Can Ghana secure an IMF deal in three months?

By Jonas Nyabor
Posted on Monday, 3 October 2022 14:16

Ghanaians march in the streets on the second day of protests over recent economic hardships, in Accra, Ghana, June 29, 2022. REUTERS/Francis Kokoroko

Ghana’s finance minister Ken Ofori-Atta hopes he can get an IMF bailout before the end of the year to support the country's 2023 budget, but reaching a deal this early will depend on how soon a credible domestic recovery program will be drawn up.

After a series of engagements with the IMF starting with an initial meeting in July, Ghana began form negotiations with the Fund for a bailout on Monday.

According to the finance minister, Ghana cannot afford lengthy negotiations that will go past December. “Negotiations will be fast-tracked to ensure that key aspects of the program are reflected in the 2023 annual budget statement in November 2022,” he said at a press briefing on Wednesday.

In a meeting with President Nana Akufo-Addo in Rotterdam earlier this month, IMF’s Kristalina Georgieva said “we will move as quickly as possible”, but sources close to the negotiations told The Africa Report it could take six months at best for a deal to be agreed on.

Citing Zambia, which only secured a program after more than a year, Ofori-Atta told journalists: “I don’t think we as a country can afford that kind of uncertainty over that period.”

An IMF assessment of the country’s situation reveals that “Ghana’s fiscal and debt vulnerabilities are worsening fast amid an increasingly difficult external environment. During the Covid-19 pandemic, Ghana’s public debt increased from 65% to 80% of GDP”.

Ghana has struggled to control rising inflation, reduce public debt and arrest the depreciating cedi.

The gold-rich West African country is seeking $3bn from the Fund to push its homegrown economic plan, which authorities have banked their hopes on since they reversed their long-standing position against IMF support in July.

The director of the University of Ghana’s Institute of Statistical, Social and Economic Research, Prof. Peter Quartey, says the country will need to work towards bringing down its debt to a sustainable level to guarantee a speedy negotiation with the Bretton Woods institution.

“Ghana needs a plan for sustainable debt levels because the current debt sustainability threshold is not good,” he says.

Yielding results

According to Ofori Atta, the government’s March 2022 economic measures are already yielding results.

“Our growth outturn of 3.4% and 4.8% in Q1 and Q2 of 2022 respectively, coupled with modest improvements in our fiscal position, suggests our economy is gradually on the upswing despite the numerous shocks we have faced over the past two years,” he said in Accra.

The government, which already agreed on a $750m Afreximbank loan facility in August, is on the verge of signing a $1.3bn cocoa loan and hopes to benefit from the central bank’s gold-buying program to shore up reserves and stabilise the cedi, which has depreciated 39% against the US dollar since January.

Although the savings from the government’s first quarter decision to freeze the purchase of imported vehicles and cut discretionary spending by 30% are yet to be made public, Ofori-Atta said, “we are on course with expenditure rationalisation efforts, and will continue to enforce strict adherence to these measures”.

As debt sustainability analysis is being done in the boardroom, the opposition is sounding the alarm over a possible demand on the government to restructure debts and possibly delay interest payments.

We cannot avoid debt restructuring because our debts are not sustainable.

By June, the total amount owed by the government had risen to GH393.4bn ($37.6bn), which is 78.3% of GDP.

“We cannot avoid debt restructuring because our debts are not sustainable. The government’s bonds are going to see some haircut,” former deputy finance minister Cassiel Forson tells The Africa Report.

The IMF’s Ghana mission team led by Stéphane Roudet says it will focus on the fiscal sector – to increase revenues for debt sustainability – but “will safeguard spending on health, education, and social protection”.

The mission will conclude this first round of negotiation by October 7.

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