Loan amount, programme financing type for Ghana yet to be decided by IMF
Bretton Wood Institution the International Monetary Fund (IMF) is yet to decide on the amount of loan facility and the type of financing programme to offer to Ghana.
In the Institution’s Frequently Asked Questions (FAQ), the IMF noted that its Executive Board will in due time decide the level of access (credit amount) and the final programme design.
“The previous arrangement with Ghana was a three-year Extended Credit Facility (ECF) in 2015-2018, which was extended to April 2019. However, since negotiations are ongoing, it is premature to comment on the final form the latest financing program will take”.
It further reiterated that the goal of the government’s economic programme, which would be supported by IMF financing, is to restore macroeconomic stability and ensure debt sustainability, support the credibility of government policies, restore confidence in the central bank’s ability to manage inflation and rebuild foreign exchange reserve buffers to make the economy more resilient to shocks.
“Specifically, in the fiscal sector, an important policy objective would be to increase revenues, critical for debt sustainability while safeguarding spending on health, education, and social protections”, it added.
On whether Ghana needs debt restructuring, the Fund said when an IMF member country requests financing, the Fund assesses whether the country’s policies are consistent with debt sustainability.
This assessment, it said, is based on a Debt Sustainability Assessment (DSA) conducted jointly by the IMF and World Bank to determine whether the government is able to meet all its current and future payment obligations.
The last DSA published in the 2021 Article IV Staff Report concluded that: “Public debt was sustainable conditional on a rigorous and credible implementation of the authorities’ medium-term consolidation plan to put debt on a declining trajectory and ensure continued market access.
In their recent 2023 budget statement, the government assessed the public debt as unsustainable over the medium term. In this regard, the government has announced its intention to conduct a debt operation to ensure debt sustainability.
The Fund said “we welcome the authorities’ intentions to implement policies that will ensure the sustainability of public finances. However, the nature of engagements and debt operations between Ghana and its creditors are sovereign decisions”.
Touching on the issue of debt restructuring, the IMF confirmed government’s intention to conduct a debt restructuring in 2023.
According to the Fund, “authorities [Ghana] have assessed their public debt as being unsustainable over the medium term. Together with efforts to bring the government deficit down, they have announced their intention to conduct a debt operation to ensure debt sustainability.”
The Bretton Woods Institution has welcomed government’s decision to tread the path of debt operation.
“We welcome the authorities’ intentions to implement policies that will ensure the sustainability of public finances” the Fund stressed.
Meanwhile, Moody’s Investors Service has downgraded the Government of Ghana’s long-term issuer ratings to Ca from Caa2 and changed the outlook to stable.
This concludes the review for downgrade that was initiated at the time of the 30 September 2022 rating action.
The Ca rating reflects Moody’s expectation that private creditors will likely incur substantial losses in the restructuring of both local and foreign currencies debts planned by the government as part of its 2023 budget proposed to Parliament on 24 November 2022. Given Ghana’s high government debt burden and the debt structure, it is likely there will be substantial losses on both categories of debt in order for the government to meaningfully improve debt sustainability.
The stable outlook balances Moody’s assumption that the debt restructuring will happen in coordination with creditors and under the umbrella of a funding program with the IMF against the potential for a less orderly form of default that could result in higher losses for private-sector creditors.
