Ghana races against time to meet IMF conditions, secure economic stability
Ghana finds itself in a race against the clock as it strives to fulfill three crucial conditions set by the International Monetary Fund (IMF) by the end of June 2023. These conditions, which encompass fiscal operations, financial sector stability, and energy sector reforms, hold the key to unlocking the first review of the Extended Credit Facility arrangement in November 2023, along with subsequent tranches of financial support.
The successful completion of these conditions will not only bolster the country’s economic foundations but also enhance confidence among international investors and lenders.
Condition 1: Fiscal Operations and Arrears Clearance
The initial condition demands a comprehensive stock-taking of payables across government agencies, the formulation of a clearance plan, and the implementation of structural reforms to prevent future arrears. The primary aim is to gain clarity on outstanding payments, ensure timely clearance, and integrate commitment controls with the Government Integrated Financial Management Information System (GIFMIS). To promote fiscal discipline, the enforcement of sanctions under the Public Financial Management (PFM) Act will be accompanied by mechanisms to monitor expenditures beyond budgetary allocations. Furthermore, a strategy to prevent arrears build-up will be formulated by the end of June, emphasizing procurement prioritization for approved projects and purchase orders.
Condition 2: Financial Sector Stability and Institution Building
The second condition focuses on fortifying Ghana’s financial sector and rebuilding institutions’ buffers in collaboration with the IMF. The Bank of Ghana (BoG) will implement strategies to address the impact of domestic debt exchange and macroeconomic challenges. The introduction of incentives for early recapitalization, enhanced disclosure requirements, and restrictions on undercapitalized banking activities aims to strengthen the sector. Prohibiting dividend payments by financial institutions lacking adequate capital buffers serves to safeguard financial stability. Risk-based supervision will be promoted to curb excessive risk-taking, while recapitalization of state-owned banks will receive priority to ensure their future viability and create a level playing field with private banks.
Condition 3: Energy Sector Reforms and Policy Directives
The third condition mandates the publication of the updated Energy Sector Recovery Plan following Cabinet approval. This plan must include well-defined measures and timelines to tackle the challenges in the energy sector. Simultaneously, negotiations on power purchase agreements (PPAs) to mitigate the take-or-pay liability should be concluded. Strategies aimed at enhancing the performance of the Electricity Company of Ghana (ECG) and other state-owned enterprises (SOEs) will be formulated, alongside reforms to reduce revenue shortfalls caused by subsidies. Additionally, a new policy directive on the procurement of new Independent Power Producers (IPPs) will be published by the end of 2023, relieving the state’s commercial burden.
IMF Visit and Economic Progress
An IMF team, led by Stéphane Roudet, recently concluded its visit to Ghana from June 8 to June 15. The team’s discussions centered on the country’s economic progress and the implementation of the IMF-supported program approved in May 2023. Mr. Roudet acknowledged positive signs of stability in the economy, including decreased inflation, increased international reserves, and a more stable exchange rate. The team emphasized that the authorities’ compliance with key commitments would be formally evaluated during the first review of the Extended Credit Facility arrangement in November.
Engagement and Support from Ghanaian Authorities
Throughout the IMF team’s visit, they engaged with high-level officials, including President Akufo-Addo, Vice President Mahamudu Bawumia, Finance Minister Ken Ofori-Atta, and Bank of Ghana Governor Ernest Addison. Meetings were also held with representatives from government agencies, parliament’s Finance Committee, the private sector, and civil society. The IMF team expressed appreciation for the constructive engagement and support received from Ghanaian authorities and stakeholders during the mission, acknowledging the collective efforts to achieve economic stability and implement necessary reforms.
Importance of Adherence to Timeline and Effective Implementation
While the IMF team’s recognition of Ghana’s economic stabilization indicates a positive trajectory for the country’s growth, strict adherence to the timeline and effective implementation of the required measures remain crucial. The successful completion of the IMF-supported program’s conditions will not only unlock the first review in November 2023 but also pave the way for subsequent tranches of financial support. This will bolster economic foundations and further enhance confidence among international investors and lenders, reinforcing Ghana’s position as an attractive investment destination.
Ghana’s race against time to fulfill the IMF’s conditions by the end of June 2023 is a critical milestone in the country’s pursuit of economic stability. The fulfillment of these conditions, covering fiscal operations, financial sector stability, and energy sector reforms, is pivotal for unlocking the first review of the Extended Credit Facility arrangement and subsequent tranches of financial support. Ghana’s commitment to timely arrears clearance, fortifying the financial sector, and implementing energy sector reforms will lay a solid foundation for sustained economic growth and enhance investor confidence. As the IMF team acknowledged, strict adherence to the timeline and effective implementation of the necessary measures are imperative for the government and its stakeholders to achieve the desired outcomes and secure a positive trajectory for Ghana’s future.
