A return to the IMF government’s call – Seth Terkper
Former Minister for Finance, Seth Terkper, has said Ghana’s return to the International Monetary Fund (IMF) for financing support is a decision government would have to make for itself.
This, the erstwhile Minister noted is despite the obvious need for the country to return to the IMF and undergo a programme (in the absence of a homegrown programme) given the county’s unsustainable debt levels and huge financing needs which is occasioned primarily by fast-pacing government expenditure and almost stagnant revenues.
Touching on the inability of government to access the capital market should it fail to return to the IMF for a programme, Mr Terkper disagreed with this popular notion asserting that the country will always have access to the international capital market, however, debt instruments (bonds) issued on the market will come at high costs.
“I would leave the call as to whether we should go back to the IMF or not to government, although I have given sufficient reasons for us to do so.
“So I would say let’s all be patient for the budget to presented and then we will see if there are any additional basis apart from the ones that have been highlighted.
“And so when the budget is read then we will see what measures have been put in place and then we can make a final judgement as to whether government can ignore the Fund or not,” he stated in a pre-budget media engagement on Wednesday, ahead if the 2022 budget to be presented on November 17 by Finance Minister Ken Ofori-Atta.
Adding, “Regarding the Finance Minister (Ken Ofori-Atta) stating that the country still has market access, yes we still have market access because even countries with junk bonds still have market access because there are investors on the market that buy these junk bonds, and so for me market access is meaningless but we want is a qualitative market access where we can issue investment-grade bonds. So yes we can go to the market but it will come at a high premium.”
Ghana to opt for IMF financing
Fitch Ratings, says Ghana will have no other choice than to opt for an IMF financing should the country’s liquidity or financing needs continue to increase.
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According to Fitch Ratings, despite the government’s resolve to not go back to the IMF and pursue a regular IMF programme due to the conditionalities to be imposed on the country coupled with debt restructuring programmes to be undertaken which ultimately sends signals of the country’s struggle to service its debts to investors, it [Fitch Ratings] believes Ghana going back to the IMF would not entail a debt restructuring programme.
Adding that an IMF support at this time would rather bolster investor confidence, and could help Ghana regain access to international debt markets given that Ghana’s effective loss of access to international markets increases risks to its ability to meet medium-term financing needs.
“We believe that macroeconomic stresses and pressures on liquidity would probably intensify if Ghana remains unable to issue and does not seek timely support from the IMF,” noted Fitch.
Fitch notes that, the medium-term outlook for Ghana’s finances remains challenging as the country’s problems have been exacerbated by the Covid-19 pandemic.
Revenue, the agency asserts, remains structurally low with very high-interest costs thereby projecting general government interest expense at almost 47% of revenue in 2022 which is well above the median for ‘B’ rated sovereigns of 11%.
According to Fitch, government’s current fiscal consolidation strategy offers a path to debt sustainability, but the country’s gradual pace of deficit reduction leaves it vulnerable to slippage risks.
