Tight financial discipline required for Ghana to benefit from $3bn IMF bailout, warns finance expert
As the world continues to grapple with the economic impact of the Covid-19 pandemic and the Russian-Ukraine war, Ghana is no exception to the challenges posed by the two crisis. Ghana has been hit hard, facing significant balance of payments challenges, declining revenue, and rising debt levels. In response, the government has turned to the International Monetary Fund (IMF) for a $3 billion financial bailout. However, not everyone is convinced that this bailout will lead to a swift economic recovery.
Professor Williams Peprah, an Associate Professor of Finance at Andrews University in Michigan, USA, has warned that the managers of Ghana’s economy will have to follow strict financial restoration plans by increasing revenue as well as tightly controlling expenditure, a key requirement by the IMF. He noted that the IMF will strengthen their technical supervision on Ghana to ensure financial discipline, which could prove to be a challenging task for the country’s economic managers.
Despite the challenges, Professor Peprah welcomed the Financing Assurance to Ghana Creditor Committee under the G20 Common Framework, stating that “it is good news that Ghana will be receiving the needed IMF financial bailout to support the balance of payment challenges”. He added that the first tranche of the IMF bailout fund, which will be used to settle creditors, could help reverse the downgrades of the country’s creditworthiness by the rating agencies.
In the short term, the IMF bailout is expected to ensure a stable exchange rate, which could lead to stable prices, reduce inflation, and boost investor confidence. However, Professor Peprah cautioned that this alone will not be enough to achieve a swift economic recovery in the country. He emphasized that Ghana will need to implement far-reaching structural reforms to create a more stable and resilient economy in the long term.
The Finance Ministry in Ghana has indicated that the country is now ready to go to the Board of the International Monetary Fund for approval of a programme. This follows the Financing Assurance to Ghana Creditor Committee under the G20 Common Framework, which stressed that the Ghanaian authorities are expected to seek debt treatments on terms at least as favorable as those being considered by the creditor committee, in line with the comparability of treatment principle.
In a tweet, the Finance Ministry thanked Ghana’s bilateral partners for their support, stating that “with the granting of Financing Assurances, Ghana is now ready to go to the IMF Board.” While the IMF bailout is undoubtedly a crucial step in Ghana’s economic recovery, the road ahead remains challenging, and significant efforts will be required to ensure that the country’s economy emerges from the current crisis stronger and more resilient than ever before.
