Ghana: IMF programme to curb rising inflation, rebuild reserve buffers – Kristalina Georgieva
The International Monetary Fund (IMF) has approved a $3 billion bailout package to support Ghana’s economic recovery. The focus of the IMF support program will be on curbing inflation and rebuilding the country’s foreign reserve buffers, according to IMF Managing Director Kristalina Georgieva.
Ghana faced a severe economic and financial crisis due to a combination of external shocks and preexisting fiscal and debt vulnerabilities. In response, the Ghanaian authorities have launched a comprehensive reform program, which will be supported by the Extended Credit Facility (ECF) arrangement with the IMF.
The primary objective of the reform program is to restore macroeconomic stability and ensure debt sustainability. The program also aims to implement wide-ranging reforms that will enhance resilience and lay the foundation for stronger and more inclusive growth in the country. The successful implementation of the authorities’ program will require capacity development and continued support from development partners.
Fiscal consolidation is a crucial element of the program, with a significant and front-loaded fiscal adjustment already initiated with the 2023 budget. This adjustment will involve enhanced revenue generation, streamlined expenditure, and policies to protect vulnerable households while creating space for increased social and development spending in the medium term.
To achieve lasting fiscal discipline, the Ghanaian authorities are advancing reforms to improve domestic revenue mobilization, strengthen public financial management, and address challenges in the energy and cocoa sectors. The government has also launched a comprehensive debt restructuring plan, covering both domestic and external debt, to put the country’s debt on a sustainable path. Effective collaboration among all stakeholders involved will be essential for the success of these debt restructuring efforts.
Maintaining financial sector stability is critical to the success of the program. The adverse impact of the domestic debt restructuring on financial institutions’ balance sheets will require the authorities to devise and implement a comprehensive strategy to rebuild the institutions’ buffers and exit from temporary regulatory forbearance measures.
Monetary and exchange rate policies under the program will focus on curbing inflation and rebuilding foreign reserve buffers. The Bank of Ghana will tighten monetary policy until inflation is firmly declining and will eliminate monetary financing of the budget. Additionally, the central bank will enhance exchange rate flexibility and limit foreign exchange interventions to rebuild external buffers.
An ambitious structural reform agenda is also being put in place to stimulate private sector-led growth by improving the business environment, governance, and productivity.
Overall, the IMF’s approval of the bailout package highlights its recognition of the challenges faced by Ghana and the authorities’ commitment to implementing comprehensive reforms. The focus on fiscal consolidation, debt restructuring, financial sector stability, and structural reforms demonstrates the determination to restore macroeconomic stability, debt sustainability, and promote sustainable and inclusive economic growth in Ghana.
