Ghana: Fiscal slippage in election year unlikely to lead to suspension of IMF programme – Fitch Solutions
In a recent assessment of Ghana’s economic landscape, Fitch Solutions has stated that Ghana’s International Monetary Fund (IMF) program will not face suspension, even in the face of higher-than-budgeted expenditures. While the firm acknowledges the risk of the government failing to meet its IMF targets in 2024, it remains confident that exceeding budgeted expenditure will not lead to a halt in the program.
Historical data reveals that during election years this past decade, total expenditure as a share of GDP has increased by an average of 3.0 percentage points, indicating an anticipated fiscal slippage in 2024. However, Fitch Solutions highlights that such an occurrence did not disrupt the IMF program in 2016, as the IMF board granted waivers for non-observance of performance criteria and extended the arrangement by one year.
Furthermore, Fitch Solutions emphasizes that any fiscal slippage in 2024 is unlikely to undermine investor confidence, thereby avoiding potential ramifications such as currency depreciation, inflationary pressures, and social unrest. The firm asserts that the IMF assistance will bolster economic conditions in Ghana, mitigating risks to social stability in the coming quarters.
Ghana’s recent approval of a $3.0 billion Extended Credit Facility by the IMF in May 2023 has already yielded positive outcomes. An initial disbursement of $600 million has been received, with another $600 million expected in the fourth quarter of 2023. These inflows are anticipated to strengthen Ghana’s foreign exchange reserves, which had dwindled to $5.2 billion in April, equivalent to 2.5 months of import cover. Additionally, the funds will help meet the country’s external financing requirements.
Market sentiment towards Ghanaian assets has experienced a boost following these positive developments. Notably, the Ghanaian cedi appreciated by 8.0% in May 2023, reducing imported inflationary pressures in the months ahead. Fitch Solutions predicts that this trend will persist, expecting consumer price growth to continue on a downward trajectory throughout 2023 and 2024. Such a scenario is likely to alleviate financial burdens on households.
Fitch Solutions’ assessment underscores the resilience of Ghana’s IMF program in the face of fiscal challenges, expressing confidence in the program’s ability to improve the nation’s economic landscape while safeguarding social stability.
