Market confidence is poised to receive a significant boost with forex inflows in the coming week from both the International Monetary Fund (IMF) and the World Bank.
On Tuesday, January 23, the World Bank approved a US$300 million Development Policy Operation for Ghana, marking the initial step in a three-part series. This initiative aims to alleviate the country’s fiscal constraints while maintaining the momentum of its economic recovery.
The World Bank in a release said the Government of Ghana remains committed to restoring macroeconomic stability and to the implementation of lasting reforms to set the economy on a path of strong long-term sustainable growth and transformation.
The disbursement of this US$300million Development Policy Financing, the first in a series of three, will play a vital role in easing Ghana’s fiscal constraints, sustaining the momentum of economic recovery while protecting the poor and vulnerable,” said Ken Ofori-Atta, Minister of Finance
“Restoring fiscal and debt sustainability, bolstering growth prospects, curbing inflation, and protecting the most vulnerable – measures supported by this financing – are urgent priorities for Ghana. They are also essential steps to allow the country to attract more foreign investment, revitalise its domestic private sector, build resilience against climate change, and improve the quality of life of its people,” said Ousmane Diagana, World Bank Vice President for Western and Central Africa.
These measures, supported by the financing, are crucial for attracting foreign investment, revitalising the domestic private sector, building resilience against climate change and improving the overall quality of life for the people of Ghana.
The Resilient Recovery Development Policy Operation represents the first of three operations, each amounting to US$300 million. It is part of the World Bank’s broader engagement in crisis response and resilience for Ghana, focusing on restoring fiscal sustainability, supporting financial sector stability, fostering private sector development, improving energy sector financial discipline and enhancing social and climate resilience.
Specific reforms include strengthening domestic revenue mobilisation; controlling expenditures; ensuring financial sector stability; promoting private investment; addressing energy sector challenges; fortifying the social protection system; and integrating climate adaptation and mitigation into policies.
Additionally, the government recently completed the first review of its US$3 billion, three-year extended credit facility (ECF) aarrangement with the IMF. This successful review ensured the disbursement of the second tranche of US$600 million under the programme, bringing total disbursements to approximately US$1.2 billion. The approval follows a constructive US$5.4 billion debt negotiation with Ghana’s official creditor committee.
Moreover, the World Bank is set to disburse US$250 million in support of the Ghana Financial Stability Fund (GFSF), designed to address solvency issues in the financial sector.
These injections are expected to result in a substantial FX inflow of about US$1.15 billion, further fortifying the stability of the cedi in the foreseeable future.
However, despite some FX liquidity injection last week and the IMF first review, the cedi experienced a decline against major trading currencies, primarily due to a stronger US dollar. The USD index closed 100 basis points stronger following robust US economic data that indicated a cautious approach by the Federal Reserve regarding policy rate cuts.
According to Databank, an asset management company, this led to the strengthening of the US dollar against a basket of African currencies, including the cedi. Consequently, the central bank’s US$11.6 million spot market support failed to cushion the cedi, resulting in a 1.60 percent weakening against the US dollar to a mid-rate of 12.53/$ on the retail market.
The local currency also experienced a 1.12 percent and 1.11 percent week-on-week decline against the GBP and the Euro on the retail market.
“Despite the prevalence of corporate demand, we expect FX market sentiment to improve as the deal’s inflow should help increase supply-side intervention and cushion the cedi in the near-term,” Databank said.
