Quicken move to get IMF programme – Laporte tells gov’t
Government has been advised by the World Bank Country Director for Ghana, Liberia, and Sierra Leone, Pierre Laporte to quicken its move to get a balance of payment programme from the IMF to deal with the country’s prevailing economic challenges.
According to Mr Laporte, the country will find it difficult dealing with the prevailing economic challenges without support from the IMF.
Ghana is currently seeking a programme under the Fund.
The Managing Director of the IMF Kristalina Georgieva stated that a deal between Ghana and the IMF should be reached and finalized before the end of the year.
In a closed-door meeting with President Nana Addo Dankwa Akufo-Addo on Monday, September 5, on the sidelines of the Africa Adaptation Summit, in Rotterdam, Netherlands, she told him “we understand the urgency, and we will move as quickly as possible”.
Describing Ghana as a “superb country”, she reiterated the determination of the Fund to work with Government and the Ministry of Finance, and ensure that an agreement is in place before the end of the year.
On his part, President Akufo-Addo indicated to the IMF boss that a lot of work has been done by Cabinet and the Ministry of Finance, and the document to be presented by the Ghana side “is ready for the scrutiny of the IMF”.
Speaking on domestic debt restructuring in the interview, Mr Laporte said a domestic debt restructuring by government will have serious repercussions for the banking industry.
This is because, most banks in the country, he noted, have high exposure to government debts.
According to him, a domestic debt restructuring by government will affect the capital adequacy ratio (CAR) of banks.
Capital adequacy ratio measures banks’ ability to absorb potential losses arising out of bad loans. It is also used to determine the solvency of a bank.
A domestic debt restructuring will mean cutting down government’s debts to banks which means losses to banks, as government debts form a major component of banks’ assets.
“Any attempt by government to apply a haircut to domestic debt will seriously hamper the banking industry particularly the capital adequacy ratio of banks as banks are highly exposed to government debts (sic),” he stated.
Ghana’s external debt restructuring may now be hard to avoid, says Singapore based financial research firm, REDD Intelligence.
Mark Bohlund, Senior Analyst at REDD Intelligence, first pointed to a likely need for Ghana’s sovereign debt restructuring back in October 2021, but general market chatter about its inevitability intensified after the country formally approached the International Monetary Fund (IMF) for help.
The research firm recently discussed Ghana’s increasingly troubling debt situation and challenges of including domestic debt in any potential restructuring, and looked at collective action clauses in Ghana’s sovereign Eurobonds.
“After many months of hoping the country would be able to increase its revenue streams and tighten its fiscal policy to avert a looming balance of payments crisis, most international investors are now reluctantly assessing a potential timing and format of an expected debt exercise.
“The key next step will be a debt sustainability assessment from the IMF, which is expected by the end of 2022 or in early 2023, and will help determine if the country has a liquidity or a debt sustainability issue,” said REDD Intelligence.
“The market consensus is that the African nation [Ghana] is unlikely to regain market access any time soon, with or without an IMF programme. With just over $7 billion of total international reserves and no major external debt repayments until 2025, Ghana likely has up to 12 months before it runs out of liquidity,” it added.