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Ghana and IMF reach staff-level agreement for economic support

To support the objective of restoring public debt sustainability, the authorities have launched a comprehensive debt operation

Ghana and the International Monetary Fund (IMF) have reached a staff-level agreement for a US$3 billion economic support.

The authorities’ strong reform programme aims at restoring macroeconomic stability and debt sustainability while protecting the vulnerable, preserving financial stability, and laying the foundation for strong and inclusive recovery.

To support the objective of restoring public debt sustainability, the authorities have launched a comprehensive debt operation.

In addition to a frontloaded fiscal consolidation and measures to reduce inflation and rebuild external buffers, the programme envisages wide-ranging reforms to address structural weaknesses and enhance resilience to shocks.

Below is the full statement:

An International Monetary Fund (IMF) team led by Stéphane Roudet, Mission Chief for Ghana, visited Accra during December 1 – 13, 2022, to discuss with the Ghanaian authorities IMF support for their policy and reform plans.

At the end of the mission, Roudet issued the following statement:

“I am pleased to announce that the IMF team reached staff-level agreement with the Ghanaian authorities on a three-year program supported by an arrangement under the Extended Credit Facility (ECF) in the amount of SDR 2.242 billion or about US$3 billion. The economic program aims to restore macroeconomic stability and debt sustainability while laying the foundation for stronger and more inclusive growth. The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances by Ghana’s partners and creditors.”

“The Ghanaian authorities have committed to a wide-ranging economic reform program, which builds on the government’s Post-COVID-19 Program for Economic Growth (PC-PEG) and tackles the deep challenges facing the country.

“Key reforms aim to ensure the sustainability of public finances while protecting the vulnerable. The fiscal strategy relies on frontloaded measures to increase domestic resource mobilization and streamline expenditure. In addition, the authorities have committed to strengthening social safety nets, including reinforcing the existing targeted cash-transfer program for vulnerable households and improving the coverage and efficiency of social spending.

“Structural reforms will be introduced to underpin the fiscal strategy and ensure a durable consolidation. These include developing a medium-term plan to generate additional revenue and advancing reforms to bolster tax compliance. This will help create space for growth-enhancing measures and social spending. Efforts will also be made to strengthen public expenditure commitment controls, improve fiscal transparency (including the reporting and monitoring of arrears), improve the management of public enterprises, and tackle structural challenges in the energy and cocoa sectors. The authorities are also committed to further bolstering governance and accountability.

“To support the objective of restoring public debt sustainability, the authorities have announced a comprehensive debt restructuring. Sufficient assurances and progress on this front will be needed before the proposed Fund-supported program can be presented to the IMF Executive Board for approval.

“Reducing inflation, enhancing resilience to external shocks, and improving market confidence are also important program priorities. Accordingly, the Bank of Ghana will continue to strengthen its monetary policy framework and promote exchange rate flexibility to rebuild external buffers. As part of the authorities’ debt strategy, a domestic debt exchange has been launched. The authorities are committed to taking the necessary mitigation measures to ensure financial sector stability is preserved.

“IMF staff held meetings with Vice President Bawumia, Finance Minister Ofori-Atta, and Bank of Ghana Governor Addison, and their teams, as well as representatives from various government agencies. The IMF team has also continued to engage with other stakeholders. Staff would like to express their gratitude to the Ghanaian authorities, Parliament’s Finance Committee and all the private sector, trade union, and civil society representatives for their open and constructive engagement over the past few months.”

Domestic debt exchange

Finance Minister Ken Ofori-Atta has been rolling out policies including domestic debt restructuring aimed at restoring macroeconomic stability.

He announced that the government is working hard to “minimise the impact of domestic debt exchange on investors holding government bonds.”

Ofori-Atta gave assurance to “small investors, individuals and other vulnerable groups” that their investments are safe.

“We are confident that these measures will contribute to restoring macroeconomic stability,” Ofori-Atta said.

“Treasury bills are completely exempted and all holders will be paid the full value of their investments on maturity. There will be no haircut on the principal of bonds. Individual holders of bonds will not be affected,” he added.

TUC raises red flag

Meanwhile, the Trades Union Congress (TUC) said the government should exempt its members’ pension funds from the debt exchange programme.

According to them, the programme will negatively affect the security of their retirement income.

“We have analysed the debt exchange programme and after a thorough analysis of the programme and a very extensive discussion among the leadership of TUC and affiliates, our conclusion is very firm. And it is that the programme will negatively affect the pension funds of our members and consequently their retirement income security,” the general secretary of TUC Dr Anthony Yaw Baah said at a press conference Monday (12 December).

Immense pressure

There is immense pressure on the government to turn things around, with inflation hitting a record 40% in October. Traders closed their shops last month to protest the rising cost of goods and services as citizens decry the high cost of living.

Presenting the 2023 budget in parliament in November, Ofori-Atta, who survived a censure motion recently, said depreciation of the cedi continues to be a huge problem as the government strives to address the country’s current challenges.

“The demand for foreign exchange to support our unbridled demand for imports undermines and weakens the value of the cedi,” he said. “This contributed to the depreciation of the cedi, which has lost about 53.8 percent of its value since the beginning of the year. Compared to the average 7 percent average annual depreciation of the cedi between 2017and 2021, the current year’s depreciation, which is driving the high costs of goods and services for everyone, is clearly an aberration – a very expensive one.”

As part of the measures to get the economy back in shape, Ofori-Atta announced a freeze on new tax waivers for foreign companies, a review of tax exemptions for mining, oil and gas companies and a reduction in the fuel allocation to government appointees.

 

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