Ghana has moved one step nearer to securing a $3bn IMF bailout after its financial policymakers and ministry of finance signed a memorandum of understanding to finish central financial institution lending to the federal government.
Ernest Addison, governor of the Financial institution of Ghana, informed the Monetary Instances {that a} “zero financing” settlement was signed final week between the central financial institution and the ministry headed by Ken Ofori-Atta.
The settlement — a precondition to unlocking aid from the fund — will take impact when the fund’s board approves Ghana’s programme, Addison added.
Authorities officers in Accra are optimistic of IMF approval this month, and consider the $3bn mortgage, to be disbursed over three years, will assist set its battered economic system on the trail to restoration. Nevertheless, the fund’s remaining vote on implementing a staff-level settlement, made in December, continues to be pending.
The nation is restructuring $58bn value of debt after halting funds on most of its exterior bonds in December. The phrases of about $11bn of home debt have additionally been renegotiated, with 85 per cent of bondholders in settlement.
Different situations of the IMF mortgage embody measures to lift income via new taxes and tariff will increase on public utilities. Worth added tax has been elevated to fifteen per cent and three new tax payments have been handed by parliament final month.
Ghana’s economic system, which depends closely on commodity exports — together with gold, oil and cocoa — is susceptible to exterior occasions. A pointy fall within the cedi forex in opposition to the greenback and a surge in world borrowing prices over the course of final yr sparked turmoil within the west African economic system. The disaster led the federal government to show to the central financial institution to plug income shortfalls. The Financial institution of Ghana stated the quantity lent to the federal government totalled 37.9bn cedis ($3.2bn) in 2022.
Central financial institution financing has turn into a political situation, with Cassiel Ato Forson, an opposition MP in Ghana’s evenly-split parliament, alleging final yr that the central financial institution printed 22bn cedis ($1.9bn) to fund the price range with out parliamentary approval. The central financial institution denied the allegation.
Ghana’s financial efficiency has improved in latest months, with gross home product rising by a greater than anticipated 3.7 per cent within the final quarter of 2022. Addison stated the enhancements meant the federal government ought to be capable to “function with out entry to central financial institution financing”.
Inflation stays excessive, at 45 per cent, though it has slowed from the two-decade document of 54.1 per cent it reached within the yr to December.
Addison anticipated worth pressures to proceed to fall “barring any unexpected exterior shocks”. Addison, who has been central financial institution chief since 2017, is focusing on a 29 per cent inflation price by the top of the yr. That’s nonetheless removed from the Financial institution of Ghana’s inflation goal of 8 per cent, which the governor now hopes to satisfy by 2025.
The financial institution has raised its benchmark rate of interest by 12.5 share factors since March 2022 because it battles inflation. At its most up-to-date assembly, it elevated rates of interest to 29.5 per cent, a lot to the dismay of personal sector executives.
Joseph Obeng, president of the Ghana Union of Merchants Affiliation, a commerce physique, stated the phrases of economic loans have been “scary” and had left companies wanting capital.
“The business lending price is over 40 per cent,” he stated. “How can a enterprise survive at that price? It’s exhaustively excessive and it’s not pro-business.”
Addison wouldn’t be drawn on what the financial institution would do at its subsequent coverage assembly, due later this month, solely saying that the financial institution would “stay targeted on its goals”. Businesspeople have been being “short-termist” in criticising price rises.
“We’re not bringing the next coverage price as an finish to itself; the top [goal] is to have a low-inflation surroundings and create an surroundings by which enterprise could be worthwhile and sustainable,” he stated. “They need to be wanting on the medium to long-term goal of coverage, which is of their curiosity and the curiosity of the economic system as an entire.”
