Ghana secures approval for $3 billion IMF loan facility

The International Monetary Fund’s (IMF) executive board has approved the $3 billion extended credit facility (ECF) arrangement it signed with Ghana last December. The approval would see the IMF immediately disburse $600 million to the West African country.

The details

• The arrangement, planned to last over three years, is to help Ghana’s Post COVID-19 Program for Economic Growth (PC-PEG), an IMF release read.
• In its announcement, the IMF lauded the government of Ghana’s plans to tackle existing fiscal and debt vulnerabilities. Some include structural reforms in tax policy, revenue administration, public financial management, tightening monetary policy, and adopting flexible exchange rates to help rein in inflation in the country.
• In addition, the IMF noted that Ghana securing timely agreements on its debt restructuring would be crucial to finalizing the entire deal.

What was said

• According to Kristina Georgieva, IMF’s managing director:

“The combination of large external shocks and preexisting fiscal and debt vulnerabilities precipitated a deep economic and financial crisis in Ghana. In response, the authorities have launched a comprehensive reform program, to be supported by the ECF arrangement.”

• On the country’s debt restructuring, she added:

“The government has also launched a comprehensive debt restructuring, including both domestic and external debt, to place debt on a sustainable path...Preserving financial sector stability is critical for the success of the program.”

Of note

• The ECF arrangement was designed to cater to countries with a negative balance of payments figure. This implies that these countries spend considerably more than they make and need to borrow to finance their budget.
• The IMF typically demands that countries benefiting from its ECF arrangement put specific economic policies in place before the agreement before the IMF’s board approves.
• Following the agreement last December, an unnamed official close to the deal disclosed unofficially that a critical requirement by the IMF was that the country restructures its internal debt and stops borrowing from its central bank to finance its budget.
• In further updates, the Bank of Ghana (BoG), in its monetary policy committee report for March, confirmed that it had indeed finalized a memorandum of understanding with the country’s Ministry of Finance on zero financing to the budget.
• This implied that the government of Ghana would no longer borrow from the BoG but would instead look to new revenue measures, structural fiscal reforms and bilateral donors to finance its budget.

Some perspective

• Ghana has suffered some economic woes recently, hence, the need for a bailout from the IMF.
• Last year, the Ghana cedi was adjudged the world’s worst-performing currency against the dollar, losing 47.35% of its value in one year.
• A downgrading of the country’s credit rating in the international capital markets and its eventual expulsion early last year resulted in a dearth of external financing to support its budgetary implementation. As such, the country incurred more debt from the BoG, reportedly to the tune of 40 billion cedis ($3.2 billion).

Zoom out

• Mariblock reported that Tanzania secured approval on a similar ECF arrangement with the IMF and received $153 million in April, bringing its total funds accessed under the arrangement to $304.7 million.
• The IMF noted that the approval was largely due to the country meeting all qualitative performance criteria and indicative targets by December 2022, promising to put further economic measures in place.
• Ethiopia and Kenya are other African countries seeking IMF funding, like Ghana and Tanzania.