Ghana: Staff-level agreement with IMF gives government respite, but what’s next?

By Jonas Nyabor
Posted on Tuesday, 13 December 2022 16:20

Ken Ofori-Atta, Ghana's finance minister, speaks with Stephane Roudet, IMF Mission Chief for Ghana, during a news conference in Accra, Ghana December 13, 2022. REUTERS

The Akufo-Addo government is heaving a sigh of relief after reaching a staff-level agreement with the IMF for a $3bn credit facility and expects the news to bring back investors’ lost appetite for Ghana.

The IMF in a statement on Tuesday said the parties agreed on a three-year programme under the Extended Credit Facility of about US$3bn after several weeks of discussions and review of Ghana’s domestic economic recovery plan.

“The IMF team reached a staff-level agreement with the Ghanaian authorities on a three-year programme supported by an arrangement under the Extended Credit Facility (ECF) in the amount of SDR2.242bn or about US$3 billion.

“The economic programme aims to restore macroeconomic stability and debt sustainability while laying the foundation for stronger and more inclusive growth,” Stéphane Roudet, IMF’s mission chief for Ghana said.

Although it will need approvals from the IMF management and executive board, this announcement comes as a breakthrough for the west African country as it crawls out of one of its worst economic downturns.

Finance Minister Ken Ofori-Atta who has been leading Ghana’s negotiations in the last few months has announced a number of big sacrifices that bear direct consequences on the NPP’s political future in a bid to secure the IMF deal.

  • A domestic debt exchange programme extending maturity dates to 2027, 2029, 2032 and 2037 with annual coupon of zero in 2023, 5% in 2024 and 10% from 2025 until maturity
  • A freeze on public and civil sector employment from January 2023
  • Hike in VAT rate from 12.5% to 15%
  • Suspension of tax waivers for foreign companies

Positive step

A staff-level agreement is an important milestone for Ghana’s efforts toward economic recovery.

Besides the monetary benefits necessary to stabilise the cedi and reduce inflationary pressures, Ghana will be forced to be financially disciplined, says an economist and senior lecturer at the University of Ghana Business School, Lord Mensah.

“This is a relief for Ghana because, besides the financial benefits, we get the soft benefits which have to do with financial discipline. Signals of policy credibility will also get to investors,” he tells The Africa Report.

Ken Ofori-Atta told reporters in Accra that “already the economy is responding positively to news of the government of Ghana and the IMF reaching an SLA and we are eager to leverage this momentum until the moment that IMF executive board approves the programme request”.

Analysts like Bright Simons however say the market will be expecting to see more than a staff-level agreement to go all out in their bet on Ghana.

“Whilst the government badly needed the IMF staff agreement as a signal to the market, which has already positively priced it into various indicators, attention will now simply refocus on the next milestones: Board approval and the first review to release the initial tranche of financial support,” mPedigree founder Bright Simons tells The Africa Report.

IMANI Africa president Franklin Cudjoe says investors will still tread with caution in dealing with Ghana.

“The market will welcome this agreement even though the debt issues are yet to be trashed out but I know they will be cautious [while] extending any credit to us. In any case that will be in the next two or three years,” he tells The Africa Report.

Lingering issues

The IMF mission says it is expecting assurances of support from bondholders and other stakeholders for Ghana’s debt restructuring programme before forwarding the proposed credit support programme for further approvals.

“Sufficient assurances and progress on this front will be needed before the proposed Fund-supported programme can be presented to the IMF Executive Board for approval,” Roudet says.

Crossing this hurdle will be a tough one for the government.

With barely a week to its 19 December deadline for domestic bondholders to take up its debt exchange programme offer, the government has been the target of protests by the trades union that is among other things seeking difficult concessions like an exemption of pension funds from the programme.

Bright Simons faults the government for the protests.

“Authorities have not done a very good job with the debt restructuring they announced recently.

“With a 19th December deadline, creditors holding about 80% of the country’s domestic debt have signalled that they won’t participate.

“The government needs 90% of them to agree for the programme to be judged successful. Without substantial progress on this front, there will be no IMF Board approval and no release of funds,” he said.

Ghana is yet to announce a restructuring programme for its external debts although Prof. Mensah says the staff-level agreement will make it relatively easier to negotiate with the debt holders.

“An SLA is good but significant work lies ahead. The government must convince the domestic and external debt holders and the engagements must be exhaustive, transparent and sincere,” says Franklin Cudjoe.

Ken Ofori-Atta is hoping that Ghana gets an all-clear from the IMF by the end of January 2023.

“Ghana stands ready to complete all the prior actions for this to be successfully done within the first quarter of next year. [We’re] looking at the end of January if we can push it as we have pushed this one [SLA],” he said.

Analysts are, however, skeptical about the January deadline.

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