Banks to require recapitalisation in the next three years – Prof Bokpin
Senior lecturer at the University of Ghana Business School (UGBS), Professor Godfred Bokpin, has asserted that banks in the country will need to recapitalise to survive and support the economy in the next three years.
The recapitalisation exercise Prof Bokpin notes, will be imperative given the large liquidity losses and impairments on banks’ capital as a result of the domestic debt exchange programme.
Another factor that will account for the recapitalisation exercise is the depreciation of the cedi which has slashed the total capital of banks by some 35% since the last recapitalisation exercise in 2017.
Speaking at the Tv3 Economic Sustainability Summit on Tuesday, Prof Bokpin noted that banks in the country have incurred liquidity losses amounting to some GHS 6bn with impairment losses in the range of GHS 41bn.
Speaking further at the Summit, Prof Bokpin remarked that although government has successfully undertaken the domestic debt exchange programme, the IMF is still not ready to approve the bailout programme because of the $5bn fiscal deficit in the 2023 budget.
Professor Godfred Bokpin noted that Ghana’s 2023 budget deficit alone exceeds the IMF bailout by $2 billion.
This means that even if the IMF approves the program, it would still not be sufficient to address Ghana’s fiscal challenges.
“The IMF knows very well that without assurance of either debt relief or fresh funding from Ghana’s multilateral and bilateral partners, the program can only achieve limited effect,” he noted.
He further explained that Ghana’s recent courting of the US’ favour in pursuing an IMF bailout may have played a role in securing a staff-level agreement, but that the size of the deficit is a critical issue that the IMF cannot overlook.
The IMF’s reluctance to approve Ghana’s bailout underscores the challenges facing the country as it seeks to shore up its struggling economy. Ghana has been hit hard by the Covid-19 pandemic and has seen its fiscal deficit widen significantly in recent years.
The country’s budget deficit stood at 11.7% of GDP in 2020, up from 4.8% in 2019. The government’s spending has also increased significantly, exacerbating the country’s fiscal challenges.
The IMF has long been a key partner for Ghana, providing loans and technical assistance to help the country address its fiscal and economic challenges. However, the Fund’s recent hesitation to approve Ghana’s bailout highlights the significant hurdles the country still faces.
