Ghana’s deep debt-distress challenges effectiveness of IMF programme
The unsustainable level of Ghana’s debt, is likely to challenge the effectiveness of an IMF Supported Programme, says Professor Godfred Bokpin.
According to Economist and Finance lecturer with the University of Ghana Business School, any IMF lending programme given the country’s unsustainable debt level is dwarfed and may require the addition of a debt restructuring arrangement by government.
“Ghana has breached a sustainable debt level (deep debt distress) that challenges the effectiveness of an IMF Supported Program. Under such circumstances, IMF lending is dwarfed, and that would require the government to trigger a debt restructuring arrangement with investors that may entail investors taking some haircut to fit into an IMF lending framework.
“Under the current fiscal measures as announced by the government, a high risk exists that the debt to GDP ratio will steadily increase, further unsettling investors. That primary budget balance, real interest rate, and the real rate of economic growth under the existing and recent measures coupled with the recent depreciation of the cedi lend to debt unsustainability.
“A sustained aggressive front-loaded fiscal adjustment, in addition to monetary policy reform and sector-specific interventions are needed going forward,” noted Prof. Bokpin.
Prof Bokpin made the assertions speaking during a webinar themed “Drivers of Ghana’s Debt and Implications on the Ghanaian Economy” on Tuesday, August 23.
According to Prof. Bokpin, for the country to crawl out of its debt hole, government must immediately undertake an ambitious debt repayment programme.
“We must demonstrate to the IMF an ambitious debt repayment capacity based on a sustained front load fiscal adjustment by government. And we must embarked upon that as quickly as possible,” he added.
Given the country’s present economic crisis and to further prevent economic uncertainty, particularly among investors, Prof Bokpin advised government to regularly give updates on the economy and how it intends to resolve the various economic challenges as the President did during the Covid pandemic era.
Reports indicate that government could secure as much as $3 billion from the International Monetary Fund in Balance of Payment [BoP] support to stabilise the economy.
The $3bn BoP support, reports further indicate, will be made available in tranches spread over three years.
Ghana has been struggling to stabilise a rising debt which hit 78.3% of Gross Domestic Product at the end of June 2022, from 62.5% five years ago.
The struggling economy has impacted negatively on the cedi which has hit GHS 10 to a dollar. This has also pushed inflation up significantly.
Ratings agency, S&P on Friday, August 5th, 2022, revised Ghana’s rating from B-/B to CCC+/C, putting the country’s creditworthiness into junk status.
It also reviewed the country’s economic outlook to negative, reflecting “Ghana’s limited commercial financing options, and constrained external and fiscal buffers.”
However, with an IMF Programme, Ghana’s weakened external position is anticipated to strengthen.
According to research agency Fitch Solutions, the anticipated IMF bailout deal will help support and strengthen the country’s external position in 2023 – government and IMF is expected to conclude on the deal by Q1 2023.
The strengthening of the country’s external position Fitch Solutions notes, will be despite the widening balance of payments deficit due to large financial account outflows.
“Despite a widening balance of payments deficit caused by large financial account outflows, we believe that an expected IMF deal will help to support Ghana’s external position in 2023,” said Fitch Solutions.