to propel the country toward recovery and economic revitalisation. “President Akufo-Addo’s administration eagerly anticipates the engagement of private creditors in days to come, as collective efforts are required to achieve sustainability and long-term economic stability.”
Dr. Ernest Addison, Governor of the Central Bank, emphasised that the IMF-supported programme goes beyond mere budget support as it sets out policy and structural reforms essential for Ghana’s reset after setbacks caused by the pandemic.
“These reforms will enhance Ghana’s resilience and ensure sustainable economic outcomes. With the programme’s approval, Ghana now calls upon stakeholders to swiftly provide their support and contribute meaningfully to the fund’s catalytic role,” he said.
Stephane Roudet, IMF Mission Chief for Ghana said: “I see a very strong commitment from the authorities, and I have no reason to believe the programme will not be fully implemented going forward. We are here to support the authorities and help them achieve their goals. Additionally, the programme-approval is extremely good news. I believe it sends a strong signal to the international community and other organisations that the programme is in place and the authorities are committed. This support will help catalyse additional financing”.
Timeline
On July 1, 2022, managers of the economy conceded to mounting economic challenges and abandoned its stance for homegrown solutions as it returned to the IMF for the 17th time.
The nation first approached the IMF in 1965 but was rejected. Since then, the country has sought IMF support 16 times – with the most recent being a Rapid Credit Facility approved in April 2020.
At the midway point of 2022, government faced significant challenges including a high level of public debt at 80 percent of GDP, soaring interest costs and persistent consumer inflation at 27.6 percent.
The country’s revenue performance was below target at GH¢16.62billion in quarter-one of 2022, while government expenditure was high at GH¢26.95billion during the same period. Additionally, Ghana had a low credit rating from international agencies – which impacted borrowing costs.
The balance of payments position worsened due to outflows, resulting in a deficit of US$934.46million in first-quarter 2022. Gross international reserves (GIR) stood at US$8.34billion, equivalent to 3.7 months of import cover. In comparison to the last IMF bailout in 2015, public debt, budget deficit, expenditure and inflation were all lower, while revenue and import cover were higher.
In November 2022, during the budget presentation, finance minister Ken Ofori Attah announced a debt exchange programme to address challenges in the debt portfolio. The programme was formally launched on December 5, 2022 with a call for holders of domestic debt to voluntarily exchange approximately GH¢137billion of the domestic notes and bonds – including E.S.L.A. and Daakye bonds – for a package of new bonds to be issued by the Treasury.
However, it was met with resistance from pension funds, pension bondholders, organised labour and banks holding a third of the Treasury’s long-term domestic debt.
A week later, on December 12, 2022, the nation reached a staff-level agreement on a three-year Extended Credit Facility of US$3billion with the IMF. Another week later, on December 19, government announced the suspension of payments on selected external debts pending a restructuring of obligations.
On February 26, 2023, the Domestic Debt Exchange Programme was successfully concluded, restructuring bonds worth GH¢87.76billion. The programme classified bondholders into three categories with different terms based on age and investor type.
On May 12, 2023, an Official Creditor Committee was established by the Paris Club, expressing support for Ghana’s IMF programme. Five days later, the IMF approved a three-year extended credit facility of US$3billion with an initial disbursement of about US$600million.
Ghana’s debt restructuring process is expected to proceed more swiftly than Zambia’s, as China holds a smaller proportion of Ghana’s debt. However, approximately US$5.4billion of debt owed to official creditors and US$14.6billion of debt owed to private overseas creditors are earmarked for restructuring – potentially leading to lengthy talks.
Despite this, analysts anticipate a positive market response as Ghana implements measures to address its debt burden and stabilise the economy, with the debt restructuring talks’ success playing a crucial role in the nation’s financial recovery and sustainable growth.
Minority reaction
Reacting to the announcement, the Minority in Parliament, in a statement signed by its leader Cassiel Ato Forson, continued its scathing assessment of the economy’s handling prior to the return to the IMF as well as government communication during aspects of the negotiation process.
The statement further highlighted the Minority’s eagerness to scrutinise release of the Board document, which is expected to provide information on Debt Sustainability Analysis, Performance Criteria, Structural Benchmarks and other conditionalities associated with the IMF deal – even as it seeks to unravel the “true state of the country’s economy and the conditions agreed upon between the IMF and the Akufo-Addo/Bawumia NPP government”.
The Minority in parliament plans to address the nation in the coming days, presenting their analysis of the report’s contents and discussing implications of the IMF deal for the future of Ghana. They emphasise the urgent need for citizens to brace themselves for the agreement’s far-reaching effects, expressing concern that it will exacerbate the challenges faced by Ghanaians in their daily lives.
As a case in point, Mr. Forson argued that as part of the proposal to secure the IMF deal, government has agreed to increase utility tariffs every three months since last year. This move, the statement noted, has resulted in a cumulative electricity tariff increase of 75.32 percent since September 2022.
