## 1ghaea2023001 ## Source details **Canonical URL:** [1ghaea2023001](https://www.imf.org/-/media/files/publications/cr/2023/english/1ghaea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1ghaea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1ghaea2023001.pdf.json) --- ### Executive summary and context - Large external shocks and pre-existing fiscal and debt vulnerabilities triggered a deep economic and financial crisis: - Shocks: COVID-19 pandemic, tightening global financial conditions, Russia’s war in Ukraine. - Loss of international market access in late 2021, increasingly constrained domestic financing, and reliance on monetary financing of the government. - Result: decreasing international reserves, Cedi depreciation, rising inflation, and plummeting domestic investor confidence. - Authorities’ response and program request: - Authorities committed to policies to restore macroeconomic stability and to wide-ranging reforms; launched a comprehensive debt restructuring. - Requested a 36-month arrangement under the Extended Credit Facility (ECF) in the amount of SDR 2.242 billion (304 percent of Ghana’s quota or about US$ 3 billion). - Arrangement aims to catalyze external financing, support debt restructuring, and anchor reforms with capacity development. ### Recent economic developments (selected findings) - Growth: - Real GDP growth: 5.4 percent (2021); 3.2 percent (2022); non-extractive 8.4 (2021) and 1.9 (2022). - Growth declined to 2.9 percent year-on-year in 2022 Q3 from 6.4 percent a year earlier. - Overall growth in 2022 estimated at about 3.2 percent. - External sector and reserves: - Current account deficit: narrowed from 3.2 to 2.1 percent of GDP in 2022. - Gross international reserves (GIR) declined to US$1.1 billon (0.5 months of imports) at end-February 2023; about US$ 5 billion below mid-2021 level. - Cedi depreciated by more than 50 percent since end-2021; another summary notes 30.0 percent depreciation in 2022. - Inflation and monetary policy: - Inflation surged to 54 percent in December 2022 and declined to 45 percent in March 2023; CPI year-over-year eased to 41.2 percent in April 2023. - Bank of Ghana raised its policy rate by a cumulative 1500 bps since early 2022 (to 29.5 percent in March 2023). - Reserve requirement increased from 8 percent to 14 percent; RR raised by a cumulative 600 basis points. - Fiscal developments and financing: - 2022 overall fiscal deficit amounted to 11 percent of GDP; primary balance improved by over 1 percentage point of GDP. - Monetary financing through the BoG overdraft reached 7.2 percent of GDP in 2022. - Stock of domestic payables increased to an estimated total stock of 7.2 percent of GDP by end-2022. - Public debt rose to 88.1 percent of GDP by end-2022: external debt 42.4 percent of GDP and domestic debt 45.7 percent of GDP. - Gross financing needs reached about 19 percent of GDP in 2022. ### Outlook and key risks - Baseline projections: - Growth expected to fall to around 1.5 percent in 2023; growth components in 2023: extractive sectors expansion of 6.1 percent; non-extractive sectors growth of 0.7 percent. - Population growth > 2 percent implies 2023 is a per capita recession. - Growth projected to gradually recover to around 5 percent from 2026 onwards. - Program implementation expected to return inflation to single digits by 2025 (targets: 8 ± 2 percent by end-2025; BoG’s program goal 6-10 percent by end of program). - Current account deficit forecast to reach around 3 percent of GDP over the medium term. - Key downside risks: - Slippages in program execution and delays in restructuring debt. - Deterioration in external environment (spillovers from war in Ukraine, commodity shocks, persistent global inflation, and global monetary tightening). - Domestic debt exchange risks to financial sector stability (exchange rate, credit, and liquidity risks). - Substantial near-term need for T-bill issuance exposing Ghana to domestic market uncertainty. - Domestic policy slippages and political risks associated with end-2024 general elections. - Public discontent and social unrest if adjustment does not sufficiently protect the vulnerable. ### Program objectives and policy pillars - Overall aim: - Restore macroeconomic stability and debt sustainability, and lay foundations for higher and more inclusive growth. - Key policy pillars: - Large and frontloaded fiscal consolidation with protection for the vulnerable; structural reforms in tax policy, revenue administration, and PFM; steps on energy and cocoa sectors. - Appropriately tight monetary policy and flexible exchange rate policy to bring inflation back to single digits and rebuild international reserves. - Preserve financial stability during domestic debt restructuring. - Reforms to encourage private investment, improve governance, transparency, and public sector efficiency. ### Fiscal consolidation: anchors, targets, and 2023 measures - Program anchors: - Achieve moderate risk of debt distress over the medium term. - Rebuild BoG’s international reserves to 3 months of imports by the end of the program. - Fiscal targets and trajectory: - Target: primary balance on a commitment basis of 1.5 percent of GDP by 2025, to be maintained at least until 2028. - Required adjustment: about 5 percentage points of GDP over three years, about two thirds in the first year. - Raise public revenue-to-GDP to over 18.5 percent by the end of the program (from 15.7 percent in 2022). - Indicative target: outcomes monitored via an indicative target on non-oil revenue. - 2023 budget measures and impacts (total 1.0 percent of GDP): - Increase of VAT rate from 12.5 to 15 percent: 0.3 - Removal of discount on benchmark values at customs: 0.2 - Revision of income-based tax: 0.2 - Extension of National Fiscal Stabilisation Levy (NFSL): 0.1 - Reform of the E-levy: 0.1 - Implementation of E-VAT: 0.1 - Revision of excise taxes and removal of VAT exemptions: 0.1 - Erosion of revenue-to-GDP ratio due to inflation: -0.2 - Expenditure consolidation (2023 primary expenditure reduction targeted: 2 percentage points of GDP) via: - Lowering capital expenditures through project reprioritization: around 0.9 percent of GDP savings. - Containing the wage bill by limiting wage increases and hiring: 0.5 percent of GDP. - Rationalizing goods and services spending: 0.3 percent of GDP. - Reducing transfers to statutory funds by reducing cap on share of revenue: 0.4 percent of GDP. - Fiscal path (commitment basis, percent of GDP) — selected series: - Revenue and grants: 15.7 (2022), 16.8 (2023), 17.3 (2024), 17.8 (2025), 18.7 (2026). - Primary balance: -3.6 (2022), -0.5 (2023), 0.5 (2024), 1.5 (2025), 1.5 (2026). - Primary balance (cash basis): -0.8 (2022), -1.2 (2023), -0.2 (2024), 0.9 (2025), 0.9 (2026). - Memo: Revenue and grants w/o DDE temporary impact: 15.7 (2022), 17.3 (2023), 17.8 (2024), 18.3 (2025), 18.7 (2026). ### Social impact, protection and human capital - Socio-economic context: - High inflation and slowing growth have hindered poverty reduction; delivery of health, education and social protection challenged by delays and arrears. - Social protection measures: - 2023 budget doubled benefits of the Livelihood Empowerment Against Poverty (LEAP) program. - Structural benchmark: indexation mechanism for LEAP to be designed and introduced before end-September 2023 (MEFP ¶15 / end-September references). - LEAP targeting improved to cover all the extreme poor by 2024. - Increased allocation for Ghana School Feeding Program to offset inflation impact. - Indicative target: monitor disbursement and timeliness of funds for key social programs. - Human capital and medium-term social spending: - Education spending close to 4 percent of GDP; public health expenditures 3.5 percent of GDP; NHIS covers half the population. - Coordination with World Bank and UNICEF to increase efficiency and coverage. ### Structural fiscal reforms and PFM priorities - Diagnosis: - Fiscal problems rooted in weak domestic revenue mobilization; tax expenditures estimated around 4 percent of GDP. - Weak revenue administration and stagnating non-oil revenues. - Medium-Term Revenue Strategy (MTRS) and tax measures: - MTRS to be approved by Cabinet and published by end-September 2023. - FAD-identified measures include removing VAT exemptions (estimated close to 2 percent of GDP), phasing out tax holidays, reducing customs exemptions, increasing PIT progressivity, automatic fuel levy adjustments, and adopting a new fiscal regime for extractive industries. - Revenue administration reforms: - Fully operationalize Integrated Tax Administration System (ITAS) by end-2023 (structural benchmark). - Expand e-VAT invoicing to cover all large taxpayers by mid-2023. - Publish annual tax expenditure reports (first by September 2023 covering 2022). - PFM reforms and structural benchmarks: - Integrate all central government expenditure into budget planning and accounting systems; rollout GIFMIS to over 265 IGF-reliant institutions by end-2023. - Design and approve a strategy to tighten expenditure commitment controls and prevent arrears build-up by June 2023. - Amend Fiscal Responsibility Act to add a debt target, simplify operational rules, detail escape clauses, and reform Fiscal Advisory Council (finalize reform in 2024). ### SOEs, energy and cocoa sector reforms - SOE fiscal risks: - SOEs impose a direct fiscal cost and are a major source of fiscal risks, particularly energy and cocoa sectors. - Energy sector: - Energy shortfalls cost the central government some 2 percent of GDP in transfers per year since 2019. - PURC raised electricity tariffs by close to 30 percent (prior action), cumulative increase since mid-2022 to 57 percent; this helped limit the shortfall to around 2.7 percent of GDP in the year referenced. - Program baseline projects sector shortfall reduced to 1.7 percent of GDP in 2026 under modest tariff adjustments. - Update Energy Sector Recovery Plan (ESRP) by end-June 2023 (structural benchmark) with measures including PPA renegotiations, tariff adjustments, distribution loss reduction, pre-paid meters installation, and enhanced transparency (publish technical notes explaining tariff decisions). - Cocoa sector (Cocobod): - Cocobod accumulated annual losses due to high rollover cost of cocoa bills, high producer purchase price vs operational costs, and quasi-fiscal operations. - Authorities to prepare a turnaround strategy and legally binding framework for setting a producer purchase price (PPP); publish turnaround strategy approved by Cabinet by end-June 2023. ### Debt management, restructuring and DDE outcomes - Comprehensive restructuring objectives: - Restore a “moderate” risk of debt distress under IMF-WB LIC-DSF by 2028. - Targets: ratios of external debt service to revenues and exports below 18 percent and 15 percent thresholds; PV of overall and external debt-to-GDP below 55 percent and 40 percent thresholds. - Restructuring targets external debt service relief of US$10.5 billion during 2023-26. - Domestic Debt Exchange (DDE) — key facts: - DDE launched on December 5, 2022; settled on February 21, 2023. - Covered all medium- and long-term local-currency debt by the Government of Ghana, Daakye and ESLA; T-bills excluded. - 85 percent of the face value of bonds held by investors other than pension funds was exchanged, equivalent to 28 percent of all outstanding domestic debt. - Government offered new bonds with combined average maturity of 8.2 years and coupons of up to 10 percent; at a 16-18 percent discount rate, final terms imply average NPV reduction of about 30 percent for participating bondholders. - Completed DDE produced cash debt relief for government of almost GHS 50 billion in 2023. - Further exchanges planned for domestic debt denominated in US dollars and Cocobills (about 5 percent of total domestic debt but ~GHS 15 billion in debt service in 2023). - Debt perimeter and exclusions: - Domestic: covers all medium- and long-term domestic debt issued by government and SPVs (Daakye, ESLA), and Cocobills; excludes T-bills. - External: includes commercial debt and almost all official bilateral debt; excludes multilateral debt and some limited disbursing financing lines. - Near-term debt market functioning: - Maintain minimal functioning of domestic debt markets; T-bills not restructured and should remain functional. - First domestic bond issuances post-restructuring likely not until 2024; managed placements, small volumes, then competitive auctions. - Non-resident investors receive no special incentives. ### Monetary and exchange rate policy commitments - BoG objectives and commitments: - Bring inflation back to the 6-10 percent target by the end of the program (MEFP ¶22). - Eliminate monetary financing (performance criterion); MoU between MoF and BoG signed (prior action) to eliminate monetary financing during the program. - Maintain tight monetary policy and continue increasing policy rate until inflation is on a firmly declining path. - Undertake liquidity management consistent with inflation objective and financial stability; monitor via monetary policy consultation clause. - Enhance inflation-targeting framework with improved data (inflation expectations survey, projection model). - Reserve and FX policy: - Medium-term objective: international reserve coverage of at least 3 months of imports. - Performance monitored through a net international reserve (NIR) target; any unexpected FX inflows should be saved. - Limit gross FX interventions to smoothing during disorderly market conditions; provide FX at market exchange rates and implement measures to unify exchange rates; commit not to introduce Multiple Currency Practices (MCPs). - Gradually phase out special FX auctions for fuel distributors and reverse the gold surrender requirement. - BoG Act revisions to feature stricter limit on monetary financing and mechanisms to monitor/enforce compliance; pending legislation, MoU provides interim commitments. ### Financial sector stability, exposures and remedial measures - Financial sector background: - Aggregate NPLs declined from 17 percent in 2019 to about 15 percent at end-2022; sector well-capitalized except for a few institutions (Tier 1 and regulatory ratios reported). - Banks held 30 to 50 percent of their total assets in government securities before the DDE; especially high in state-owned banks. - Impact of DDE: - Coupon reductions and maturity extensions mean asset values decline to about 70 percent of par value — a significant balance-sheet shock. - Authorities’ stabilization measures: - Temporary regulatory forbearance, including lower cash reserve requirements and lower adjusted capital requirements. - Use of repo and Emergency Liquidity Assistance (ELA) facilities. - Develop Ghana Financial Stability Fund (GFSF); World Bank preparing emergency operation to provide GFSF funding (US$ 250 million). - Authorities to develop a strategy by end-June 2023 (structural benchmark) to strengthen the financial sector and rebuild buffers by end of program. - Banks to submit credible timebound plans to rebuild capital buffers; banks to finalize plans for BoG approval by end-September 2023 (structural benchmark). - Baseline fiscal assumption: possible fiscal cost of financial sector support of up to 2.6 percent of GDP. ### Debt sustainability, stress tests and DSA findings - DSA verdict: - Ghana assessed to be in debt distress; overall risk of debt distress: In debt distress; debt judged unsustainable absent restructuring. - Key DSA indicators and breaches (selected): - PV of total PPG external debt-to-GDP and external debt service-to-revenue ratios exceed thresholds under baseline. - Debt service-to-revenue ratio reached 127 percent in 2020; declined to 117.6 percent in 2022. - Gross financing needs (GFN): 19.3 percent of GDP in 2022; expected to remain above the 14 percent market-financing-risk benchmark and rise to 30 percent in 2025 in baseline. - Public debt (gross): 88.1 percent of GDP (2022); projected 98.1 (2023) then decline toward mid-term levels. - Stress tests: - Standard shocks: 1 standard deviation in GDP growth, primary balance, exports and FDI; exchange rate one-time 30 percent depreciation in 2025; combined half-magnitude shock; commodity price and market financing shocks. - Most severe drivers: deterioration in primary balance, adverse exports shock, exchange rate depreciation. - Outcome: long-run breaches in multiple debt burden indicators; comprehensive restructuring + credible reforms required to restore sustainability. - Debt-carrying capacity: - Assessed as “medium”; Composite Indicator (CI) score 2.82. ### External sector assessment and recommendations (Annex I) - 2022 external position: broadly in line with medium-term fundamentals and desirable policies, accounting for exceptional circumstances (very low buffers, loss of market access, high inflation, ongoing restructuring). - Reserves and external financing: - Gross foreign exchange reserves fell from 6.6 percent of GDP (2021) to 2 percent of GDP in 2022 (0.7 months of prospective imports at end-2022; US$1.4 billion). - Program projects gross reserves to increase to 12 percent of GDP in 2027 (3.6 months of imports). - Recommendations: - Implement comprehensive debt restructuring and tight fiscal and monetary policies to restore debt sustainability, reduce current account deficits, and tame inflation. - Limit BoG FX interventions and allow greater exchange rate flexibility. - Diversify the economy, improve business environment, and shift capital financing toward FDI. ### Program financing, phasing and official support - Financing gap and proposed coverage (USD million): - Financing Gap: 2023 4,212; 2024 3,301; 2025 4,264; 2026 3,282; Total 15,058 - Official Financing total: 2023 1,730; 2024 1,140; 2025 1,070; 2026 610; Total 4,550 - IMF: 2023 1,200; 2024 720; 2025 720; 2026 360; Total 3,000 - World Bank: Total 1,550 (2023 530; 2024 420; 2025 350; 2026 250) - Financing from external debt restructuring: 2023 2,482; 2024 2,161; 2025 3,194; 2026 2,672; Total 10,508 - Program access and phasing: - Proposed IMF access represents 20 percent of Ghana’s balance-of-payments financing needs in 2023-26 (estimated at US$15 billion). - Staff expects sufficient assurances from official bilateral creditors under the Common Framework before IMF Executive Board consideration; assurances deemed representative in subsequent staff assessment. - World Bank to provide US$1.6 billion in budget and balance-of-payments support financing (detailed World Bank components included in financing table). ### Monitoring, conditionality, safeguards and capacity development - Monitoring and conditionality: - Program monitored via semi-annual reviews, quarterly and continuous quantitative targets, and structural benchmarks. - Quantitative performance criteria include net international reserves, new central bank credit to government, PV of newly contracted debt, and primary fiscal balance. - Continuous performance criteria on new external debt arrears and contracting of collateralized debt. - Monetary policy consultation clause monitors inflation bands. - Indicative targets: floor on non-oil public revenue and social spending; ceiling on net change in stock of government payables. - Prior actions and structural benchmarks (selected prior actions completed): - Enact legislation/executive orders to achieve 2023 fiscal objective; implement upfront weighted-average electricity tariff adjustment of at least 29 percent; GETFund/Road Fund/DACF report provisional budgets in Hyperion; MoU between MoF and BoG to eliminate monetary financing; publish Auditor General report on COVID-19 spending. - Structural benchmarks include payables stock-take and clearance plan (end-June 2023), financial sector strategy (end-June 2023), updated ESRP (end-June 2023), MTRS and statutory funds strategy (end-September 2023), GIFMIS rollout to 265 institutions (end-December 2023), ITAS operationalization (end-December 2023), bank recapitalization plans approved by BoG (end-September 2023), LEAP indexation introduced by end-September 2023. - Safeguards: - Updated safeguards assessment of BoG in progress and to be completed before first review; prior assessment (June 2021) noted autonomy and monetary financing issues being addressed. - Capacity development: - IMF TA prioritized in tax policy, revenue administration, arrears stock-taking, fiscal rule design, BoG balance-sheet assessment, FX auction design, governance diagnostic, and BoP compilation. - Regional Technical Assistance Center for West Africa 2 in Accra providing support; resident advisor deployed to BoG. ### Communication, governance and social cohesion - Authorities committed to a robust communications strategy to build public awareness and broad support for program policies. - Governance measures: - Update National Anticorruption Action Plan (NACAP); enact Conduct of Public Officers Act to strengthen asset declaration verification; implement audit recommendations from COVID-19 spending audit; strengthen AML/CFT and beneficial ownership transparency. ### Staff appraisal and concluding assessment - Crisis causes: large external shocks plus preexisting fiscal and debt vulnerabilities, spending rigidities, weak expenditure controls, low tax base, SOE weaknesses. - Staff view: ECF-supported program with comprehensive debt restructuring and ambitious reforms is necessary to restore macroeconomic stability and debt sustainability. - Staff assesses Ghana’s capacity to repay the Fund is adequate assuming successful program and debt restructuring implementation, but subject to substantial downside risks. *Source: EXECUTIVE SUMMARY and selected chapters/annexes from 1ghaea2023001* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - Large external shocks and pre-existing fiscal and debt vulnerabilities triggered a deep economic and financial crisis: - COVID-19 pandemic, tightening global financial conditions, and Russia’s war in Ukraine exacerbated vulnerabilities. - Loss of international market access in late 2021, increasingly constrained domestic financing, and reliance on monetary financing of the government. - Decreasing international reserves, Cedi depreciation, rising inflation, and plummeting domestic investor confidence culminated in an acute crisis. - Authorities’ response: - Committed to policies to restore macroeconomic stability and to wide-ranging reforms to build resilience and support stronger and more inclusive growth. - Launched a comprehensive debt restructuring to address severe financing constraints and unsustainable public debt. ### Extended Credit Facility (ECF) arrangement request - Authorities requested a 36-month arrangement under the ECF in the amount of SDR 2.242 billion (304 percent of Ghana’s quota or about US$ 3 billion). - The arrangement aims to catalyze external financing from development partners, support the ongoing debt restructuring, and, together with capacity development, anchor policies to address long-standing structural challenges. ### Recent economic developments (selected findings) - Growth: - Real GDP growth declined to 2.9 percent year-on-year in 2022 Q3 from 6.4 percent a year earlier. - Overall growth in 2022 is estimated at about 3.2 percent, supported by a pickup in extractive activities. - External sector and reserves: - Current account deficit narrowed from 3.2 to 2.1 percent of GDP in 2022 due to higher gold and oil exports. - Gross international reserves (GIR) declined to US$1.1 billon (0.5 months of imports) at end-February 2023, about US$ 5 billion below the mid-2021 level. - Cedi depreciated by more than 50 percent since end-2021. - Inflation and monetary policy: - Inflation surged to 54 percent in December 2022 and declined to 45 percent in March 2023. - Bank of Ghana raised its policy rate by a cumulative 1500 bps since early 2022 (to 29.5 percent in March 2023). - Reserve requirement increased from 8 percent to 14 percent. - Fiscal developments and financing: - 2022 overall fiscal deficit amounted to 11 percent of GDP (primary balance improved by over 1 percentage point of GDP but consolidation objectives were not achieved). - Monetary financing through the BoG overdraft reached 7.2 percent of GDP in 2022. - Stock of domestic payables increased to an estimated total stock of 7.2 percent of GDP by end-2022. - Public debt rose to 88.1 percent of GDP by end-2022: external debt 42.4 percent of GDP and domestic debt 45.7 percent of GDP. - Gross financing needs reached about 19 percent of GDP in 2022. ### Outlook and risks - Baseline projections: - Growth expected to fall to around 1.5 percent in 2023, reflecting the crisis, fiscal consolidation, and domestic debt restructuring. - Growth components in 2023: extractive sectors expansion of 6.1 percent; non-extractive sectors growth of 0.7 percent. - With population growing by more than 2 percent, 2023 would imply a recession in per capita terms. - Growth projected to gradually recover to around 5 percent from 2026 onwards (long-term potential). - Program implementation is expected to return inflation to single digits by 2025. - Current account deficit forecast to reach around 3 percent of GDP over the medium term. - Key downside risks (summarized): - Slippages in program execution and delays in restructuring debt. - Deterioration in the external environment (spillovers from the war in Ukraine, commodity price shocks, persistent global inflation, and global monetary tightening). - Domestic debt exchange risks to domestic financial sector stability (exchange rate, credit, and liquidity risks). - Substantial near-term need for T-bill issuance exposing Ghana to domestic market uncertainty. - Domestic policy slippages and political risks associated with end-2024 general elections. - Public discontent and social unrest if adjustment does not sufficiently protect the vulnerable. ### Program objectives and policies - Overall aim: - Restore macroeconomic stability and debt sustainability, and lay foundations for higher and more inclusive growth. - Key policy pillars: - Large and frontloaded fiscal consolidation to bring public finances back to a sustainable path, with efforts to protect the vulnerable. - Adjustment supported by ambitious structural reforms in tax policy, revenue administration, and public financial management. - Steps to address weaknesses in the energy and cocoa sectors. - Appropriately tight monetary policy and flexible exchange rate policy to bring inflation back to single digits and rebuild international reserves. - Strong focus on preserving financial stability in the wake of the domestic debt restructuring. - Reforms to encourage private investment and growth, including improving governance, transparency, and public sector efficiency. *Source: EXECUTIVE SUMMARY, 1ghaea2023001* ### 12. The authorities’ program aims to restore macroeconomic stability and debt ### 1ghaea2023001 - 12. The authorities’ program aims to restore macroeconomic stability and debt ### A. Fiscal consolidation to support return to sustainability - Program anchors: - Achieve moderate risk of debt distress over the medium term. - Rebuild BoG’s international reserves to 3 months of imports by the end of the program. - Fiscal headwinds and recent outcomes: - Primary deficits: close to 5 percent in 2021 and 3.6 percent in 2022. - Interest payments reached 7.4 percent of GDP in 2022—almost half of government revenue. - Fiscal anchor and trajectory: - Target: primary balance on a commitment basis of 1.5 percent of GDP by 2025, to be maintained at least until 2028 (MEFP ¶7). - Required adjustment: about 5 percentage points of GDP over three years, about two thirds of which would be achieved in the first year. - When combined with comprehensive debt restructuring, objective consistent with restoring debt sustainability. - Revenue mobilization target: - Raise public revenue-to-GDP to over 18.5 percent by the end of the program (from 15.7 percent in 2022). - Indicative target: outcomes monitored via an indicative target on non-oil revenue. - 2023 budget and measures: - Revenue measures aim to permanently improve the non-oil revenue-to-GDP ratio by 1 percent of GDP. - The domestic debt exchange (DDE) is assumed to temporarily reduce income taxes paid by financial institutions by 0.5 percent of GDP annually over 2023-25. - Primary expenditure reduction targeted: 2 percentage points of GDP, via: - lowering capital expenditures through project reprioritization: around 0.9 percent of GDP savings; - containing the wage bill by limiting wage increases and hiring: 0.5 percent of GDP; - rationalizing goods and services spending: 0.3 percent of GDP; - reducing transfers to statutory funds through a reduction of the cap on the share of revenue they can receive: 0.4 percent of GDP. - Baseline assumes stock of payables cleared over 7 years (larger deficit on a cash basis); authorities designing detailed clearance strategy and will produce quarterly reports on payables (indicative target). - Commitment to readjust budgetary allocations at mid-year review and deploy contingency measures if necessary (MEFP ¶10). - Key fiscal path table (Commitment basis, percent of GDP): - Revenue and grants: 15.7 (2022), 16.8 (2023), 17.3 (2024), 17.8 (2025), 18.7 (2026); Adjustment 2022-26: 3.0 - Non-oil revenue: 13.6 (2022), 14.0 (2023), 15.0 (2024), 15.5 (2025), 16.4 (2026); Adjustment 2022-26: 2.9 - Oil revenue: 2.0 (2022), 2.5 (2023), 2.1 (2024), 2.0 (2025), 2.0 (2026); Adjustment 2022-26: 0.0 - Grants: 0.2 (2022), 0.2 (2023), 0.2 (2024), 0.2 (2025), 0.2 (2026); Adjustment 2022-26: 0.0 - Primary expenditure: 19.3 (2022), 17.3 (2023), 16.8 (2024), 16.3 (2025), 17.2 (2026); Adjustment 2022-26: -2.1 - Non-oil primary balance: -5.6 (2022), -3.1 (2023), -1.7 (2024), -0.5 (2025), -0.5 (2026); Adjustment 2022-26: 5.1 - Primary balance: -3.6 (2022), -0.5 (2023), 0.5 (2024), 1.5 (2025), 1.5 (2026); Adjustment 2022-26: 5.1 - Primary balance (cash basis): -0.8 (2022), -1.2 (2023), -0.2 (2024), 0.9 (2025), 0.9 (2026); Adjustment 2022-26: 1.7 - Memo item (Revenue and grants w/o DDE temporary impact): 15.7 (2022), 17.3 (2023), 17.8 (2024), 18.3 (2025), 18.7 (2026); Adjustment 2022-26: 3.0 - Memo item (Non-oil revenue w/o DDE temporary impact): 13.6 (2022), 14.5 (2023), 15.5 (2024), 16.0 (2025), 16.4 (2026); Adjustment 2022-26: 2.9 - 2023 revenue measure impacts (Percent of GDP; total 1.0): - Increase of VAT rate from 12.5 to 15 percent: 0.3 - Removal of discount on benchmark values at custom: 0.2 - Revision of income-based tax: 0.2 - Extension of National Fiscal Stabilisation Levy (NFSL): 0.1 - Reform of the E-levy: 0.1 - Implementation of E-VAT: 0.1 - Revision of excise taxes and removal of VAT exemptions: 0.1 - Erosion of revenue-to-GDP ratio due to inflation: -0.2 - Transparency and credibility improvements: - 2023 budget based on realistic macro and fiscal assumptions; 2023 appropriation for transfers to energy producers calibrated to cover energy sector’s expected financial shortfall in full and authorities committed that no new payables would accumulate. ### B. Social impact, spending and policies - Socio-economic context: - High inflation and slowing growth have hindered poverty reduction gains; delivery of public services in health, education and social protection challenged by delayed benefits, increased out-of-pocket costs, and arrears. - Social protection measures: - 2023 budget doubled benefits of Living Empowerment Against Poverty (LEAP) targeted cash transfer program. - Structural benchmark: indexation mechanism for LEAP to be designed and introduced before the end of the year. - Coverage: LEAP targeting improved to cover all the extreme poor by 2024 (MEFP ¶15). - Coordination with World Bank: project to strengthen social protection, update LEAP beneficiary list using existing household registry. - Increased allocation for Ghana School Feeding Program to offset inflation impact. - Indicative target: monitor disbursement and timeliness of funds for key social programs in health, social protection and education. - Electricity tariff protection: - Design a systematic framework to protect vulnerable households from impact of electricity tariff adjustments (MEFP ¶47). - Possible redefinition of lifeline tariffs to target low-volume users and mapping exercise to measure LEAP’s incidence among electricity-access households. - Human capital and medium-term social spending: - Coordination with World Bank and UNICEF to increase efficiency and coverage of spending (MEFP ¶16). - Education: focus on strengthening learning outcomes while expanding access to higher education. - Health: seek to expand coverage of the National Health Insurance Scheme (NHIS). - Alignment with Ghana’s Medium-Term National Development Policy Framework (2022-25) goals: enhanced access to quality education, universal health insurance and poverty eradication. - Box 1 key figures and findings: - GDP per capita increased from US$400 to US$2,300 during 1990-2020. - Share of population below poverty line fell from 52.7 percent in 1991 to 23 percent in 2016. - Targeted social protection programs: annual spending less than 0.5 percent of GDP. - LEAP covers 50 percent of the extreme poor. - Education spending: close to 4 percent of GDP. - Public health expenditures: 3.5 percent of GDP. - NHIS covers half of the population. ### C. Structural fiscal reforms to durably anchor sustainability - Root cause diagnosis: - Fiscal problems rooted in structurally weak domestic revenue mobilization; Ghana’s tax-to-GDP ratio low compared to peers; non-oil revenues stagnating. - Tax policy design issues: widespread tax expenditures estimated around 4 percent of GDP, underexploited taxes (property tax, excises). - Weak revenue administration: limited compliance and recoveries. - Medium-Term Revenue Strategy (MTRS): - MTRS to focus on tax policy and revenue administration measures for 2023-26. - FAD tax diagnostic identified potential measures: - remove VAT exemptions (estimated close to 2 percent of GDP); - reform CIT by phasing out tax holidays and exemptions and strengthening safeguards against profit shifting; - reduce customs exemptions; - increase progressivity in personal income taxes; - automatically adjust fuel levies by exchange rate movement or inflation; - adopt new fiscal regime for extractive industries. - Technical assistance: FAD support and development partners to assist implementation. - Structural benchmark: MTRS to be approved by Cabinet and published by end-September 2023. - Revenue administration reforms: - Accelerate procurement and fully operationalize Integrated Tax Administration System (ITAS) by end-2023 (structural benchmark). - Expand e-VAT invoicing to cover all large taxpayers by mid-2023. - Develop GRA capacity on extractive industries, finalize new fiscal regime framework for the sector, strengthen e-commerce compliance, complete the data warehouse, increase online filing and payment. - Annual tax expenditure reports to be published. - Public Financial Management (PFM) weaknesses and reforms: - Fiscal rules deficiencies: adopted in 2019 lack a debt target, complex double operational rules, poorly defined escape clauses, no effective enforcement. - Budget rigidities: large revenue earmarking to statutory funds and retention of internally generated funds (IGFs) (18 percent of primary expenditures). - Statutory funds: independent governance, responsible for large share of capital expenditures (estimated at 70 percent of their spending); spending not integrated with Hyperion or GIFMIS. - Accumulation of arrears signals unrealistic budgets, weak expenditure controls, and poor cash management. - PFM reform actions and structural benchmarks: - Integrate all central government expenditure into budget planning and accounting systems (MEFP ¶35, 36). Prior action: several statutory funds (GETFund, Road Fund, District Assemblies Common Fund) started reporting spending budgets in Hyperion at disaggregated level. - Rollout of GIFMIS infrastructure with all functionalities to over 265 large IGF-reliant institutions to be completed by end-2023 (structural benchmark). - Design program with timelines for all IGF-reliant institutions to use GIFMIS for IGF receipts, payment warrants, and expenditure processing. - Reform and rationalize statutory funds: external consultant to review statutory funds; publish strategy after Cabinet approval by end-September 2023 (structural benchmark). - Develop and approve (by Cabinet) a strategy to tighten expenditure commitment controls and prevent arrears’ build-up by June 2023 (structural benchmark) (MEFP ¶37). - Integrate public procurement with GIFMIS to ensure procurement approvals only for projects with approved budgets and quarterly allotments; strengthen enforcement of PFM Act sanctions. - Integrate HRMIS, GHIPSS, and GRA’s tax portals with GIFMIS; roll out automatic bank reconciliation (ABR) for GIFMIS-linked accounts and standardize chart of accounts if needed. - Amend Fiscal Responsibility Act to add a debt target with broad coverage, simplify to a single operational rule, detail escape clause and correction mechanisms, and reform Fiscal Advisory Council to bolster credibility of macro-fiscal projections (MEFP ¶41). - Other technical support: - IMF technical assistance could be deployed to support fiscal rule and PFM reforms. *Source: IMF mission text as provided in the content unit.* ### 29. SOEs are imposing a direct fiscal cost to the central government and are a major ### 29. SOEs are imposing a direct fiscal cost to the central government and are a major ### Fiscal cost and sources of fiscal risk from SOEs - SOEs impose a direct fiscal cost to the central government and are a major source of fiscal risks. - Problems reflect both weak institutional arrangements and unsustainable sectoral policies. - Problems are particularly acute in the energy and cocoa sectors. ### Energy sector findings and fiscal impact - Shortfalls in the energy sector have been significant due to below-cost-recovery tariffs, large distribution losses, and excess capacity amid take-or-pay contracts. - This has cost the central government some 2 percent of GDP in transfers per year since 2019 and has also led to accumulation of payables to IPPs and fuel suppliers. - The Power Utilities Regulatory Commission (PURC) recently raised electricity tariffs by close to 30 percent (prior action), bringing the cumulative increase since mid-2022 to 57 percent, to help reduce the cost-recovery gap and limit this year’s shortfall to around 2.7 percent of GDP. - Program baseline projection: sector shortfall will be gradually reduced to reach 1.7 percent of GDP in 2026 (assuming modest tariff adjustments and slight improvement in grid/recovery losses). - Staff recommendation: aim at a more rapid reduction in the sector shortfall under the Energy Sector Recovery Plan (ESRP), including additional ad-hoc tariff increases while protecting vulnerable households. ### Energy sector reform actions (authorities’ program) - Institutional arrangements for managing and monitoring SOEs to be reformed to foster competition and efficiency (MEFP ¶49). - Audited SOE financial statements are to be submitted to the MoF in a timely manner. - Strengthen technical capacity of the State Interests and Governance Authority (SIGA) to evaluate sector-specific risks (technical assistance from the IMF is underway). - Publish Fiscal Risk Statements that evaluate macroeconomic and contingent liability risks and outline clear mitigation strategies (MEFP ¶43). - Update the Energy Sector Recovery Plan (ESRP) by end-June 2023 (structural benchmark) with World Bank support, focusing on: - Expediting Purchasing Power Agreements renegotiations (to reduce take-or-pay liability). - Tariff adjustments. - Improving operational performance of energy SOEs. - Reforming subsidies to reduce the revenue shortfall. - Formulating a strategy with clear benchmarks on reducing distribution losses and improving collections, including estimating investment requirements, finalizing private sector participation modalities in distribution, and fast-tracking installation drive for pre-paid meters. - Enhancing transparency in the tariff determination process by publishing technical notes explaining and justifying final tariff decisions. - Developing and operationalizing a framework to guide the granting of energy sector subsidies. - Additional quarterly tariff adjustments in 2023 to compensate for exchange rate and price movements and to bring tariffs close to cost-recovery level. ### Cocoa sector (Cocobod) findings and required actions - Ghana’s Cocoa Board (Cocobod) has accumulated annual losses for many years due to: - High rollover cost of outstanding cocoa bills. - High purchase price to cocoa producers compared to Cocobod’s operational costs. - Elevated quasi-fiscal operations (e.g., fertilizers provision, rural roads development) that have been a burden on Board’s administrative expenses. - Authorities will prepare a turnaround strategy to ensure Cocobod’s financial viability (MEFP ¶50), including: - Designing a sustainable and legally binding framework for setting a producer purchase price (PPP) that guarantees an income stream sufficient to recover Cocobod’s operational and financial costs. - Announcing cost-rationalization measures. - Phasing out quasi-fiscal activities. ### Debt management and restructuring objectives and perimeter - Authorities launched a comprehensive restructuring covering both domestic and external debt to reestablish debt sustainability. - Objectives: restore a “moderate” risk of debt distress under the IMF-WB LIC-DSF such that from 2028 the restructuring lowers: - Ratios of external debt service to revenues and exports below their 18 percent and 15 percent thresholds, respectively. - Ratios of the present value of overall and external debt to GDP to below 55 percent and 40 percent thresholds, respectively. - Restructuring targets external debt service relief of US$10.5 billion during the program period (2023-26). - Perimeter: - Domestic: covers all medium- and long-term domestic debt issued by the government and its special purpose vehicles (Daakye and ESLA), as well as Cocobills issued by Cocobod; excludes short-term domestic government debt (T-bills). - External: includes all commercial debt and almost all official bilateral debt (some financing lines already disbursing to a limited number of socially beneficial projects are to be exempted); excludes multilateral debt. ### Domestic Debt Exchange (DDE) — key facts (Box 2) - DDE launched on December 5, 2022, covering all medium- and long-term debt issued in local currency by the Government of Ghana, Daakye and ESLA; T-bills excluded. - Initial exchange did not include domestic debt denominated in U.S. dollars and Cocobills issued by Cocobod. - Pension funds (representing about 20 of the debt eligible for the exchange) were not expected to participate. - The DDE settled on February 21, 2023. - 85 percent of the face value of bonds held by investors other than pension funds was exchanged in the DDE, equivalent to 28 percent of all outstanding domestic debt (which includes nonmarketable debt, verified arrears and Cocobills). - Government offered most bondholders new bonds at fixed exchange proportions with a combined average maturity of 8.2 years and coupons of up to 10 percent (with part of the coupons capitalized rather than paid in cash in 2023 and 2024). - At a 16-18 percent discount rate, the final terms of the DDE imply an average NPV reduction of about 30 percent for these bondholders. - The completed DDE produced cash debt relief for the government of almost GHS 50 billion in 2023. - Government pursuing further exchanges of domestic debt denominated in US dollars and Cocobills; these two types account for about 5 percent of total domestic debt but represent about GHS 15 billion in debt service in 2023. - Note: Individual bondholders refer to non-institutional investors. ### Near-term debt management strategy and market functioning - Maintain minimal functioning of domestic debt markets while developing a roadmap for gradual resumption of activity. - T-bills were not included in the restructuring; the short-term domestic debt market should remain functional and a critical instrument. - Recent auctions have seen a significant decline in yields. - Need for the government to issue a substantial amount of T-bills in 2023 poses a domestic financing risk. - First few domestic bond issuances following restructuring likely not until 2024; will be carefully managed, possibly using placements rather than auctions and starting with small volumes; primary issuance will switch to competitive auctions once access is more firmly established. - Non-resident investors in domestic bond markets will not be offered special incentives. ### Debt management commitments and transparency - Ministry of Finance (MoF) will: - Play a lead role in tracking debt issuance by SOEs and public SPVs. - Limit and monitor collateralized debt issuance. - Strictly limit borrowing on non-concessional terms. - Ensure debt payments are made on time (performance criteria). - Continue publishing a credible Medium-Term Debt Strategy and updated annual borrowing plans (MEFP ¶21). ### Monetary and exchange rate policy objectives and measures - BoG’s monetary policy goal: bring inflation back to the 6-10 percent target by the end of the program (MEFP ¶22). - Monetary financing will be eliminated (performance criterion). - BoG committed to continue increasing its policy rate and maintain tight monetary policy until inflation is on a firmly declining path. - BoG will undertake liquidity management operations consistent with the inflation objective and consider financial stability risks; a monetary policy consultation clause will monitor performance (MEFP ¶23). - BoG will continue enhancing its inflation targeting framework through enriched macroeconomic data including inflation expectations survey and projection model. - Program supports BoG’s aim to rebuild international reserve buffers (MEFP ¶24): - Medium-term objective: international reserve coverage ratio of at least 3 months of imports. - Performance monitored through a net international reserve (NIR) target (performance criterion). - Any unexpected FX inflows should be saved. - BoG committed to limit gross FX interventions to only smoothing exchange rate fluctuations associated with disorderly market conditions. - Measures to ensure a unified and flexible exchange rate and deepen FX market (MEFP ¶25): - BoG will provide FX liquidity at prevailing market exchange rates and implement measures to unify exchange rates; commit not to introduce Multiple Currency Practices (MCPs). - Use auctions as primary channel for FX intervention; bilateral trades conducted at market rate. - Gradually phase out special FX auctions for fuel distributors introduced in March 2022 and enhance design of regular FX auctions with Fund technical assistance. - Gradually reverse the recently imposed surrender requirement on gold exports to BoG. - BoG Act revisions (MEFP ¶26): - Amendments to feature a stricter limit for monetary financing, mechanisms to monitor and enforce compliance, and a clear definition of emergency situations under which the limit can be temporarily lifted. - Pending legislative changes, BoG and MoF signed an MoU (prior action) to eliminate monetary financing during the program. - An updated Safeguards Assessment will review gold purchase and gold-for-oil programs and associated risks for the BoG. - Government and BoG will assess the debt restructuring impact on BoG’s balance sheet and develop recapitalization plans with Fund technical assistance support. ### Financial sector stability, exposures and remedial measures - Financial sector was relatively robust before the debt restructuring following a cleanup; aggregate NPLs declined from 17 percent in 2019 to about 15 percent at end-2022, and the sector had been well-capitalized except for a few institutions. - The DDE presents a substantial challenge given the financial sector’s exposure to government debt: - Domestic bonds were the most important asset class held by commercial banks, pension funds, asset management companies, and insurance companies. - Banks held 30 to 50 percent of their total assets in government securities before the DDE—with especially high exposures in state-owned banks. - The coupon reductions and maturity extensions in the DDE mean the value of these assets will decline to about 70 percent of par value. - This revaluation is a significant shock to balance sheets. - Authorities’ measures to preserve financial stability (MEFP ¶27): - Temporary regulatory forbearance, including lower cash reserve requirements and lower adjusted capital requirements for banks and other financial sector institutions. - Use of existing repo and Emergency Liquidity Assistance (ELA) facilities to provide liquidity as needed. - Developing the Ghana Financial Stability Fund (GFSF) to provide additional liquidity and/or solvency support to banking and NBFI sectors; World Bank preparing an emergency operation to provide GFSF funding (US$ 250 million). - Timely completion of capital support and financial sector strengthening (MEFP ¶29): - Authorities to develop a strategy by end-June 2023 (structural benchmark) for strengthening the financial sector and rebuilding buffers by end of the program. - Individual banks expected to submit credible timebound plans to rebuild capital buffers; banks to finalize plans for BoG approval by end-September 2023 (structural benchmark). - Regulatory forbearance, including on capital requirements, to be lifted as soon as possible. - BoG will monitor expected capital shortfalls from recognition of debt restructuring losses in CAR calculations and ensure implementation of rebuilding plans. - Incentives for banks to expedite the process include prohibition of dividends, restrictions in risk exposures, and enhanced monitoring for those not meeting minimum CAR, plus support for early recapitalization from the GFSF. - Any government support for recapitalization will be designed to incentivize private capital injection and be conditional on reforms to improve long-term profitability. - Baseline fiscal assumption: possible fiscal cost of financial sector support of up to 2.6 percent of GDP. *GHANA INTERNATIONAL MONETARY FUND* ### 42. The authorities are also committed to completing the remaining tasks from the ### 42. The authorities are also committed to completing the remaining tasks from the ### Financial sector cleanup and credit support to private sector - Remaining tasks include addressing the insolvency of NIB and the long-standing undercapitalization of several special deposit taking institutions (SDIs). - Strategy elements: - Assessment of institutions’ operational strategies and corrective actions to prevent further losses. - Complete roll out of Basel II and III reforms. - Strengthen the nascent deposit insurance scheme. - Implement efficiency enhancements at state-owned banks. - Consider measures to reduce the nexus between sovereign and financial institutions to prevent crowding out of private sector credit. ### Reforms to bolster governance - Context and diagnostics: - Ghana outperforms most Sub-Saharan Africa and middle-income countries on many governance aspects per World Bank’s Worldwide Governance Indicators, but government effectiveness, regulatory quality and control of corruption have deteriorated over the last 10 years. - A Governance Corruption Diagnostic Assessment has been requested from IMF technical assistance (MEFP ¶52). - Specific commitments and actions: - Update the National Anticorruption Action Plan (NACAP) adopted in 2014 using Diagnostic Assessment inputs. - Enact a new Conduct of Public Officers Act to address weaknesses in the asset declaration system that currently lacks effective verification. - GRA, with IMF technical assistance, is developing a strategic plan to reinforce internal governance (internal audit, risk management, internal affairs) to improve tax administration professional standards. - Commit to full transparency and good governance in implementing the gold-for-oil program (MEFP ¶48). ### Audit of emergency COVID-19 spending - A detailed Auditor General’s report published in January 2023 (prior action for the program) covers emergency expenditure between March 2020 and June 2022. - Findings: - Verifies accounting accuracy and completeness and compliance with existing PFM laws for much of the spending. - Identifies transactions flouting PFM-related laws/regulations (examples: processing outside GIFMIS, single source procurement without PPA approval, advance payments beyond legal threshold, finance lease without recourse to MoF). - Identifies potential avoidable losses and unrealized savings (examples: undelivered goods despite advance payments, facilities built/not in use, medical equipment provided without signed receipts and to facilities not treating COVID-19 patients). - Recommendations and authorities’ commitments: - Seek retroactive approvals from PPA, MoF and other regulatory agencies where appropriate. - Recover some funds, repurpose unused facilities, and improve compliance with PFM-related laws and regulations. - Prepare new guidelines for Emergency Expenditure Management (MEFP ¶51). ### AML/CFT framework strengthening - Progress to date: - Ghana exited the FATF gray list in June 2021. - Under the program, intended measures include: - Continue capacity-building for reporting entities on Customer Due Diligence (CDD), risk assessment, current trends and typologies. - Ensure enforcement of targeted financial sanctions (MEFP ¶53). - Strengthen Transparency of Beneficial Ownership (BO) including implementation of updates to FATF’s R.24. - Provide access to the BO register to all accountable institutions and competent authorities. - Require companies to know their BO and strengthen CDD/BO procedures. ### Other structural reforms to support inclusive growth - Authorities developing coherent policies to support inclusive growth, diversification, private sector development and financial inclusion (MEFP ¶54). Measures include: - Improving business environment and export competitiveness: - Review local content legislations to encourage FDI and ensure any revision of surrender/repatriation requirements is consistent with long-term FDI goals and the Institutional View on capital flows. - Target improvements to export competitiveness, reduce trade barriers, implement the African Continental Free Trade Area, and establish a one-stop shop for investors. - Promoting entrepreneurship and private sector development: - Accelerate YouStart Program and growth-oriented programs under Ghana CARES, including Economic Enclave Projects for self-sufficiency in rice, maize, vegetables, poultry, and support via the Development Bank of Ghana. - Transitioning to a digital economy: - Expand digital government services and introduce the Bank of Ghana’s digital currency to support digitalization and financial inclusion with safeguards. - Climate adaptation and mitigation: - Invest in resilient public infrastructure (agriculture, urban development, coastal protection). - Explore low-carbon energy production and preservation of natural carbon sinks. - Accelerate investment discussions with development partners and private sector for agriculture, transportation, and technology (renewable energy, energy efficiency). - Strengthen disaster risk management and information infrastructure to assess climate risks. ### Program issues: ECF arrangement, financing, and debt restructuring - Authorities requested a 36-month arrangement under the Extended Credit Facility (ECF) in the amount of SDR 2.242 billion (304 percent of quota, about US$3 billion). Prospective disbursements directed to the government to help finance the budget. - A Memorandum of Understanding between the government and the BoG will set responsibilities for servicing financial obligations to the Fund. - Phasing aims to rebuild gross foreign reserves to US$1.7 billion by the end of 2023. - Proposed access represents 20 percent of Ghana’s balance-of-payments financing needs in 2023-26, estimated at US$15 billion. - Authorities’ debt restructuring aims to deliver US$10.5 billion in external debt service relief over the program period. - The World Bank will provide US$1.6 billion in budget and balance-of-payments support financing. - Staff expectations and assurances: - Staff expects sufficient assurances from official bilateral creditors under the Common Framework before IMF Executive Board consideration. - Authorities intend to finalize MoUs with all official creditors by the time of the first review. - Active engagement with external commercial creditors, including sharing a comprehensive data pack under NDAs and holding technical calls as needed. - Bulk of domestic debt restructuring completed; combination of strategy and reforms expected to eliminate LIC-DSF threshold breaches by 2028 and restore moderate risk of debt distress. - Suspension of external debt payments: - Ghana suspended external debt payments to official bilateral and external commercial creditors since December, accumulating arrears. - Staff expects financing assurances under the Common Framework to be adequately representative to allow arrears to other official bilateral creditors to be deemed away under the Lending into Official Arrears (LIOA) Policy. - Staff assesses authorities are making good faith efforts in negotiations per LIA policy. ### Capacity to repay the Fund and associated risks - Under the baseline (which does not reflect debt restructuring), several capacity-to-repay indicators are above the top quartile of past UCT-quality arrangements for PRGT programs. - Projections and indicators: - Outstanding credit projected to peak at 5.3 percent of GDP (407 percent of quota) in 2026, then gradually converge towards the top quartile of past PRGT arrangements over the next 10 years. - Fund credit outstanding at start of program is 161 percent of gross international reserves and remains close to 50 percent of reserves by end of program. - Debt service as a share of revenue is expected to rise over the medium term and peak at 3.2 percent in 2029, which is 3-4 times the median PRGT country. - Ghana’s share of de facto senior debt at 25 percent of total external debt is one of the lowest among LICs, and its strong track record of debt service to the Fund are mitigating factors. - Downside risks: - High proposed level of access driven by large balance-of-payments needs. - Complexity of program implementation and uncertainties in debt restructuring outcomes until completed. - High risks to regaining sufficient market access; successful debt restructuring alone is insufficient—restoring market confidence requires significant fiscal adjustment amid political challenges. - High prospective post-program debt service to the Fund may hinder market access restoration. - Overall assessment: - Ghana’s capacity to repay the Fund is adequate assuming successful program and debt restructuring implementation and eventual restoration of adequate market access; subject to substantial downside risks. ### Proposed program financing (USD million) - Financing Gap: 2023 4,212; 2024 3,301; 2025 4,264; 2026 3,282; Total 15,058 - Official Financing: - Total official financing: 2023 1,730; 2024 1,140; 2025 1,070; 2026 610; Total 4,550 - IMF: 2023 1,200; 2024 720; 2025 720; 2026 360; Total 3,000 - World Bank: - Total World Bank: 2023 530; 2024 420; 2025 350; 2026 250; Total 1,550 - DPO: 2023 300; 2024 300; 2025 300; 2026 250; Total 1,150 - Emergency projects: 2023 230; 2024 120; 2025 50; 2026 0; Total 400 - Ghana Productive Safety Net Project: 2023 30; 2024 70; 2025 50; 2026 0; Total 150 - Emergency Financial Sector Support: 2023 200; 2024 50; 2025 0; 2026 0; Total 250 - Financing from external debt restructuring: 2023 2,482; 2024 2,161; 2025 3,194; 2026 2,672; Total 10,508 ### Program monitoring, safeguards, capacity development and communication - Prior actions and monitoring: - Authorities have completed all five prior actions (MEFP Table 3). - Program monitored through semi-annual reviews, quarterly and continuous quantitative targets and structural benchmarks. - Quantitative performance criteria on net international reserves, new central bank credit to central government, present value of newly contracted debt, and primary fiscal balance. - Continuous performance criteria cover new external debt arrears and contracting of collateralized debt. - Inflation monitored through a monetary policy consultation clause. - Indicative targets: floor on non-oil public revenue and social spending; ceiling on net change in stock of government payables. - Continuous performance criteria on exchange restrictions and MCPs (TMU ¶4). - Structural benchmarks in first year focus on macro-critical reforms: fiscal measures for front-loaded adjustment in 2023, strengthen budget execution and monitoring, bolster commitment controls, improve public sector governance, and buttress social protection. - Safeguards: - Updated safeguards assessment of the BoG in progress and will be completed before the first review. - Prior safeguards assessment (June 2021) reiterated need to strengthen BoG Act on autonomy regarding monetary financing; being addressed under proposed program (see ¶26). - Capacity development (CD): - Key CD priorities identified; tailored Fund TA being provided. - Regional Technical Assistance Center for West Africa 2 in Accra providing comprehensive support in fiscal reporting, financial sector supervision, and real sector statistics. - A resident advisor deployed to support BoG on banking supervision and regulation. - CD activities coordinated with partners including the World Bank. - Communication strategy: - Authorities committed to develop and implement a strategy to engage Ghanaians and stakeholders to build public awareness and support for program policies (MEFP ¶57). ### Staff appraisal (summary) - Causes of crisis: - Combination of large external shocks (Covid-19 pandemic, tightening global financial conditions, war in Ukraine) and preexisting fiscal and debt vulnerabilities. - Contributing factors: spending rigidities, weak expenditure controls, low tax base, weaknesses in SOE management, large development needs, complex social and political environment. - Result: large deficits, fast-rising debt, loss of market access and a deep economic and financial crisis. *Source: 1ghaea2023001 - 42. The authorities are also committed to completing the remaining tasks from the* ### 59. A comprehensive recalibration of macroeconomic policies and wide-ranging ### 1ghaea2023001 - 59. A comprehensive recalibration of macroeconomic policies and wide-ranging ### Macroeconomic stability and recovery - Paragraph 59: A comprehensive recalibration of macroeconomic policies and wide-ranging structural reforms are necessary to reestablish macroeconomic stability and lay the foundations for an inclusive recovery. - Immediate priority: restore macroeconomic stability by tightening macroeconomic policies and restructuring public debt. - Program also seeks to address long-standing structural weaknesses that have made the economy less resilient to shocks and have contributed to the crisis. - Near-term outlook: growth is expected to decline this year because of the crisis and the planned fiscal consolidation. - Key downside risks: - Slippages in program execution. - Delays in restructuring debt. - A deterioration in the external environment. ### Frontloaded fiscal adjustment and social protection - Paragraph 60: The envisaged substantial frontloaded fiscal adjustment is essential to relieve financing pressures and restore debt sustainability. - Rationale: - Bringing down government deficits is essential to underpin a sustainable debt trajectory, regain market confidence, and enable sustainable fiscal and external financing. - 2023 budget: described as a bold first step delivering a combination of new revenue measures and expenditure restraint with enhanced targeted social spending. - Social protection measures: - Important to deploy policies to protect vulnerable households during the macroeconomic crisis and frontloaded adjustment. - Program envisages an immediate strengthening of key targeted social protection programs. - Aim to create room for higher social and development spending in the medium-term. ### Structural fiscal reforms - Paragraph 61: Advancing structural fiscal reforms is key to underpin and ensure lasting fiscal discipline. - Authorities' committed reform agenda includes: - Tax policy and administration reforms to mobilize significant domestic revenue. - Improvements in public financial management, including strengthened expenditure control and management of arrears. - Enhancements to fiscal rules and institutions. - Strengthened SOEs management to reduce fiscal risks. - Sector-specific priorities: - Tackle deep challenges in the energy and cocoa sectors. - Foster transparency and gradually eliminate subsidies and quasi-fiscal activities. ### Debt restructuring - Paragraph 62: Together with fiscal consolidation, the planned comprehensive debt restructuring is necessary to place public debt on a sustainable path. - Key points: - Fiscal adjustment alone would not be sufficient to achieve debt sustainability and ensure the program could be financed. - Authorities’ planned debt restructuring strategy envisages contributions from most classes of debt holders. - Resolute implementation, with support from creditors, is of utmost importance. - Must be accompanied by efforts to manage debt prudently going forward. ### Financial sector stability - Paragraph 63: Authorities’ enhanced focus on preserving financial sector stability is welcome. - Issues and policy guidance: - Domestic debt restructuring impacts balance sheets of financial institutions. - Temporary regulatory forbearance can help mitigate the shock. - Adequate liquidity provision by the Bank of Ghana (BoG) is of the essence. - Regulatory forbearance should be temporary. - Forbearance should be accompanied by a comprehensive strategy to maintain a healthy financial sector that draws on new resources from the private sector, government, and multilaterals to rapidly rebuild financial buffers. ### Monetary and exchange rate policy - Paragraph 64: Monetary and exchange rate policies need to focus on reining in inflation and rebuilding foreign reserve buffers. - Policy recommendations: - BoG intends to continue tightening monetary policy until inflation is on a firmly declining path. - Eliminating monetary financing of the budget will further support achieving this objective. - Enhanced exchange rate flexibility and limited FX interventions are key to rebuild external buffers. - BoG commitments welcomed: - Unify the exchange rates. - Provide FX liquidity at the market rates. - Not introduce any actions that give rise to multiple currency practices (MCPs). ### Identified priorities for IMF capacity-development activities (Ghana) - Area: Tax Policy - Capacity Building Activity: TA on tax diagnostics - Objective: Support the authorities' efforts to identify tax policy measures to increase domestic resource mobilization. - Area: Revenue administration - Capacity Building Activity: TA on core functions of GRA and MTRS - Objective: Strengthen revenue administration to increase tax compliance. Help the authorities prepare their MTRS. - Capacity Building Activity: TA on arrears stock taking and preventive measures - Objective: Help the authorities undertake a stock take of payables and design a clearance strategy. Prevent the accumulation of new arrears. - Capacity Building Activity: TA on fiscal rule and fiscal council - Objective: Strengthen fiscal framework and institutions to underpin durable fiscal adjustment. - Area: Monetary and exchange rate policy - Capacity Building Activity: TA on assessing BoG's balance sheet - Objective: Help the authorities assess the impact of the domestic debt restructuring. Develop strategy to ensure adequate capitalization and capacity to execute monetary policy operations and to achieve the central bank policy mandate. - Capacity Building Activity: TA on FX auction design - Objective: Support improvement of FX auction design to ensure a unified and flexible exchange rate and create conditions for FX market deepening. - Area: Governance - Capacity Building Activity: Governance and corruption diagnostic assessment - Objective: Bolster governance and strengthen anticorruption framework. - Area: Statistics - Capacity Building Activity: TA on BoP compilation and reserve template - Objective: Improve quality and timeliness of external sector statistics in line with the BPM6 and other relevant standards. - Area: Public financial management - (Listed among capacity building areas in the source material without a separate activity line in the provided excerpt.) *Source: IMF staff report excerpt (paragraphs 59–64) from the provided content unit.* ### 65. In view of Ghana’s large balance of payments needs and based on the strength of ### 1ghaea2023001 - 65. In view of Ghana’s large balance of payments needs and based on the strength of ### Program request and IMF staff stance - Staff supports the authorities’ request for a 36-month ECF arrangement in the amount of SDR 2.242 million (304 percent of Ghana’s quota), conditional upon receipt of financing assurances from bilateral creditors and based on the strength of the proposed program and prior actions taken by the authorities. ### Financial and FX market developments - Ghana's Eurobond spreads increased significantly since late 2021 amid concerns about debt and fiscal sustainability. - Loss of international capital market access led to acute domestic financing challenges and non-resident investor exits from the domestic debt market, generating a surge in FX demand and balance of payments pressures. - The Cedi depreciated substantially despite Bank of Ghana (BoG) heavy FX intervention (FXI). - Loss of government international capital market access, capital outflows, and higher FXI reduced reserves to a critical level. - FX liquidity in the interbank market has been low, with BoG's FX provision representing most transactions since mid-2021. - Key market indicators shown in figures: - Evolution of Sovereign Spreads (EMBI+) - Secondary Market Yields for Selected Securities (3YR, 5-Year, 10-Year Bond yields) - Interbank Transaction Volumes (US$ Million) showing Bank-to-Bank and BOG-and-Bank transaction volume series - Official and Market Exchange Rate (GHS per USD) comparisons (Bank of Ghana vs Bloomberg) - Nonresident Holdings of Domestic Debt (GHS Billion) and NR Holdings share statistics ### Monetary and financial sector developments - Heightened debt crisis in 2022 led to a decline in NFA and a surge in NDA, primarily driven by central bank financing to the government. - Inflation accelerated since early 2022 due to energy price shocks, monetary financing, and Cedi depreciation. - The central bank increased the policy rate by 1500 bps in total. - Banking sector position: - Banks have been well capitalized after the 2019 financial sector clean up, but are expected to incur significant losses from the domestic debt exchange given large holdings of government securities. - Selected indicators and trends (figures and tables): - Broad Money (contributions to year-on-year growth, percent) - Net Domestic Assets breakdown (Net claims on government, Net claims on private sector, Other items net) - Inflation (Year-on-year, percent) with series for Headline, Food, Non Food, Non-food non-energy, Transport - Policy rate and interbank rate (Percent) - Banks Holdings of Government Securities to Total Assets (Percent) by aggregate, state-owned, domestic private, foreign banks - Tier 1 Capital to Total Assets Ratio (Percent) - Financial Soundness Indicators (Table 6) showing, for example: - Regulatory capital to risk weighted assets: 17.8 (2022) - Regulatory Tier I capital to risk-weighted assets: 14.6 (2022) - Nonperforming loans to total gross loans: 14.7 (2022) - Return on assets (after tax): 3.3 (2022) - Liquid asset to total assets: 22.3 (2022) ### Fiscal developments and public finances - Massive fiscal expansion in 2020 weakened public finances; interest payments reached unsustainable levels. - Public revenues are low compared to peers and non-oil revenue have been stagnating. - Large share of spending is earmarked or used to pay interest, limiting budget flexibility; the real value of the targeted social transfer program has been eroded by inflation. - Key fiscal aggregates (Table 1, Table 2a/b): - Revenue: 15.3 (2021), 15.7 (2022), 16.8 (2023) percent of GDP; projected 17.3 (2024), 17.8 (2025), 18.7 (2026), 18.7 (2027) - Expenditure (commitment basis): 27.4 (2021), 26.7 (2022), 24.3 (2023), 25.3 (2024), 24.5 (2025), 23.9 (2026), 23.3 (2027) percent of GDP - Overall balance (commitment basis): -12.1 (2021), -11.0 (2022), -7.5 (2023), -8.0 (2024), -6.7 (2025), -5.2 (2026), -4.6 (2027) percent of GDP - Primary balance (commitment basis): -4.8 (2021), -3.6 (2022), -0.5 (2023), 0.5 (2024), 1.5 (2025), 1.5 (2026), 1.5 (2027) percent of GDP - Public debt (gross): 79.6 (2021), 88.1 (2022), 98.1 (2023), 92.0 (2024), 90.2 (2025), 88.4 (2026), 86.1 (2027) percent of GDP - Interest (commitment basis): 7.3 (2021), 7.4 (2022), 7.0 (2023), 8.5 (2024), 8.2 (2025), 6.7 (2026), 6.1 (2027) percent of GDP - Non-oil primary balance (commitment basis): -5.7 (2021), -5.6 (2022), -3.1 (2023), -1.7 (2024), -0.5 (2025), -0.5 (2026), -0.5 (2027) percent of GDP - Budget composition highlights: - Compensation of employees: 7.1 (2021), 6.4 (2022), 5.9 (2023) percent of GDP - Interest: 7.3 (2021), 7.4 (2022), 7.0 (2023) percent of GDP - Net acquisition of nonfinancial assets: 3.7 (2021), 4.2 (2022), 3.3 (2023) percent of GDP ### External sector, reserves, and financing needs - Balance of payments and reserves: - Current account balance (percent of GDP): -3.2 (2021), -2.1 (2022), -2.8 (2023), -2.3 (2024), -2.4 (2025), -3.0 (2026), -3.0 (2027) - Gross international reserves (program definition, if financing gap is closed): 5,200 (2023), 1,441 (2022), 1,733 (2023), 3,270 (2024), 5,524 (2025), 7,824 (2026), 9,833 (2027) US$ million - Months of prospective imports of goods and services (if financing gap closed): 2.4 (2023), 0.7 (2022), 0.8 (2023), 1.4 (2024), 2.2 (2025), 3.0 (2026), 3.6 (2027) - External financing needs and gaps (Tables 3, 5): - Total Needs (US$ million): 3,984 (2021), -440 (2022), 5,648 (2023), 5,361 (2024), 7,181 (2025), 7,389 (2026), 7,225 (2027) - Financing Gap (I-II) (US$ million): 0 (2021), 0 (2022), 4,212 (2023), 3,301 (2024), 4,264 (2025), 3,282 (2026), 1,743 (2027) - Expected IMF exceptional financing under envisioned package: 1,200 (2023), 720 (2024), 720 (2025), 360 (2026), 0 (2027) (US$ million) as part of exceptional financing in Table 5 - World Bank expected exceptional financing: 530 (2023), 420 (2024), 350 (2025), 250 (2026), 0 (2027) (US$ million) - Residual gap to be covered under envisaged debt restructuring: 2,482 (2023), 2,161 (2024), 3,194 (2025), 2,672 (2026), 1,743 (2027) (US$ million) - Balance of Payments specifics (Table 4, US$ million): - Exports, f.o.b.: 14,728 (2021), 17,494 (2022), 17,782 (2023), 18,901 (2024) - Imports, f.o.b.: -13,629 (2021), -14,621 (2022), -14,494 (2023), -14,900 (2024) - Services (net): -3,165 (2021), -3,458 (2022), -3,706 (2023), -4,236 (2024) - Income (net): -3,831 (2021), -4,505 (2022), -5,078 (2023), -5,055 (2024) - Transfers: 3,355 (2021), 3,573 (2022), 3,644 (2023), 3,717 (2024) ### Public debt composition and financing structure - Public debt decomposition at end-2022 (Table 8): - Total debt: 63,332 (US$ mn), 100.0 percent total debt, 88.1 percent GDP - External: 28,869 (US$ mn), 45.6 percent total debt, 40.2 percent GDP - Multilateral creditors: 8,055 (US$ mn), 12.7 percent total debt, 11.2 percent GDP - IMF: 1,710 (US$ mn), 2.7 percent total debt, 2.4 percent GDP - World Bank: 4,750 (US$ mn), 7.5 percent total debt, 6.6 percent GDP - Bilateral creditors: 5,438 (US$ mn), 8.6 percent total debt, 7.6 percent GDP - Paris Club: 2,867 (US$ mn), 4.5 percent total debt, 4.0 percent GDP - Non-Paris Club (including China): 2,572 (US$ mn), 4.1 percent total debt, 3.6 percent GDP - Bonds: 13,104 (US$ mn), 20.7 percent total debt, 18.2 percent GDP - Commercial creditors: 2,272 (US$ mn), 3.6 percent total debt, 3.2 percent GDP - Domestic: 34,463 (US$ mn), 54.4 percent total debt, 47.9 percent GDP - Held by residents, total: 32,849 (US$ mn), 51.9 percent total debt, 45.7 percent GDP - Held by non-residents, total: 1,614 (US$ mn), 2.5 percent total debt, 2.2 percent GDP - Short-term bills: 5,009 (US$ mn), 7.9 percent total debt, 7.0 percent GDP - Medium-to-long term bonds: 19,934 (US$ mn), 31.5 percent total debt, 27.7 percent GDP - Arrears: 3,186 (US$ mn), 5.0 percent total debt, 4.4 percent GDP - Other (Overdraft and SDRs on-lent): 6,258 (US$ mn), 9.9 percent total debt, 8.7 percent GDP ### Capacity to repay indicators and Fund obligations - Indicators comparing Ghana to PRGT UCT arrangements (Figure 4) illustrate relative positions on percent of gross international reserves, percent of GDP, percent of PPG external debt, percent of revenue excluding grants, percent of PPG external debt service, and total Fund credit outstanding. - Fund obligations and outstanding (Table 7): - Total obligations based on existing and prospective credit (millions of SDRs): 19.8 (2022), 94.6 (2023), 152.7 (2024), 231.5 (2025), 272.1 (2026), 247.2 (2027), 265.8 (2028) - Total obligations based on existing and prospective credit (millions of US$): 26.5 (2022), 126.1 (2023), 203.6 (2024), 309.8 (2025), 365.6 (2026), 333.3 (2027) - Outstanding Fund credit (in millions of SDRs): 1,286.0 (2022), projected peaks and repayments shown through 2034 - Outstanding Fund credit in percent of quota: 174.3 (2022), rising to 386.3 (2025) in projections, then declining over time in projections - Outstanding Fund credit as percent of gross international reserves: 118.7 (2022), 161.1 (2023), and projected declines thereafter ### Key macroeconomic projections (selected series from Table 1) - Real GDP growth (percent): 5.4 (2021), 3.2 (2022), 1.5 (2023), 2.8 (2024), 4.7 (2025), 5.0 (2026), 5.0 (2027) - Non-extractive GDP (percent): 8.4 (2021), 1.9 (2022), 0.7 (2023), 2.2 (2024), 4.4 (2025), 4.8 (2026), 5.0 (2027) - GDP deflator (annual change): 11.2 (2021), 29.8 (2022), 39.9 (2023), 20.1 (2024), 10.9 (2025), 7.6 (2026), 7.6 (2027) - Consumer price index (end of period): 12.6 (2021), 54.1 (2022), 29.4 (2023), 15.0 (2024), 8.0 (2025), 8.0 (2026), 8.0 (2027) - Credit to the private sector (annual change): 11.1 (2021), 31.8 (2022), 24.4 (2023), 17.0 (2024), 13.0 (2025), 15.0 (2026), 15.0 (2027) ### Key policy-relevant points and operational implications - Approval conditionality and financing assurances: - The support for the 36-month ECF arrangement is contingent upon receipt of financing assurances from bilateral creditors, reflecting large balance of payments needs that cannot be met domestically or through market access in the near term. - Reserve rebuilding and external financing: - Program projections incorporate substantial exceptional financing and a comprehensive debt restructuring to cover the residual gap and restore gross international reserves toward targeted months of imports by 2026. - Fiscal consolidation and debt sustainability: - Restoring fiscal sustainability requires reversing the large fiscal deficits of recent years, raising non-oil revenues, limiting interest-driven expenditure growth, and protecting targeted social spending eroded by inflation. - Monetary stance and inflation control: - The Bank of Ghana’s policy tightening (1500 bps total increase in the policy rate) is a key element to address inflationary pressures driven by energy prices, monetary financing, and currency depreciation. - Financial sector implications: - Large holdings of government securities by banks mean the domestic debt exchange and debt restructuring will translate into significant bank losses, despite banks being well capitalized after the 2019 clean-up; implications for bank recapitalization and macro-financial stability need to be addressed in program design. *Source: IMF staff and Ghanaian authorities (figures, tables, and text excerpts from the supplied content).* ### Annex I. External Sector Assessment ### Annex I. External Sector Assessment ### Overall assessment and recommendations - Overall Assessment: The external position of Ghana in 2022 is assessed as having been broadly in line with the level implied by medium-term fundamentals and desirable policies. This assessment takes a holistic approach, considering the results of EBA-lite regression models and the country’s exceptional circumstances—heightened external vulnerabilities and risks and exacerbated uncertainty given the very low buffers, loss of access to international capital markets, continued high inflationary pressures and necessary public debt restructuring. - 2022 dynamics: - The current account deficit declined in 2022 on the back of higher commodity exports. - The deficit, along with massive portfolio outflows and large external debt-service, was financed by a reserves’ drawdown, amid loss of international market access and lower FDI. - Medium-term outlook: The ongoing comprehensive debt restructuring and successful implementation of the Fund-supported program would restore debt sustainability and strengthen the external position. - Recommendations: - The ongoing comprehensive debt restructuring and tight fiscal and monetary policies under the Fund-supported program would help restore debt sustainability, reduce the current account deficit and external financing needs significantly, and tame inflation. - Limiting central bank FX interventions and allowing for greater exchange rate flexibility would enhance monetary policy effectiveness and help rebuild reserve buffers. - Capitalizing on the program’s reform agenda and implementing structural measures aimed at diversifying the economy and improving business environment would help bolster external competitiveness and shift financing for capital investment from debt to FDI. ### Foreign assets and liabilities: position and trajectory - 2022 developments: - External debt remained virtually flat at 48 percent of GDP in 2022. - Gross foreign exchange reserves fell from 6.6 in 2021 to 2 percent of GDP in 2022, suggesting a weaker external financial asset-liability balance (Ghana does not report NIIP statistics). - Medium-term projections: - Gross reserves are projected to increase over the medium-term to reach 12 percent of GDP in 2027, equivalent to 3.6 months of prospective imports. - External debt is projected to peak at 63 percent of GDP in 2023 and then hover around 57 percent of GDP in 2027. - The ongoing external debt restructuring should bring external debt further down. - Policy levers to improve position: - Greater exchange rate flexibility, a deeper FX market, revenue mobilization, more efficient spending, and shifting capital financing toward FDI would help contain external debt growth and rebuild reserves. ### Current account - Recent trajectory: - The current account had steadily improved in the five years to 2021 and stabilized around an average deficit of 2.7 percent of GDP. - Imports of goods and services decreased from 36.6 to 32.8 percent of GDP between 2017-2021. - 2022 outcomes: - The current account deficit narrowed to 2.1 percent of GDP in 2022, down from 3.2 percent of GDP in 2021. - Trade surplus improved from 1.4 in 2021 to 3.9 percent of GDP in 2022. - Oil and gold exports increased by 37.5 and 30 percent in 2022, respectively. - Cocoa exports declined by around 20 percent compared to 2021. - Exports of goods and services increased from 30.2 in 2021 to 35.3 percent of GDP in 2022. - Imports of goods and services increased from 32.8 in 2021 to 36 percent of GDP in 2022. - Remittances improved from 4.2 in 2021 to 5 percent of GDP in 2022. - Medium-term projection: - The current account is expected to average 2.7 percent of GDP over the next five years. - Trade balance projected to remain in surplus and reach 6.2 percent of GDP by 2027. - The ongoing external debt restructuring would bring the current account deficit lower. - Model-based assessment: - EBA-Lite CA model shows an adjusted current account balance of -2.1 percent of GDP that accounts for a 0.9 percent adjustment to reflect the negative output gap and the deviation of terms of trade and a -0.4 percent adjustment to strip out the transient residual component of the COVID-19 shock. - The CA norm based on fundamentals and desired policies is estimated at -3.1 percent of GDP, yielding a positive current account gap of 1 percent of GDP. - The price-based equilibrium REER model suggests an undervaluation of the real exchange rate by 30 percent. - The policy gap estimated at -1.6 percent in the CA model is dominated by the impact of expected fiscal adjustment and further exchange rate flexibility through reducing FX interventions. - Closing the policy gap would help improve the external position and build buffers. ### Real exchange rate - 2022 exchange rate movements: - The nominal exchange rate depreciated by around 31 percent on average against the US Dollar in 2022. - The nominal effective exchange rate depreciated by 20 percent on average in 2022. - Average inflation was 32 percent in 2022 (54 percent y-o-y in December), and the average real effective exchange rate depreciated by 3.7 percent. - Both the NEER and REER have been depreciating in the last 10 years by 68 and 19 percent, respectively. - Model indications: - EBA-Lite exchange rate models point to an undervaluation of the real exchange rate: CA model estimates an undervaluation of 4 percent, against 30 percent by the REER model. - Volatility: - Significant intra-year exchange rate volatility occurred in 2022, with large currency depreciation in October and November 2022 reflecting uncertainty about the debt restructuring, followed by sharp appreciation after the launch of the debt restructuring and announcement of the staff-level agreement on the proposed IMF-supported program. ### Capital and financial accounts: flows and policy measures - 2022 flows: - The capital and financial account surplus declined from 4.2 percent of GDP in 2021 to a deficit of 3 percent of GDP in 2022 due to a fall in FDI and large portfolio outflows. - FDI fell by 39 percent in 2022. - Net portfolio outflow of 2.8 percent of GDP in 2022, against a net inflow of 2.6 percent of GDP in 2021. - Five-year averages: - The capital and financial account averaged 4 percent of GDP. - FDI averaged 3.9 percent of GDP. - Net positive portfolio flows averaged 2.4 percent of GDP. - Medium-term expectations: - FDI is expected to reach 3.5 percent of GDP by 2027 (from 2 percent in 2022), contingent on successful reforms and improved sentiment. - Portfolio inflows are expected to remain subdued assuming continued loss of international market access over the medium-term. - Risks and policy responses: - Further tightening of global financial conditions or delays/weak commitment in sovereign debt restructuring and reforms could undermine the financial account. - Implementing growth-friendly fiscal consolidation, tighter monetary policy, and structural reforms to enhance business environment and governance is critical to diversify the economy and attract foreign investors. ### FX intervention and reserves level - Reserve levels and composition: - Gross Foreign Assets, excluding the oil fund and encumbered and pledged assets, are estimated to have reached 0.7 months of prospective imports, 2 percent of GDP, and 48 percent of foreign currency deposits at end-December 2022. - Gross reserves declined from US$5.2 billion and are estimated to have reached US$1.4 billion at the end of the year. - Drivers of reserve decline: - Frequent and broad-based FX interventions, failure to roll over central bank FX liabilities, larger profits and dividends distribution by oil and mining companies, sharp decline in portfolio inflows and surge in portfolio outflows from domestic debt market. - Adequacy assessment: - Gross reserves at 0.7 months of prospective imports represent only 18 percent of the IMF LIC reserve adequacy metric. - The metric suggests that the adequate level of reserves would be equal to 4 months of prospective imports. This is based on a model that assumes a cost of holding reserves of 8.5 percent. - BoG actions in 2022: - The central bank (BoG) intervened regularly in the foreign exchange market to smooth out exchange rate fluctuations, meet sovereign obligations, and satisfy FX demand for imports through regular FX auctions. - Program targets: - The proposed Fund-supported program is targeting a buildup in reserves over the medium term to reach 3 months of prospective imports in 2026. - Support measures include lower external debt service (thanks to the debt restructuring), tighter fiscal and monetary policies, more limited FX interventions, and a revision of the FX auction design to improve FX allocation and price discovery. ### Assessment of the external position - Staff judgment: The EBA-lite CA model-based approach indicates a positive current account gap of 1 percent and, given the current exceptional circumstances, staff considered a holistic approach and assessed the external sector position as broadly consistent with fundamentals and desirable policy settings. - Caveats: External debt distress, the need for external debt restructuring, and very low international reserves are indicative of a weaker external sector position and informed the holistic assessment. *International Monetary Fund — Annex I. External Sector Assessment* ### 2. Faced with this difficult situation, we have laid out a strong program to restore ### 2. Faced with this difficult situation, we have laid out a strong program to restore ### Post-Covid-19 Program for Economic Growth (PC-PEG): objectives and focus - Key areas of focus: - ensuring public finance sustainability while protecting the vulnerable; - bolstering the credibility of monetary and exchange rate policies to reduce inflation and rebuild external buffers; - preserving financial sector stability; - taking extraordinary steps to promote entrepreneurship and private investments (domestic and FDI) to establish a dynamic export-driven economy and accelerate growth as a strong platform for the AfCFTA; - ensuring further improvements in governance and transparency of the public sector. ### Actions already taken under PC-PEG (summary of measures) - Fiscal and institutional measures: - Parliament approved the 2023 budget, frontloading fiscal consolidation with ambitious revenue measures. - Launched and implementing a comprehensive debt operation. - Strengthened expenditure commitments controls. - Raised electricity tariffs toward full cost-recovery pricing to reduce the energy sector financial shortfall. - Auditor General prepared and published an audit report on COVID-19 spending to enhance fiscal transparency and accountability. - Monetary and exchange rate measures: - Government and Bank of Ghana signed a Memorandum of Understanding (MOU) to end monetary financing. - Bank of Ghana tightened monetary policy stance significantly in recent months and is committed to maintaining an appropriate policy stance to help steer inflation back to the medium-term target band of 8 ± 2 percent. ### IMF financing request and program monitoring - Request details: - Request for a 36-month arrangement under the Extended Credit Facility (ECF). - Access requested at 304 percent of our SDR quota (SDR 2.242 billion), to be disbursed as budget support. - Financing coverage: - Proposed financing arrangement, together with support from development partners and financing provided through the comprehensive debt restructuring, will cover fiscal and external financing gaps during the multi-year adjustment. - Monitoring and safeguards: - Program to be monitored through quantitative performance criteria and indicative targets, with a series of prior actions and structural benchmarks. - Continuous performance criteria related to exchange restrictions and multiple currency practices in the context of Article VIII. - Commitment to provide the IMF with information per the attached Technical Memorandum of Understanding (TMU). - A safeguards assessment of the Bank of Ghana is recognized as important and an IMF mission took place over March-April 2023; the Bank of Ghana provided necessary information. ### Recent macroeconomic developments and key indicators - Covid-19 response and near-term past performance: - Non-extractive economy grew by 1 percent in 2020 and non-extractive growth was over 8 percent in 2021. - Deterioration due to global and domestic vulnerabilities: - Growth in 2022 is estimated to have slowed to 3.2 percent; non-extractive growth declined to 1.9 percent in 2022. - Cedi depreciated by about 30 percent in 2022. - Current account deficit declined to 2.1 percent of GDP in 2022. - External reserve buffers declined by more than US$ 3 billion, bringing reserve cover below 1 month of prospective imports from over 2 months a year earlier. - Inflation reached 54.1 percent in December 2022; marginal declines to 53.6 percent in January 2023 and 52.8 percent in February 2023. - Policy responses in 2022: - Fiscal primary deficit on a commitment basis lowered by 1.2 percentage point of GDP in 2022 through revenue measures and expenditure restraint. - Bank of Ghana increased the Monetary Policy Rate (MPR) by a cumulative 1500 basis points since early 2022. - Reserve Requirements (RR) were raised by a cumulative 600 basis points. ### Outlook and projections (as presented) - Growth: - Growth expected to initially decline to 1.5 percent in 2023 due to frontloaded reform measures. - Growth projected to rise steadily in 2024 and beyond, averaging around 5 percent in 2026-28 as macroeconomic stability is restored and reforms implemented. - Inflation: - Projected to decline to 29 percent by end-2023. - Brought down to the Bank of Ghana’s medium-term target of 8±2 percent by end-2025. - Fiscal balances and external: - Primary balance on a commitment basis projected to improve to -0.5 percent of GDP in 2023 and reach target of 1.5 percent of GDP by 2025. - Current account deficit projected to hover around 2.5-3 percent of GDP over the medium term in a pre-debt restructuring scenario but should improve with successful debt restructuring and fiscal consolidation. - Reserve buffers targeted to be rebuilt to 3 months of import cover by the end of the program. ### Program components and major policy pillars - Restore public debt sustainability: - Combination of comprehensive debt restructuring and an ambitious, growth-friendly, and lasting fiscal adjustment. - Anchor policies on regaining a moderate risk of debt distress (based on the IMF-World Bank LIC-DSF) by 2028. - Social safety nets: - Strengthen existing well-targeted programs such as LEAP and the School Feeding Program. - Exchange rate and reserves: - Implement exchange rate policies ensuring greater flexibility and price discovery to rebuild foreign reserve buffers sufficient to cover at least three months of prospective imports. - Monetary policy: - Continue an appropriately tight monetary policy to re-anchor inflation expectations and achieve low and stable inflation within 8±2 percent. - Structural reforms: - Deep reforms to address structural issues; embed fiscal and monetary policies in clear and binding multi-year frameworks. - Competitiveness and growth: - Bolster external competitiveness, promote entrepreneurship and export-oriented growth, raise factor productivity, and diversify the economy. ### Fiscal policy details and specific measures - Fiscal consolidation strategy: - Rely on strong revenue-enhancing measures and expenditure rationalization. - Program objective: achieve a primary balance of 1.5 percent of GDP by 2025 and maintain at least until 2028. - Given estimated 2022 primary deficit of 3.6 percent of GDP, targeted total adjustment is 5.1 percentage points of GDP over 3 years. - 2023 budget and adjustment targets (prior action): - Aim for reduction in the primary balance (commitment basis) of 3.1 percent of GDP in 2023. - Revenue package includes: a 2.5 percentage point increase in the VAT rate, complete removal of discount on benchmark values, review of the E-levy, and revision of income-based taxes. - E-VAT system to continue implementation for tax administration and compliance improvements. - Oil and gas revenue projected to increase by 0.5 percentage point of GDP in 2023 due to expiration of 5-year capital allowances for oil companies. - Expenditure measures for 2023: - Reduction of primary expenditure by 2 percent of GDP. - Compensation of Employees reduced by 0.5 percent of GDP due to wage moderation and higher net attrition. - Maintain 30-percent cut in salaries of the President, Vice President, Ministers, Deputy Ministers, MMDCEs, and political office holders including those in State-Owned Enterprises. - Lower capping on transfers to earmarked funds from 25 percent of tax revenue to 17.5 percent reduces transfers by 0.4 percent of GDP. - Savings from Use of Goods and Services and capital expenditures set at 0.3 and 0.9 percent of GDP, respectively. - Budgetary allocation for transfers to independent power producers (IPPs) and fuel suppliers set to cover full revenue shortfall of the sector. - Strengthen expenditure commitment controls for MDAs and statutory funds. - Contingency measures: - Prepared to bring forward measures from the Medium-Term Revenue Strategy (MTRS) and to strictly control and reduce MDAs allocations if 2023 outturns are worse than expected. - Medium-term revenue mobilization targets: - Permanently raise non-oil revenue-to-GDP ratio by at least 0.9 percent of GDP in 2024, 0.6 in 2025 and 0.4 percent of GDP in 2026. - Oil revenue-to-GDP ratio projected to temporarily increase during program years and return to 2022 level in 2027. - Public expenditure efficiency and arrears: - Comprehensive public expenditure review with the World Bank expected to be finalized by September 2023. - Phase out statutory funds whose spending can be efficiently undertaken by MDAs; merge activities as appropriate. - Reprogram Agenda 111 to be completed over 5 years (2022-27) in line with budgeted allocations to GIIF from ABFA for Health Infrastructure. - Structural benchmark by end-June 2023 to: (i) prepare a comprehensive stock-take of expenditure payables; (ii) design, once verified, a clearance plan; and (iii) prepare and adopt a structural reform plan to strengthen expenditure controls and avoid new arrears. ### Social spending and safety-net measures - Short-term protections: - 2023 Budget doubled the amount of the LEAP grant. - Budgetary allocation for the Ghana School Feeding Program increased to compensate for higher meal cost. - LEAP program improvements and targets: - By end-September 2023, introduce an indexation mechanism to protect benefit value over time (structural benchmark). - Reduce payment delays by prioritizing budget disbursement and engaging financial service providers and GhIPSS to ensure timely field payments. - Expand coverage to all 2,500,000 extremely poor individuals by 2024. - Ministry of Gender, Children and Social Protection to conduct a reassessment of LEAP beneficiaries in the first semester of 2023. - Strengthen the National Social Protection Policy and key programs in consultation with domestic stakeholders and development partners. *Attachment: Memorandum of Economic and Financial Policies; Technical Memorandum of Understanding* ### 16. We will reinforce the level and efficiency of social spending in health and education. ### 16. We will reinforce the level and efficiency of social spending in health and education. ### Social spending: Education - Continue support to secondary and tertiary education while improving foundational learning in primary schools. - Specific measures: - Increase capitation grants. - Strengthen in-service training for teachers. - Invest in learning and teaching materials for primary schools. - Carry out regular student assessments. - Broaden and expand measures to further incentivize youth from the bottom wealth quintiles to enroll in senior high schools. ### Social spending: Health - Expand the National Health Insurance Scheme (NHIS) and increase its efficiency. - Short-run measures: - Clear the stock of accumulated payables to healthcare service providers. - Ensure that transfers from the Consolidated Fund are made on time. - Reduce the administrative cost. - Review the package of benefits and the tariff structure. - Medium-term: As domestic resource mobilization efforts materialize, increasing NHIS resources will allow broadening coverage and expanding the benefits package. *Source: Public expenditure review to be informed by the ongoing review conducted with the help of the World Bank.* ### C. Public Debt Management Strategy — objectives and targets - Objective: complete the comprehensive public debt restructuring operation launched in December 2022 to restore public debt sustainability. - Target: restore a moderate risk of debt distress (as per the IMF-WB LIC-DSF) by 2028, which entails bringing five external and overall debt ratios below their respective thresholds. - Specific numeric targets: - Reduce the ratio of the net present value of public debt to GDP to 55 percent. - Reduce the ratio of external debt service to revenues to 18 percent. - Cash debt relief from external debt restructuring needs to contribute US$10.5 billion to program financing in 2023-26. ### Recent debt operations and commitments - Domestic marketable debt exchange: - Exchanged 85 percent of marketable public debt (including ESLA and Daakye) other than T-bills and held by investors other than pension funds for instruments with the same total face value but lower coupons and a combined maturity of up to 15 years. - Government and the BoG will assess the impact of the debt restructuring on the BoG balance sheet and develop recapitalization plans. - External creditors: - Expect to obtain credible and specific assurances from official bilateral creditors before the IMF Board consideration of the program request. - Applied for debt treatment under the G20 Common Framework (CF) in December 2022. - Sought external debt relief sufficient to reduce all of the LIC-DSF debt ratios below their thresholds starting in 2028 and to generate sufficient financing over the program period to help close the overall program external financing gap. - Will impose a limit on the present value of newly contracted external debt beyond the restructuring. ### Near-term debt management and market functioning - Maintain basic functioning of markets while developing a roadmap for gradual resumption of bond market activity. - Goals and sequencing: - Maintain a functioning primary market in T-bills this year. - Carefully manage the first domestic bond issuances following the restructuring, prioritizing private placements; later switch to competitive auctions once market access is more firmly established. - Strengthen and deepen domestic capital markets to enhance secondary market activity and improve price discovery. - Continue publishing a credible Medium-Term Debt Strategy and an updated annual borrowing plan in line with international best practices. ### Debt transparency and systems - Upgrade the current securities operation infrastructure used by the Debt Management Office (CD-RMS) to a modern system by end of 2024. - Implementation aims: - Integrate all state institutions involved in contracting and servicing public debt. - Digitalize processes to increase the pace of debt service processing, improve accuracy of debt recording and accounting by reducing errors and omissions, and improve debt transparency among relevant state institutions. - Enhance debt analysis, debt service projections and planning, and promote greater efficiency in public debt management. - Debt reporting to include details on contingent liabilities, including key SOEs with substantial fiscal risks such as COCOBOD, ECG, VRA, GWCL, TOR, GNPC, GNGC, and BOST. - Any collateralized debt issuance will be limited and closely monitored. ### D. Monetary and Exchange Rate Policy — objectives and instruments - Inflation and reserves targets: - Bring inflation back to the medium-term objective of 8 ±2 percent. - Rebuild foreign exchange buffers to at least 3 months of imports by the end of the program. - Framework: - Continue monetary policy under the inflation targeting framework with a flexible exchange rate regime. - Fully committed to the program’s inflation and FX reserve accumulation objectives. - Monetary policy stance: - Continue decisive monetary policy tightening until inflation is on a firmly declining path; frontload tightening to ensure a fast-paced and orderly disinflation. - Absorb liquidity to meet the inflation objective, taking into account potential financial stability risks. - Use a monetary policy consultation clause to assess implementation and strengthen central bank credibility. - Enhance the Inflation Targeting framework through improvements in the Forecast and Policy Analysis System, macroeconomic data collection including BoG inflation expectations survey, analytical capacity, and central-bank monetary policy communication. - Exchange rate policy: - Commit to greater exchange rate flexibility to enhance resilience to shocks and rebuild central bank reserves. - Gradually limit FX interventions to avoid excess exchange rate volatility and adhere to a gross FX intervention budget consistent with achieving reserve targets. - Firm commitment to limit monthly gross FX sales to a ceiling; consult IMF staff if higher interventions are needed. - Central-bank FX liquidity will be provided at the prevailing market exchange rate. - Follow best practices in plans to purchase gold from local mines to avoid distortions. - Adopt the latest IMF reserve report template to improve the quality of reserve statistics. - FX market reforms: - Ensure a unified exchange rate market; do not introduce policies that create or intensify market segmentation or multiple exchange rates. - Unify FX auctions as the primary mechanism of FX liquidity provision; enhance auction design to support price discovery, efficient allocation, and FX market deepening. - Phase out the temporary FX surrender requirement by mines to the central bank to deepen the FX market. - Government of Ghana to engage key exporting companies on options to increase voluntary domiciliation of export proceeds. - Central bank governance: - Revise the Bank of Ghana Act of 2002 (Act 612), as amended, to reduce the overdraft limit, enhance compliance, refine emergency conditions under which the limit can be temporarily breached, and the extent of permissible breach under each emergency category; changes to be proposed drawing on recommendations of the safeguards assessment update. - MOF and BoG have signed a Memorandum of Understanding (prior action) providing for zero monetary financing throughout the program. - Conduct a thorough analysis of risks BoG faces under the government’s Gold-for-Oil program and report findings to the Board; gradually exit the program as the economy stabilizes. ### E. Financial Sector — stability, recapitalization, and reforms - Ensure financial sector stability in the aftermath of the domestic debt exchange: - Provide necessary liquidity and other assistance; BoG liquidity facilities (repo window and Emergency Liquidity Assistance) available to banks. - Government to set a budget for potential solvency and liquidity support to viable financial or systemic institutions, subject to strict conditionalities; seeking funding support from Development Partners and Multilateral banks. - Temporary regulatory forbearance (including lower cash reserve requirement and lower adjusted capital requirements) to provide short-term relief. - Ghana Financial Stability Fund (GFSF): - Developing the GFSF to provide additional support; nature of support, targeted institutions, eligibility criteria, conditionality, and funding sources still being established. - World Bank preparing an emergency operation to provide GFSF funding to facilitate build-up of capital buffers for qualifying banks. - BoG will not provide financing for GFSF operations; some government resources set aside for solvency support could be channeled through the GFSF. - Recapitalization plans and timelines: - Complete capital support and other steps necessary to strengthen the financial sector in a timely manner. - Develop a strategy by end-June 2023 (structural benchmark) for strengthening the financial sector and rebuilding financial sector buffers, to be accomplished by end of the program. - Individual banks to submit credible timebound plans to rebuild capital buffers on a phased basis; plans to be reviewed by BoG and finalized by banks for BoG approval by end-September 2023 (structural benchmark). - SDIs, NBFIs regulated by BoG, and other financial institutions (securities firms and insurance firms) to submit—and adhere to—timebound recapitalization plans. - Institutions’ progress will be subject to enhanced monitoring and additional stress tests by BoG. - Incentives and supervisory tools: - Develop incentives for early recapitalization and building capital buffers, including incentives embedded in the design of solvency support under the GFSF. - Tools include enhanced disclosure requirements, restrictions on activities and risk exposures for severely undercapitalized banks, and ban on dividend payments by banks and other financial institutions until adequate capital buffers are demonstrated. - Enhance on- and off-site supervision in line with a risk-based approach. - Government solvency support to be designed to minimize costs and moral hazard, incentivize private capital injections, foster structural reforms, and allow for an orderly, early government exit. - For state-owned banks, the government will frontload necessary recapitalizations underpinned by credible plans to ensure future viability and a level playing field with private banks. - Phase-out of regulatory forbearance: - Lift regulatory forbearance introduced in response to the domestic debt exchange as soon as possible. - Forbearance included temporary relief on minimum capital adequacy ratios (CAR), recognition of debt exchange losses for CAR computation, and reduced CAR of SDIs. - Phase-out to follow timelines in the financial sector strategy and be consistent with rebuilding financial sector buffers; monitor, disclose impact, and adjust as needed. - Legacy tasks and reforms: - Complete legacy tasks from the 2017-19 financial sector clean-up, including addressing the insolvency of NIB and long-standing undercapitalization of SDIs; include plans in the financial sector strategy (end-June 2023). - Reforms to enhance financial sector stability and support credit to the private sector include: - Reviewing and monitoring off-balance sheet items. - Completing the roll out of Basel II and III capital, liquidity, and supervisory review reforms. - Building and implementing strategies to improve operational efficiency, business models, and competitiveness of state-owned banks and NBFIs. - Strengthening the nascent deposit insurance scheme. - Consider measures to reduce the nexus between the sovereign and financial institutions to prevent crowding out of credit to the private sector. ### F. Structural Fiscal Reforms — priorities - Prioritize reforms to entrench fiscal discipline and bolster transparency concentrated in: - Strengthening Public Financial Management (PFM). - Revenue Administration and Tax Policy. - Energy Sector Reforms. - SOE Reforms. - Build on earlier reforms such as completion of the National ID program, the already-passed Tax Exemptions Act, operationalization of the Human Resource Management Information System (HRMIS) and the e-VAT project during the fourth quarter of 2022. ### Public Financial Management — Spending controls and prevention of arrears’ build-up - Integrate all sources of funds into GIFMIS: - Rollout of GIFMIS infrastructure with all available functionalities to over 265 IGF-reliant institutions to be completed by end-2023 (structural benchmark). - Design program with clear timelines for including all IGF-reliant institutions in GIFMIS and ensuring use of available functionalities. - GETFund, Road Fund, and District Assemblies Common Fund: - Have started reporting provisional spending budgets in Hyperion at a disaggregated level to use GIFMIS functionalities for spending execution (prior action); provisional entries to be updated once budgets are approved by Parliament. - Commitment controls and procurement integration: - Develop a strategy to tighten commitment controls and prevent arrears’ build-up by June 2023 (structural benchmark); strategy to be based on an ongoing IMF TA mission and approved by Cabinet. - Integrate public procurement with GIFMIS to ensure only projects/purchase orders with approved budgets and allotments can obtain procurement approvals; integration to be completed by end-June 2023. - Require all tenders to be placed and processed via E-tendering functionality. - Strengthen enforcement of sanctions under the PFM Act, including penalties for entities committing spending above their quarterly allotments. - Design a mechanism to gauge spending beyond budgetary allocations for each MDA/MMDA. - HRMIS and systems integration: - Integrate HRMIS with GIFMIS and the Payroll system to strengthen control on “ghost names”, promotions, hiring and payroll costs by end-December 2024. - Integrate GIFMIS with Hyperion, E-procurement, bank clearing system (SWIFT and GHIPSS) and GRA’s tax portals to ensure real time data exchange by end-December 2023. - Roll out Automatic Bank Reconciliation (ABR) functionality for GIFMIS-linked accounts by end-December 2023. - Standardize chart of accounts where needed to support integration by end-June 2023. - Streamline statutory funds: - Publish a detailed strategy to streamline statutory funds by end-September 2023 following Cabinet approval (structural benchmark). - Strategy to include: - Key findings of the review process for each statutory fund. - Assessment of whether these funds are serving the stated purpose. - Well-articulated reasons to support retaining statutory funds rather than merging them under the line ministry. - An internal review of statutory funds has started to be conducted by an international audit firm. - Other PFM reforms: - Statutory funds will not be allowed to collateralize revenue streams and issue debt; no objection certificates will not be issued to any statutory fund by the governing authority in this regard. - Review government flagship programs and publish a strategy to decide their future course of action; rationalization decisions to depend on efficiency, effectiveness, and value for money, and for social programs align spending envelope with SDG targets. - Institutionalize a framework where all Cabinet memos include an assessment of the fiscal impact of proposed policy and budget availability to eliminate off-budget spending. - Establish a treasury management system to support effective cash management and promote weekly reporting of 3-month cashflow forecasts. - Finalize TSA reforms during the program period; integrate all MDAs, MMDAs and statutory funds accounts in BoG and commercial banks to the TSA by end-December 2023. - Strengthen public investment management by: - Centralizing appraisal and prioritization of public projects. - Developing a credible database of all ongoing projects (including age, time and cost overruns for legacy projects, and their status of completion). - Securing financing within debt sustainability limits for ongoing projects before new projects are included under the Public Investment Plan (PIP). - Restructure the Internal Audit Agency to enhance independence, provide adequate resources, strengthen technical capacity, and focus on the Internal Audit function to prevent financial irregularities. *Source: IMF staff report chapter — “16. We will reinforce the level and efficiency of social spending in health and education.”* ### 41. The Fiscal Responsibility Act will be amended to strengthen fiscal discipline. The ### 1ghaea2023001 - 41. The Fiscal Responsibility Act will be amended to strengthen fiscal discipline. The ### Fiscal rule reform and fiscal governance - Amend the Fiscal Responsibility Act to: - Reinforce the fiscal rule by adding a debt target with a broad coverage to control for extra-budgetary spending. - Simplify the rule by focusing on a single operational rule (either on the primary balance or the overall balance). - Further detail escape clause and correction mechanisms. - Consult with internal stakeholders and IMF’s Fiscal Affairs Department; finalize reform in 2024. - Reform the Fiscal Advisory Council to: - Assess realism of macro-fiscal projections ahead of Budget approval and evaluate ex-post fiscal performance, including the fiscal rule. - Be provided with complete and timely information. - Have strong operational independence. - Publish fiscal strategy document and fiscal risk statements in line with the PFM Regulation and international best practice. ### Fiscal reporting and budget documentation - Harmonize and ensure consistency of fiscal reports by addressing differences in institutional coverage, classification, and basis of recording and presentation so that budget execution reports, fiscal statistics, and financial statements are prepared and presented on the same basis as fiscal forecasts, with deviations explained. ### Revenue administration and tax policy - Publish a Medium-Term Revenue Strategy (MTRS) by end September 2023 after Cabinet approval (structural benchmark), covering 2023-26 revenue objectives; targets and measures to be developed through consultation with Fund staff; public consultations to be organized. - Prioritized reforms and milestones: - Publish a first tax expenditure report by September 2023 covering all tax expenditures of 2022 (including VAT exemptions), assessing their cost and efficiency. From 2024, publication will reflect full implementation of the Tax Exemptions Act. - Complete procurement of the Integrated Tax Administration System (ITAS), complete data migration, and implement tax modules (including VAT, PIT, and CIT) by end December 2023 (structural benchmark). - Strengthen VAT compliance: - e-VAT invoicing (launched October 2022) to be sole medium for issuing VAT invoices. - e-VAT to cover all large taxpayers by end June 2023, and about 80 percent of all VAT revenue by end 2023. - By end 2024, expected that all registered taxpayers will be onboarded. - Pending ITAS, e-VAT will be used as a certified invoicing system. - Strengthen VAT invigilation and mystery purchase at selected and significant VAT taxpayers nationwide. - Finalize new fiscal regime framework for extractive industries; submit to Cabinet by July 2023 with view to adopting by end 2023. - Strengthen e-commerce compliance: GRA to adopt an e-commerce/digital service system before end December 2023. - Complete the data warehouse project by end 2023 and ensure collection and analysis of all relevant third-party data (including banks and professional bodies); fast-track establishment and operationalization of API with National Insurance Commission, Social Security and National Insurance Trust, Driver and Vehicle Licensing Authority, and Data Protection Commission. - Increase online filing and payment via GITMIS: - Large Taxpayers Office online filing increased to 100 percent in 2022. - Increase online filing of all corporate taxpayers of medium and small taxpayer offices to 80 percent by end-2023. - Increase online filing of self-employed persons and employees to 80 percent by end-2024. ### Energy sector reforms - Overarching goal: introduce more efficiency and make energy pricing more cost reflective by fully implementing the Energy Sector Reform Programme to reduce power sector financial shortfall, improve ECG operational performance and fully implement tariff reforms to ensure quarterly adjustments for cost-recovery. - Specific interventions (jointly overseen by MoF and MoEn) and deadlines: - Implement an upfront weighted-average electricity tariff adjustment of at least 29 percent in January 2023 (prior action), followed by quarterly tariff adjustments reflecting exchange rate, inflation and fuel price changes. - Publish new tariff setting guidelines for electricity distribution and supply (PURC). - Publish technical notes to explain and justify quarterly tariff decisions within 30 days of decision announcement. - Publish updated Energy Sector Recovery Plan, after Cabinet approval, with measures and timelines by June 2023 (structural benchmark). - Conclude PPA renegotiations, formulate strategy to improve ECG’s performance (with operational benchmarks), improve operational performance of other SOEs, and reform subsidies to reduce revenue shortfall. - Publish a new policy directive on procurement of new IPPs to mitigate commercial burden on the state by end-2023. - Establish a framework to improve operational efficiency of ECG/PSP and NEDCo to meet KPIs set by SIGA, EC, PURC and MoEn by end-March 2024; complete guidelines for performance improvement plan and performance contract between SIGA and ECG by end-June 2023. - Ensure transparency in gas supply agreements (GSA) by GNPC and review previous GSAs where substantially large discounts were given, by end-2023. - Develop and operationalize a framework to guide granting of energy sector subsidies by end-June 2023, including mechanisms to insulate vulnerable populations, redesign lifeline tariffs, map impact of cash transfer program on poor households with electricity access, and expand program scope if needed. - Publish integrated power sector masterplan synchronized with updated demand-supply forecasts by end-June 2023. - Implement an inter-utility debt settlement framework on a quarterly basis starting from June 2023. - Complete IPP power plant verification audit by end-June 2023; monitor merit dispatch order regularly. - Establish framework to address payment of Volta Aluminium Company (VAlCo) electricity bills by end-June 2023. - Complete categorization of MDAs into strategic and non-strategic, install pre-paid meters to non-strategic MDAs, and allocate budget to pay for strategic MDAs by end-June 2023. - Develop and operationalize a regulatory financial reporting framework by end-June 2023. - Implement a mechanism to enforce the guidelines of the CWM and NGC by end-June 2023. - Temporary gold-for-oil scheme safeguards: - Ensure transparency of contractual volumes, pricing structure, and intermediaries’ margins. - Implement scheme in line with applicable legal framework and discuss fiscal risks with MoF. - Auditor General to conduct regular performance audits of the scheme. - Bank of Ghana gold purchases to follow best international practice and central bank safeguards standards. - Ensure gold-for-oil framework is in line with IMF Article VIII. ### SOE competitiveness and efficiency - Cabinet to approve (by end-June 2023) a state ownership policy and related guidelines developed by Ministers responsible for Finance and Public Enterprises, covering: - Rationale, objectives, guiding principles of state ownership. - Roles and responsibilities of shareholder, board, and management. - Reporting and disclosure requirements; performance monitoring system. - Fiscal relations between government and SOEs, including financing, dividend payments, and quasi-fiscal activities. - Framework for remuneration of board members and executive management. - Framework for appointment of board members and selection of executive management based on technical capacity and sectoral expertise. - Implement a cap on salary adjustment of SOE employees to be lower than negotiated base pay increase on Single Spine Salary Structure for each year. ### Cocobod financial viability - Publish a turnaround strategy for Cocobod, approved by Cabinet, by end June 2023, including: - Immediate announcement of joint ministerial supervision of COCOBOD by MoF and Ministry of Agriculture. - A legally binding framework for setting a producer purchase price (PPP) that guarantees a revenue stream sufficient to recover the Board’s operational and financial costs. - Cost rationalization measures, including a functional review of all departments and subsidiaries to identify scope for cost cutting. - Phasing out quasi fiscal spending, including termination of road concession agreement with the Ministry of Roads and discontinuation/rationalization of fertilizer/input subsidy programs including Hi-Tech. ### Governance and anti-corruption - Continue to improve governance and strengthen anticorruption framework; immediate priority to finalize the audit of COVID-19 spending prepared by the Auditor General (report presented to Parliament and published in January 2023, prior action). - Follow up on audit findings and recommendations, prepare new guidelines for Emergency Expenditure Management, proceed with suggested transfers to AG’s recoveries’ account, settle unutilized funding with development partners, and address procurement payments made in advance. - Share implementation status on recommendations with IMF staff by end-September; issue a public report on follow-up actions six months after finalization of audit report. - Reinforce public procurement transparency via roll-out of e-procurement system and its integration with GIFMIS; facilitate access to beneficial ownership information of companies awarded public procurement contracts. - Strengthen organizational and legal arrangements for addressing corruption and enhancing accountability: - Improve asset declaration system; enact Conduct of Public Officers Act to address weaknesses. - Continue implementing and updating the National Anticorruption Action Plan (NACAP) 2015-24 during the program period; request Governance and Corruption Diagnostic Assessment with IMF support. - GRA, with IMF help, to develop a strategic plan to strengthen integrity enhancement units (internal audit, risk management, internal affairs) and coordination among units. - AML/CFT improvements: - Continue progress after removal from FATF grey list. - Financial Intelligence Center (FIC) to engage, sensitize, train, and build capacity of reporting entities on AML/CFT areas including Customer Due Diligence (CDD), risk assessment, current trends and typologies; collaborate with financial sector supervisors for enforcement of targeted financial sanctions. - Strengthen Transparency of Beneficial Ownership (BO): provide access to BO register to all accountable institutions and competent authorities; require companies to know their BO and strengthen CDD/BO. ### Growth strategy - Develop coherent and focused policies to support accelerated inclusive growth, supporting private sector development and financial inclusion by: - Improving business environment and export competitiveness: review local content legislation to encourage FDI; ensure any revision of surrender/repatriation requirements is consistent with long-term goal and Institutional View on Liberalization and Management of Capital Flows; reduce trade barriers and implement African Continental Free Trade Area; build MDAs capacity for investor facilitation (common platform and one-stop shop). - Promoting entrepreneurship: implement YouStart Programme (creating about a million jobs in three years) with Banking Sector and Faith Based Organizations to enable youth. - Fast-track implementation of growth programs under Ghana CARES (Obaatan Pa), including Economic Enclave Projects for rice, maize, vegetables and poultry self-sufficiency; support large-scale agriculture and agribusiness via Development Bank of Ghana, which has approved GHC 500 million for targeted operations. - Transition to a digital economy to boost productivity, tax collection, and formality; expand digital government services and introduce BoG digital currency with safeguards. - Strengthen climate adaptation and mitigation policies: invest in resilient public infrastructure (agriculture, urban development, tourism, technology); explore low-carbon energy production and preservation of natural carbon sinks; accelerate dialogue with development community and private sector to attract private investment and catalytic capital from Multilateral Development Banks in Agriculture, Transportation, Tourism and Technology. ### Statistical improvements - Improve quality and timeliness of official balance of payments statistics with IMF technical assistance. - Develop a quarterly survey of cross-border flows and address gaps related to identification and compilation of Independent Power Producers (IPPs) cross-border transfers. ### Program monitoring - The 3-year program will be monitored semi-annually through: - Quantitative performance criteria, continuous performance criteria related to Article VIII, a monetary policy consultation clause, indicative targets, and structural benchmarks. - A Memorandum of Understanding between government and BoG to set responsibilities for servicing financial obligations to the Fund. - Quantitative performance criteria and indicative targets through end-2023 are set out in Table 2; structural benchmarks are in Table 3 (as described in the source). *Source: 1ghaea2023001 - 41. The Fiscal Responsibility Act will be amended to strengthen fiscal discipline. The* ### 57. Ghana's current economic situation requires building consensus to tackle the ### Ghana's current economic situation requires building consensus to tackle the socioeconomic challenges ahead ### Public communications and social cohesion - A robust communications strategy will be developed and implemented to build public awareness and broad support for the policies underpinning the Fund-supported program. - The strategy aims to engage Ghanaians and all stakeholders to build public support for the program’s objectives and enhance prospects of program success and social cohesion. ### Program access, phasing, and quantitative performance framework - Table 1 and Table 2 present access, phasing, and monitoring metrics under the Extended Credit Facility for 2023-26 and 2023-24 respectively (selected program figures preserved as in the source). - Key performance criteria and indicative targets (values preserved exactly as shown in the source): - Net international reserves of the Bank of Ghana, cumulative change floor (millions of U.S. dollars): -98.5270.7655.0107.0 - Bank of Ghana claims on the central government and public entities, cumulative change ceiling (billions of cedis): 0.00.00.00.0 - Present value of newly contracted or guaranteed external debt by the central government and public entities, cumulative ceiling (millions of U.S. dollars): 66.266.266.284.7 - Primary fiscal balance of the central government, commitment basis, cumulative floor (millions of cedis): -4,008.4-5,756.4 -4,607.11,392.3 - Non-accumulation of external debt payments arrears by the central government and the Bank of Ghana, continuous ceiling (millions of U.S. dollars): 0.0 0.00.00.0 - Newly contracted collateralized debt by the central government and public entities, continuous cumulative ceiling (millions of U.S. dolllars): 0.00.00.0 0.0 - Monetary Policy Consultation Clause — Twelve-month consumer price inflation (percent) (values preserved exactly): - Outer band (upper limit)48.145.633.4 30.9 - Inner band (upper limit)45.1 43.631.4 28.9 - Central target rate42.140.629.426.9 - Inner band (lower limit) 39.1 37.627.424.9 - Outer band (lower limit)36.135.625.4 22.9 - Indicative targets (values preserved exactly): - Non-oil public revenue, cummulative floor (millions of Cedis): 49,843 79,871116,36532,952 - Social spending, cumulative floor (billions of cedis): 2,0343,0514,0681,298 - Net change in the stock of payables of the central government and of payables to IPPs, ceiling (million of cedis): 0 00 0 ### Prior actions and structural conditionality (selected objectives and deadlines) - Prior actions (to ensure fiscal credibility, energy cost recovery, transparency, and monetary independence): - Enact any legislation and/or executive order necessary to achieve the 2023 fiscal objective — an adjustment of the non-oil primary balance (measured on a commitment basis) of at least 2 percent of GDP, with revenue measures that will permanently improve the non-oil revenue-to-GDP ratio by at least 1 percent of GDP. (Prior action) - Implement an upfront weighted-average electricity tariff adjustment of at least 29 percent. (Prior action) - Ensure that GETFund, Road Fund, and District Assemblies Common Fund start reporting provisional spending budgets in Hyperion at a disaggregated level to use all functionalities of GIFMIS for spending execution. (Prior action) - Sign a Memorandum of Understanding (MoU) between Ministry of Finance and the Bank of Ghana to eliminate monetary financing of the Central Government. (Prior action) - Publish the Auditor General report on the audit of COVID-19 spending undertaken between March 2020 and June 2022. (Prior action) - Structural benchmarks and deadlines (selected): - Finalize comprehensive stock-take of payables accumulated by all MDAs, design a payable clearance plan and lay out a structural reform plan to reduce future accumulation of arrears. — End-June 2023 - Finalize strategy to strengthen the financial sector and rebuild financial institutions' buffers in collaboration with Fund staff; complete legacy tasks from the 2017-19 financial sector cleanup. — End-June 2023 - Publish the updated Energy Sector Recovery Plan, after Cabinet approval, with measures and timelines on subsidy removal, reduction in transmission and distribution losses, improvement in recoveries, credible solution to cut idle capacity cost, and improvement in SOE operational performance. — End-June 2023 - Publish a strategy—after cabinet approval—to streamline statutory funds, including key findings, assessment of purpose, and justification for retaining funds. — End-September 2023 - Publish a medium-term revenue strategy—approved by cabinet—that is consistent with the agreed fiscal adjustment, delivers permanent non-oil public revenue increase of at least 1.5 pp of GDP over the 2024-27 period, and identifies tax policy, compliance and administration measures with estimated yields and timelines. — End-September 2023 - Approve plans of all banks to rebuild capital buffers and initiate corrective actions on institutions whose plans are not deemed credible. — End-September 2023 - Introduce an indexation mechanism of the benefits under the Livelihood Empowerment Against Poverty, approved by Cabinet, to ensure benefits value is not eroded by inflation. — End-September 2023 - Operationalize the Integrated Tax Administration System by completing procurement, data migration (including E-VAT and GITMIS), data verification, and implementation of VAT, CIT, and PIT functionality. — End-December 2023 - Expand GIFMIS infrastructure to 265 IGF-reliant institutions with all the available functionalities. — End-December 2023 ### Technical Memorandum of Understanding (TMU) — definitions and monitoring - The TMU specifies definitions, methods for assessing program performance, and information requirements for monitoring targets under the Extended Credit Facility. - Gold price for program purposes: US$ 1,826.92 per ounce (as per Bloomberg data as of February 2023). - Central government definition includes central government, all special funds (including the Ghana Education Trust Fund, the Road Fund, the District Assemblies Common Fund, the National Health Insurance Fund and Mineral Income Investment Fund), and all subvented and other government agencies classified as government in the Bank of Ghana Statement of Accounts; SSNIT and public enterprises, including Cocobod, are excluded. - Standard continuous performance criteria applicable to the arrangement: - No imposition or intensification of restrictions on the making of payments and transfers for current international transactions. - No introduction or modification of multiple currency practices. - No conclusion of bilateral payments agreements inconsistent with Article VIII of the IMF Articles of Arrangement. - No imposition or intensification of import restrictions for balance of payments reasons. - Net International Reserves (NIR) definition for program monitoring: - NIR = reserve assets minus short-term foreign-currency liabilities and liabilities to the Fund; non-U.S. dollar values converted using program exchange rates and gold price. - Reserve assets include Bank of Ghana holdings of monetary gold, SDRs, foreign currency cash, foreign currency securities, deposits abroad, and the country’s reserve position at the Fund; exclude pledged/encumbered assets and certain specified items. - Short-term foreign-currency liabilities include BoG contractual FX obligations due within 12 months (specified categories) and exclude liabilities with an encumbered asset counterpart. - Liabilities to the Fund include all outstanding use of IMF credit, excluding SDR allocations. - NIR floors adjust upward for excess budget grants, loans, and foreign exchange from 5G spectrum license sales relative to program baseline (excluding IMF budget support), except where used to repay domestic arrears faster than programmed; NIR floors adjust downward for shortfalls in budget grants and loans relative to the program baseline. - Bank of Ghana claims on central government and public entities — definition highlights: - Change in total amount (measured from program start), net of stock adjustment from the debt operation, of BoG loans and advances to central government and public entities, overdrafts, and face value of GoG treasury bills/notes/bonds purchased by BoG in primary and secondary markets. - Includes called guarantees by BoG for operations between central government/public entities and third parties. - Excludes BoG holdings of GoG T-bills as collateral from commercial banks, reversible market transactions not changing security ownership, and BoG loans to central government from on-lending IMF resources via SDR allocations and PRGT loans. - Present Value (PV) of newly contracted or guaranteed external debt — definition highlights: - External debt defined on a residency basis; “debt” definition follows paragraph 8(a) of the 2014 Guidelines on Public Debt Conditionality in Fund Arrangements. - Debt includes loans, suppliers’ credits, and leases (PV of lease payments at inception excluding payments for operation/repair/maintenance). - Arrears, penalties, and judicially awarded damages arising from failure to make contractual payments that constitute debt are included. *Source: IMF staff report excerpt, Ghana — Extended Credit Facility program materials and TMU.* ### 10. This performance criterion (ceiling) applies to the cumulative PV of new external debt, ### 1ghaea2023001 - 10. This performance criterion (ceiling) applies to the cumulative PV of new external debt, ### Scope and coverage - Applies to the cumulative PV of new external debt, contracted or guaranteed by the central government and the following public entities: - (i) Tema Oil Refinery - (ii) Ghana National Petroleum Company - (iii) Ghana National Gas Company - (iv) Volta River Authority - (v) Electricity Company of Ghana - (vi) Ghana Grid Company Ltd (GRIDCO) - (vii) Ghana Water Company Limited - (viii) Ghana Infrastructure Investment Fund (GIIF) - (ix) Daakye. PLC - (x) Energy Sector Levy Act (ESLA). PLC - (xi) Asanti Gold Corporation - (xii) Cocobod, excluding the annual syndicated trade financing facility - (xiii) Ghana Integrated Aluminium Development Corporation (GIADEC) - (xiv) Bulk Oil Storage and Transportation (BOST) - The ceiling applies to debt and commitments contracted or guaranteed for which value has not yet been received, including private debt for which official guarantees have been extended. ### Exclusions from the ceiling - The ceiling on the cumulative PV of new contracted or guaranteed external debt excludes: - (i) loans and bonds stemming from the restructuring or rescheduling of external debt - (ii) debt contracted from the IMF, World Bank and AfDB - (iii) Government of Ghana securities issued in domestic currency, placed in the domestic primary or secondary markets, and held by non-residents ### Definitions and PV calculation - A ‘guaranteed debt’ is an explicit promise by the central government and public entities to pay or service a third-party obligation (involving payments in cash or in kind). - The present value (PV) of debt at the time of its signing date of an underlying loan agreement is calculated by discounting the future stream of payments of debt service due on this debt. - The discount rate used is the unified discount rate of 5 percent set forth in Executive Board Decision No. 15248-(13/97). - A debt is concessional if it has at least a grant element of 35 percent. - The grant element of a debt is the difference between the PV debt and its nominal value, expressed as a percentage of the nominal value of the debt. - For debts with a grant element equal to or below zero, the PV will be set equal to the nominal value of the debt. ### Variable-rate loans and program reference rates - For loans carrying a variable interest rate (benchmark rate plus a fixed spread), the PV is calculated using the program reference rate plus the fixed spread (in basis points) specified in the loan contract. - The program reference rate for the three-month U.S. Secured Overnight Financing Rate (SOFR) is 2.97 percent and will remain fixed for the duration of the program. - Specified spreads: - Spread of three-month JPY Tokyo Interbank Offered Rate (TIBOR) over three-month USD SOFR is -300 basis points. - Spread of three-month U.K. Sterling Overnight Index Average (SONIA) over three-month USD SOFR is equal to 50 basis points. - For interest rates on currencies other than Euro, JPY, and GBP, the spread over three-month USD SOFR is 0 basis points. - Where the variable rate is linked to a benchmark other than three-month USD SOFR, a spread reflecting the difference between the benchmark rate and the three-month USD SOFR (rounded to the nearest 50 bps) will be added. - Given the ongoing transition away from LIBOR, once operationally feasible, the TMU can be updated to reflect the benchmark replacement for JPY LIBOR, the Tokyo Overnight Average Rate (TONAR). ### Reporting requirements and monitoring - The performance criterion will be monitored continuously. - The MOF will immediately report to IMF staff details of any new external loans contracted or guarantees issued. - Detailed data on all new external debt (concessional and non-concessional) contracted or guaranteed by the central government and the public entities listed will be provided by the MOF on a monthly basis, within 30 days from the end of each month. - Reported information will include: - (i) amounts contracted or guaranteed - (ii) currencies - (iii) terms and conditions, including interest rates, maturities, grace periods, payments per year, commissions and fees, and collaterals ### Adjustors for the PV ceiling - The PV of newly contracted or guaranteed external debt will be adjusted upward for excesses in contracted concessional project loans relative to a baseline. - Ghana: Expected PV of contracted project loans (in mn USD), baseline PV of contracted concessional project loans (cumulative from beginning of the year) is: - June-2023: 0.0 - September-2023: 0.0 - December-2023: 0.0 - March-2024: 0.0 - Note: Excluding World Bank and African Development Bank project loans as per the debt PC definition. ### Primary fiscal balance: definition and adjustments - Definition: - The program’s primary fiscal balance is cumulative from the beginning of the fiscal year and is measured as the difference between the primary balance on cash basis from the financing side and the net change in the stock of payables (“outstanding payments”) of the central government reported in GIFMIS, including all payables of statutory funds whose expenditure execution is done through GIFMIS (Road Fund, NHIS, GETFund and DACF). - For statutory funds whose expenditure execution is not done through GIFMIS, the payables of these institutions are measured as the payables of the consolidated fund to these statutory funds. - A positive net change in the stock of payables means more payables are built up than cleared over the period considered (so the primary balance on a cash basis needs to be adjusted downward to obtain the primary balance on a commitment basis). - Measurement of primary balance on cash basis: - Sum of net financial transactions of the central government—comprising: - net foreign borrowing (as defined in paragraph 20 below) - net domestic financing (defined in paragraph 21 below) - receipts from net divestitures and net drawing out of oil funds - minus domestic and external interest payments - Excludes financing for the financial sector recapitalization. - Net foreign financing of central government: - Defined as the sum of project and program loans by official creditors and commercial external borrowing, minus amortization due. - Net domestic financing of central government: - Defined as the change in net credit to central government by the banking system (i.e., the Bank of Ghana plus deposit money banks) plus the net change in holdings of treasury bills and other Government of Ghana securities by the nonbank sector, excluding divestiture receipts. ### Primary balance floor adjustors and concessional loan disbursements - The primary balance floor for 2023-26 will be adjusted for excesses and shortfalls in disbursed concessional project loans relative to program assumptions. - The primary balance floor will be adjusted downward (upward) for the full amount of any excess (shortfall) in concessional project loans relative to the baseline. - The primary balance floor will be adjusted upward by the full amount of non-tax revenue proceeds stemming from the sale of 5G Spectrum licenses. - Ghana: Expected concessional project loans disbursement (in mn USD), baseline concessional project loans disbursement (cumulative from beginning of the year): - June-2023: 136.2 - September-2023: 204.3 - December-2023: 272.4 - March-2024: 108.5 ### Related ceilings and definitions (selected) - Non-Accumulation of External Debt Payments Arrears by the Central Government and the Bank Of Ghana, Continuous Ceiling (Millions of U.S. Dollars) - External payment arrears accrue when payments such as interest or amortization on debts of the government to non-residents are not made within the terms of the contract, taking into account all applicable grace periods. - Excludes arrears relating to debt subject to renegotiation (dispute or ongoing renegotiation) or rescheduling. - Newly Contracted Collateralized Debt by the Central Government and the Public Entities, Cumulative Zero Ceiling - Collateralized debt is any contracted or guaranteed debt that gives the creditor rights over an asset or revenue stream to secure repayment in case of default. - Applies to the same list of public entities enumerated under Scope and coverage. - Monetary Policy Consultation Clause - Consultation bands around the projected 12-month rate of CPI inflation are specified in the Performance Criteria table in the MEFP. - If observed 12-month CPI inflation falls outside the lower or upper outer bands for relevant test dates, authorities will consult with the IMF Executive Board; access to Fund resources would be interrupted until consultation and program review are completed. - Authorities will also conduct discussions with Fund staff if observed 12-month CPI inflation falls outside inner bands specified for end of each quarter. - Central bank Foreign Exchange Intervention (FXI) - Defined as total of BoG FX sales to commercial banks in (i) the spot market (ii) the regular FX auction, (iii) the special FX auction including for fuel distributors. ### Indicative targets (selected definitions) - Non-Oil Public Revenue, Cumulative Floor (Millions Of Cedis) - Central government’s total non-oil revenue includes total tax revenue collected by the GRA and total non-tax revenue; excludes grants, oil revenue as defined in paragraph 25, social security contributions and ESLA proceeds. - Total non-oil revenue is recorded on a cash basis. - Total non-oil revenue floor will be adjusted upward for the full amount of the non-tax revenue proceeds of the sale of 5G Spectrum licenses. - Social spending, Cumulative Floor (millions of cedis) - Expenditures on poverty-reducing social programs include actual disbursements for: National Health Insurance System, Ghana School Feeding Program, Livelihood Empowerment Against Poverty Program (LEAP) and Capitation Grant financed by the central government or from internally generated funds. - Excludes all donor-supported expenditure. - Net change in the stock of payables of the central government and of payables to IPPs, ceiling (millions of cedis) - Stock of payables comprises: - stock of payables of the central government reported by CAGD at the end of each quarter (covering MDAs, statutory funds, selected IGFs) - stock of payables to Independent Power Producers (IPPs) and fuel suppliers (unpaid amounts against energy sector related payment invoices received by MoF; alternatively, ECG and GNPC can provide the data) *Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1ghaea2023001.pdf* ### 34. Data with respect to the variables subject to performance criteria and indicative targets ### 1ghaea2023001 - 34. Data with respect to the variables subject to performance criteria and indicative targets ### Data reporting requirements and timelines - General: Data with respect to the variables subject to performance criteria and indicative targets will be provided to Fund staff on a monthly basis with a lag of no more than eight weeks (except for select data for which the reporting lag is explicitly specified in Table 1). The authorities will transmit promptly to Fund staff any data revisions. For any information (and data) relevant for assessing performance against program objectives but not specifically defined in this memorandum, the authorities will consult with Fund staff. The authorities will share any prospective external loan agreements with Fund staff before they are submitted to cabinet and before they are contracted. - Fiscal data (to be provided by the MoF) - Central budget operations for revenues, expenditures and financing: Monthly, within six weeks of the end of each month. - Stock and quarterly flows of buildup/clearance of GIFMIS payables (“outstanding payments”): Quarterly, within six weeks of the end of each quarter. - Stock of payables of the central government including consolidated payables of all statutory funds prepared by CAGD: Quarterly, within six weeks of the end of each quarter. - Stock and quarterly flows of buildup/clearance of unreleased claims (para 28 definition): Quarterly, within six weeks of the end of each quarter. - Stock and quarterly flows of buildup/clearance of payables to Independent Power Producers (IPPs): Quarterly, within six weeks of the end of each quarter. - Updated list of (prioritized) projects to be financed by non-concessional loans and concessional loans: Monthly, within six weeks of the end of each month. - Cash flow of the central government and cash flow projections: Monthly, within six weeks of the end of each month. - Monetary data (to be provided by the BoG) - Detailed balance sheet of the monetary authorities including the usual monetary bridge data: Monthly, within four weeks of the end of each month. - Monetary survey detailing the consolidated balance sheet of commercial banks: Monthly, within six weeks of the end of each month. - Summary position of central government and public entities committed and uncommitted accounts at BoG, and total financing from BoG, including details of BoG financing to the central government and public entities: Monthly, within four weeks of the end of each month. - Composition of banking system and nonbanking system net claims on central government: Monthly, within four weeks of the end of each month. - Debt registry showing structure and holders of domestic government debt, at face value and at discount; similar table showing holders of treasury bills for open market operations: Monthly, within four weeks of the end of each month. - Itemized overview of outstanding liquidity support granted to financial institutions, at aggregate and institution level: Monthly, within four weeks from the end of each month. - Inflation expectation survey data: Bi-monthly, within four weeks after the survey is collected. - Detailed monthly inflation data (BoG’s measures of core inflation, imported vs. locally produced goods inflation, tradable and non-tradable goods inflation): Monthly, within four weeks from the end of each month. - Monthly business and consumer confidence indices: Monthly, within four weeks from the end of each month. - Financial market and FX data (to be provided by the BoG) - Weekly gross international reserves and net international reserves: Weekly, within a week of the end of each week. - Stock of BoG FX swaps, FX loans, and encumbered assets; for encumbered assets used as collaterals, provide corresponding loans/derivatives: Weekly, within a week of the end of each week. - Principal and interest payment of BoG swaps, FX loans, and encumbered assets: Weekly, within a week of the end of each week. - Monthly BoG FX Cash Flow Projection, with realized monthly cash flow updates and projections: Monthly, within a week of the end of each week. - Daily computations for the BoG local-currency interbank market rate, including all transactions used to derive it: Weekly, within a week of the end of each week. - Daily computations for the BoG reference exchange rate, including all transactions used to derive it: Weekly, within a week of the end of each week. - Daily BoG FX sales (details including amounts and exchange rates of each transaction): Weekly, within a week of the end of each week. - Bank-to-bank and BoG-and-bank FX transactions in the interbank market (transaction amount and exchange rate of each transaction): Weekly, within a week of the end of each week. - Bi-weekly FX auction results (amount and rate of submitted bids, accepted bids; banks or sector of winning firms if known): Monthly within two weeks of the end of each month. - Banking sector and non-bank financial institutions (BoG) - Financial sector indicators at aggregate and bank level, including Net Open FX position and FX liquidity position at bank-by-bank level: Monthly, within four weeks from the end of each month. - Dividend payment by banks: Quarterly, within four weeks from the end of each quarter. - Balance of payments and production data (BoG) - Monthly oil, gas, and gold productions at aggregate and by mine/field level: Monthly, within four weeks from the end of each month. - Monthly cocoa production and exports: Monthly, within four weeks from the end of each month. - Monthly fuel imports: Monthly, within four weeks from the end of each month. - Monthly imports of fertilizer, and essential and non-essential foods: Monthly, within four weeks from the end of each month. - Monthly services, credit and debit: Monthly, within four weeks from the end of each month. - Export and import data on value, volume, and unit values, by major categories and other major balance of payments variables: Quarterly, with a maximum lag of two months. - External and domestic debt data (MoF) - Total debt stock of the central government, Daakye, ESLA, GIADEC, Cocobills, and central government-guaranteed debt by creditor: loan-by-loan database for external debt and by tenor for domestic debt: Monthly, within four weeks from the end of each month. - Total debt service due and debt service paid by creditor (perimeter: central government, Daakye, ESLA, GIADEC, Cocobills, central government-guaranteed debt): Monthly, within four weeks from the end of each month. - Information on the concessionality of all new external loans contracted by the central government, Daakye, ESLA, GIADEC, or with a central government guarantee: Monthly, within four weeks from the end of each month. - Short-term liabilities to nonresidents (maturity in one year or less), including overdraft positions and debt owed or guaranteed by the government or the BoG; data on the BoG short-term liabilities to nonresident commercial banks on accounts 1201 plus 301 plus Crown Agent: Monthly, within four weeks from the end of each month. - Disbursements of grants and loans by creditor: Quarterly, within four weeks of the end of each quarter. - SOE and sectoral financial reporting - Quarterly financial statements of main state-owned enterprises: (i) Tema Oil Refinery; (ii) Ghana National Petroleum Company; (iii) Ghana National Gas Company; (iv) Volta River Authority; (v) Electricity Company of Ghana; (vi) GRIDCO; (vii) Ghana Water Company Limited: Quarterly, within three months of end of quarter. - Quarterly financial statements of GIIF: Quarterly, within three months of end of quarter. - Annual financial statements of main state-owned enterprises listed above: Annual, within six months of end of year. - Electricity pricing: data on tariff structure and cost of producing electricity: Quarterly, within four weeks of the end of each quarter. - Petroleum pricing: - A breakdown of costs, including the ex-refinery price, duties, levies, and margins, for each individual petroleum product: Bi-weekly, within two days of the completion of the pricing review. - The indicative maximum price approved in the bi-weekly review of petroleum pricing for each individual petroleum product: Bi-weekly (same timing). - Electricity grid losses (transmission losses (Gridco); distribution losses (ECG and Nedco)) and bills’ recoveries (ECG and Nedco): Monthly, within six weeks from the end of each month. ### Debt sustainability assessment: key findings and risks - Overall assessment - Risk of external debt distress: In debt distress. - Overall risk of debt distress: In debt distress. - Granularity in the risk rating: Unsustainable. - Application of judgment: No. - Conclusion: Given the ongoing debt restructuring and large and protracted breaches to the DSA thresholds, Ghana is currently in debt distress and the debt sustainability analysis shows that debt is unsustainable. - Macroeconomic and market developments driving deterioration - External shocks: Covid-19 pandemic, tightening global financial conditions, and the war in Ukraine. - Market indicators: Eurobond spreads widened to above 2900 bps at end-December 2022 and remained in distressed territory. - Loss of international market access: late 2021. - Domestic financing pressures: increasing reliance on Bank of Ghana monetary financing. - Fiscal and debt dynamics (selected numeric indicators) - Primary deficit (commitment basis): 4.8 percent in 2021; 3.6 percent in 2022. - Overall fiscal deficit: 12.1 percent of GDP in 2021; 11 percent of GDP in 2022. - Public debt: increased from 63 percent of GDP in 2019 to 88.1 percent of GDP at end-2022. - Domestic debt: 45.7 percent of GDP in 2022; of which 16 percent of GDP was held by the Bank of Ghana. - Public external debt: 42.4 percent of GDP in 2022. - Specific fiscal cost and contingent items - Financial sector recapitalization fiscal cost: estimated to have reached 7.1 percent of GDP over 2017-21. - Additional recapitalization costs included in DSA baseline from domestic debt restructuring: 2.6 percent of GDP. - Energy sector budgetary transfers to cover annual shortfalls: averaging 1.7 percent of GDP between 2019 and 2021. - Accumulated energy sector arrears: estimated at 3.1 percent of GDP at end-2022. - Cocobills (Cocobod domestic issuances): add 1.4 percent of GDP to public debt as of end-2022. - Domestic arrears to suppliers included in DSA: estimated at 4.4 percent of GDP, including 1.7 percent of GDP of reconciled debts to IPPs. - The DSA baseline incorporates a medium-term clearance plan for these arrears. - Debt coverage and contingent liability treatment - DSA covers PPG debt of central government and important liabilities of the public sector, including explicitly guaranteed debt of other public and private entities (SOEs), certain implicitly guaranteed SOE debt, ESLA debt, GETFund/Daakye debt, and Sinohydro-related infrastructure debt together accounting for 2.1 percent of GDP. - Tailored stress test default shocks: adds (as percent of GDP) non-guaranteed SOE debt 2 percent (default value 2 percent used in line with GN), additional financial sector costs 5 percent of GDP, and 35 percent of PPP stock equivalent to 2.4 percent of GDP. Total of tailored stress test additions equals 9.4 percent of GDP. - External debt profile details (end-2022, as presented) - Total public debt (face value): 63,332 (units indicated in table: US$ mn? as reported by Country authorities based on disbursements). - External debt: 30,483 (48.1 percent of total; 42.4 percent of GDP). - Multilateral creditors: 8,055 (12.7 percent of total; 11.2 percent of GDP). - IMF: 1,710 (2.7 percent of total; 2.4 percent of GDP). - World Bank: 4,750 (7.5 percent of total; 6.6 percent of GDP). - African Development Bank: 1,193 (1.9 percent of total; 1.7 percent of GDP). - Bilateral creditors: 5,438 (8.6 percent of total; 7.6 percent of GDP). - Bonds: 13,104 (20.7 percent of total; 18.2 percent of GDP). - Commercial creditors: 3,886 (6.1 percent of total; 5.4 percent of GDP). - Local-currency government debt held by non-residents: 1,614 (2.5 percent of total; 2.2 percent of GDP). - Domestic debt: 32,849 (51.9 percent of total; 45.7 percent of GDP). - Short-term bills: 5,009 (7.9 percent of total; 7.0 percent of GDP). - Medium-to-long term bonds: 18,320 (28.9 percent of total; 25.5 percent of GDP). - Arrears: 3,186 (5.0 percent of total; 4.4 percent of GDP). - Other (Overdraft and SDRs on-lent): 6,258 (9.9 percent of total; 8.7 percent of GDP). - Memo items: - Collateralized debt: 3 (note in table; context retained). - Contingent liabilities: 308 (o/w Public guarantees 284; other explicit contingent liabilities 24). - Nominal GDP (in GHS mn) 615,259. - Present value of external debt is discounted at 5 percent (footnote). - Additional notable indicators and developments - Nonresident holdings of domestic debt decreased from $4.8 billion in 2021 (6.2 percent of GDP; 14.3 percent of public external debt) to $1.6 billion in 2022 (2.2 percent of GDP; 5.3 percent of public external debt). - Under the baseline (not incorporating ongoing debt restructuring impact): - The present value (PV) of external debt-to-GDP and external debt service-to-revenues exceed their respective thresholds throughout the full-time horizon of the DSA. - External debt service-to-exports breaches its thresholds in 2025 for one year and again in 2029 to remain above it throughout the full remaining horizon. - PV of external debt-to-exports ratio remains below its threshold under the baseline throughout the full-time horizon, while temporarily breaching the threshold under the exports shock scenario. - PV of public debt-to-GDP breaches its 55 percent benchmark throughout the full-DSA horizon. - Stress-test result: a one standard deviation deterioration in the primary balance would put overall public debt well above the current unsustainable trajectory throughout the full DSA horizon. - Conclusion reiterated: Absent comprehensive debt restructuring and a credible reform plan underpinned by a feasible and growth-friendly fiscal adjustment, Ghana’s public debt is unsustainable. Strong ownership of the IMF-supported program and commitment to reforms by the authorities are key. ### Operational and policy implications highlighted in the text - Data transparency and timely reporting: Authorities must provide the detailed fiscal, monetary, financial market, balance of payments, debt, and SOE data according to the specified periodicities and lags, and promptly transmit any revisions. - Consultation requirement: For any information and data relevant to program assessment not specifically defined, the authorities will consult with Fund staff. - Loan transparency: Authorities will share any prospective external loan agreements with Fund staff before cabinet submission and before contracting. - Debt restructuring and reform imperative: The analysis emphasizes that a comprehensive debt restructuring together with a credible, feasible, and growth-friendly fiscal reform program is necessary to restore debt sustainability. *Prepared by IMF and IDA staff as contained in the provided content.* ### 8. Liquidity pressures have increased over the past few years. The debt service-to-revenue ratio ### 1ghaea2023001 - 8. Liquidity pressures have increased over the past few years. The debt service-to-revenue ratio ### Liquidity pressures and debt service burden - Debt service-to-revenue ratio reached an all-time high of 127 percent in 2020. - The debt service-to-revenue indicator declined to 117.6 percent in 2022, reflecting mainly higher government revenues and higher inflation. - Debt-service to private external creditors accounted for 69 percent of external debt service payments in 2022. - Debt service to bilateral creditors represented 20 percent of external debt service payments in 2022. - Gross financing needs (GFN) reached 19.3 percent of GDP in 2022 and are expected to remain well above the market financing risks benchmark of 14 percent over the medium term. ### Domestic debt, borrowing costs, and maturities - Domestic debt increased from 24 percent of GDP in 2019 to 45.7 percent of GDP at end-2022. - The effective interest rate for government debt rose from 10.8 percent in 2021 to 11 percent in 2022. - Average time to maturity of public debt dropped from 8.2 years in 2021 to 7.2 years in 2022. - Domestic debt service accounted for 81.7 percent of the public debt service burden in 2022. - Composition of domestic debt (end-December 2022) listed categories and percentages in the source (graphical presentation). ### Macroeconomic deterioration and near-term outlook - Real GDP growth estimated to have slowed from 5.4 percent in 2021 to 3.2 percent in 2022. - Headline inflation reached 54 percent in December (year not restated in excerpt), declining marginally to 53 percent in February 2023. - Exchange rate depreciation was about 50 percent since end-2021. - Gross international reserves declined by about $5 billion since mid-2021 to $1.1 billion at end-February 2023, corresponding to 0.5 months of prospective imports. ### Baseline under proposed Fund-supported program (pre-restructuring) - Non-extractive growth projected to dip in 2023 to 0.7 percent and recover to long-term potential starting from 2026. - Growth in extractive activities expected to remain robust at about 6 percent on average over the next five years. - Overall real GDP growth expected to be 1.5 percent in 2023 and recover to 5 percent in 2026. - Inflation projected to gradually fall to the central bank’s 6-10 percent target range by 2025. - Current account deficit projected to stabilize at around 2.6 percent of GDP over the medium term. - Official reserves projected to rise to 3 months of prospective imports (US$7.8 billion) by 2026. - The DSA is based on a pre-restructuring scenario and does not model any debt relief. ### Fiscal adjustment assumptions and measures - The primary balance on a commitment basis is projected to improve by 5 percent of GDP between 2022 and 2026, reaching a surplus of 1.5 percent of GDP in 2025 and maintained at least until 2028. - Authorities’ objective: raise government revenue-to-GDP ratio to over 18.5 percent by end of the program from 15.7 percent in 2022. - Possible revenue measures mentioned include streamlining large VAT exemptions (estimated at around 2 percent of GDP), strengthening excise taxes, improving extractive industry tax regime, and reforms to reinforce tax compliance and revenue administration. - Expenditure measures include streamlining to preserve growth-enhancing public investment, expanding social safety nets, eliminating extra-budgetary spending and arrears buildup, and reducing large subsidies to the energy sector through tariff adjustments and cost reduction measures. - A plan to clear the large stock of domestic arrears is being prepared. - The 2023 Budget measures intended to improve non-oil revenue-to-GDP ratio by 1 percent of GDP include (i) increasing the VAT rate by 2.5 percent, (ii) strengthening personal and corporate income taxes and the existing levy on mobile money transactions (the e-levy), (iii) removing customs exemptions, and (iv) strengthening some excise taxes and improving VAT compliance. - Primary expenditure will be reduced by 2 percent of GDP in 2023; overall primary balance (on a commitment basis) expected to be reduced by about 3 percent of GDP in 2023. ### Debt restructuring and domestic debt exchange (DDE) - Authorities announced a comprehensive debt restructuring covering domestic as well as external commercial and bilateral debt to achieve debt sustainability and a moderate risk of debt distress under the LIC-DSF framework. - Targets include reducing PV of total debt-to-GDP and external debt service-to-revenue ratios to 55 and 18 percent, respectively, by 2028. - Government launched a voluntary domestic debt exchange (DDE) in early-December; initial exchange covered about 65 percent of total outstanding domestic bonds (excluding bonds held by pension funds). - DDE settled on February 21, 2023: 85 percent participation of face value of bonds held by investors other than pension funds, equivalent to 28 percent of all outstanding domestic debt. - Government offered new bonds with a combined average maturity of 8.2 years and coupons up to 10 percent; part of coupons capitalized rather than paid in cash in 2023 and 2024. - At a 16-18 percent discount rate, final terms of the DDE imply an average NPV reduction of about 30percent for participating bondholders. - Completed DDE produced almost GHS 50 billion in cash debt relief for the government in 2023. - Government pursuing further exchanges of domestic debt denominated in US dollars and Cocobills issued by Cocobod; these account for about 5 percent of total domestic debt but represent about GHS 15 billion in debt service in 2023. - Authorities announced a standstill on external commercial and bilateral debt in late December and formally requested a debt treatment under the G20’s Common Framework. ### Financing assumptions under the baseline (conservative) - Assumes government will not regain external market access until 2027. - External disbursements over 2023-26 limited to the World Bank, IMF, and other bilateral development partners. - World Bank assumed to disburse US$3 billion: US$1.45 billion for project loans, US$1.15 billion for budget support, US$0.15 billion for support to social safety nets and US$0.25 billion for emergency support to the financial sector. - Scenario assumes new exceptional financing of US$3 billion from the IMF in 2023-26, conditional on financing assurances and a credible debt restructuring process for private claims. - Other bilateral development partners expected to contribute US$0.33 billion. - Under the pre-restructuring baseline, residual financing gap assumed to be filled through accumulation of further arrears (simulated issuance of stylized “arrears bonds” at 5 percent interest rate and 10-year maturity). - Central Bank financing assumed to end in 2023. - Domestic financing needs in 2023 and 2024 assumed to be met through issuance of T-bills; starting in 2025 a gradually increasing share of domestic financing projected to be met through issuance of longer-term Cedi debt. ### Projections realism, risks, and downside factors - Staffs’ projections have historically tended to overestimate fiscal adjustment; total public debt exceeded 2017 DSA estimates by 28 percentage points of GDP on average. - Average five-year gap between actual and projected overall debt growth amounts to 9 percentage points of GDP in 2022. - External debt exceeded 2017-DSA 5-year projections by 6.3 percentage points of GDP. - Baseline’s projected primary balance adjustment of 5 percent of GDP over three years is judged feasible; consolidation falls within the top quartile for peers but is 4 percent of GDP lower than the top of the distribution. - Downside risks include delays in implementing adjustment and reforms, weak interagency coordination, lower agricultural and commodity production, deterioration in global conditions, policy slippages possibly exacerbated by the 2024 elections, need to support Cocobod, and larger-than-expected financial sector support needs due to the domestic debt exchange. - Strong political support for the program is noted as a mitigating factor. ### Debt-carrying capacity assessment and stress test determination - Ghana’s debt carrying capacity assessed as “medium” and unchanged from the last DSA. - Composite Indicator (CI) score reported as 2.82, between cut-off values for weak and strong debt-carrying capacity (2.69 and 3.05 respectively). - CI components and contributions are provided in the source (table), with CPIA contributing 49 percent to the CI score. *Source: Content unit 1ghaea2023001 - excerpt on liquidity pressures and debt dynamics.* ### 20. Stress tests applied to public and external debt show that the primary balance, exchange ### Stress tests applied to public and external debt show that the primary balance, exchange rate and exports are the most relevant for debt dynamics. ### Stress test design and tailored scenarios - Standard shock scenarios calibrated at 1 standard deviation in 2024 from their respective historical averages for: GDP growth, the primary balance, exports and FDI. - Exchange rate stressed with a one-time 30 percent depreciation in 2025. - A combined shock including all the above at half magnitude is also applied. - Tailored commodity price test: simulates a one standard deviation drop in both fuel and non-fuel commodity export prices; commodities represent over 70 percent of exports. - Market financing shock: simulates a 400 bps increase in the cost of borrowing for 3 years, a shortening of average maturities on external debt by 2 years and a 15-percent exchange rate depreciation. - Interest rate on additional borrowing resulting from the stress test is estimated at 9 percent (higher than the default rate of 4.9 percent) to reflect deterioration in Ghana’s creditworthiness and loss of market access. ### External DSA assessment — key breaches and drivers - Under the baseline, three external debt burden indicators breach their thresholds; one does so over the full horizon and by large margins. - Debt service-to-revenue ratio: - Exceeds its threshold of 18 percent by large margins throughout the entire forecast horizon. - One-off 30-percent nominal depreciation of the cedi is the most extreme shock for this indicator. - PV of PPG external debt-to-GDP: - Remains above its 40 percent threshold under the baseline until 2040. - One-off 30-percent nominal depreciation is the most extreme shock for this indicator. - Debt service-to-exports ratio: - Breaches its 15 percent threshold briefly in 2025 and breaches again in 2032 to remain above it throughout the projection horizon. - Exports shock has the highest impact on this indicator. - PV of external debt-to-exports ratio: - Does not breach its 180 percent threshold under the baseline. - Breaches 180 percent in 2025-31 under an exports shock scenario (the most extreme shock for this indicator). ### Public DSA assessment — public debt dynamics and stress impacts - PV of total PPG debt-to-GDP breaches its 55 percent benchmark throughout the medium and long term under the baseline. - Public debt declines gradually over time but remains above 55 percent throughout the full horizon. - Most severe shocks for public debt-to-GDP indicator: - One standard deviation deterioration in the primary balance (most severe). - Adverse exports shock (second). - One standard deviation decline in real GDP growth (third). - For other public debt indicators, the commodity price shock is the most severe. ### Market financing risks and gross financing needs (GFN) - Loss of market access: market financing risks assessed as “high”. - Both market financing risk indicators breach their respective thresholds. - Gross financing needs (GFN): - 19.3 percent of GDP in 2022. - Expected to remain significantly above the 14 percent benchmark over the 3-year baseline projection horizon. - Increase further to reach 30 percent of GDP in 2025. - Start declining gradually towards 16.8 percent of GDP in 2028. - Eurobond spreads: - Surged since mid-2021 and surpassed 2900 bps by end 2022, well above the 570 bps benchmark. - Sovereign bond spread accelerated from 660 bps in mid-2021 to exceed 2900 bps at end-December 2022. ### Sustainability assessment and policy conclusions - Ghana’s external and overall public debt are assessed to be in distress and debt to be unsustainable. - Extended and large breaches of most debt burden indicators persist despite the baseline assumption of maximum feasible fiscal adjustment. - Baseline does not incorporate the impact of the ongoing debt restructuring. - Market access and debt restructuring context: - Country lost international market access in 2021 amid sharp deterioration in market sentiment and surge in market spreads. - Authorities requested financial support from the IMF in July 2022. - Authorities hired financial and legal advisors and launched a comprehensive debt restructuring strategy. - Progress being made on domestic debt restructuring; an external debt service standstill is in place. - Required actions to restore debt sustainability: - A comprehensive public debt restructuring, and the successful implementation of a credible reform program underpinned by a feasible and growth-friendly fiscal adjustment, will be necessary. - Baseline assumes strong program ownership and authorities’ full commitment to implement the Fund-supported program to restore debt sustainability and bring the debt risk rating to “moderate” in the medium term. - Targets included: reduce the PV of total debt-to-GDP and external debt service-to-revenue ratios to 55 and 18 percent, respectively, by 2028. - Measures envisioned: revenue-based fiscal consolidation with higher spending efficiency and stronger social safety nets; structural reforms to support greater exchange rate flexibility, a more diversified economy and more inclusive growth. ### Data, transparency, and contingent liabilities - Enhancing debt data and transparency are essential to better identify PPG debt and contingent liabilities and allow for more accurate assessment of debt vulnerabilities. - Material drivers of past debt accumulation: materialization of contingent liabilities, off-budget operations, and domestic arrears, along with rapid cedi depreciation. - State-owned enterprises (SOEs) represent a potential source of government obligations via undisclosed debt or contingent liabilities. - Recommendation: More comprehensive coverage of SOEs debt and guarantees—particularly those that engage in quasi-fiscal activities—to allow for more accurate assessment of fiscal risks and enhance debt coverage. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### 1ghaea2023001 - 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### Fiscal adjustment distribution and projected 3-year primary balance (PB) adjustment - Distribution shows 3-year PB adjustment measured in percentage points of GDP on the horizontal axis and percent of sample on the vertical axis. - Projected 3-yr adjustment: 3-year PB adjustment greater than 2.5 percentage points of GDP is in the approximate top quartile. - Baseline and multiplier scenarios illustrated with multipliers = 0.2, 0.4, 0.6, 0.8 for the years 2017–2024 (in percentage points of GDP). ### Market-financing risk indicators (Figure 5) - Note: Baseline and market financing shock scenarios display very similar paths for PV of debt-to-exports, debt service-to-exports and debt service-to-revenue ratios due to the low level of new envisaged commercial borrowing in the 3 years from the second year of the projection (2024-26). - Indicators and flags: - Breach of benchmark: Yes for GFN (maximum gross financing needs) and EMBI thresholds noted. - GFN benchmarks: 14 (benchmark value indicated as 14). - EMBI: 570 (EMBI spreads correspond to the latest available data). - Values presented: 30, 29, 36 (shown as Values302936). - Potential heightened liquidity needs: High. - Time series shown for key ratios across 2023–2033 for: - Debt service-to-revenue ratio (0 to 200 scale shown). - PV of debt-to-exports ratio (0 to 60 scale shown). - PV of debt-to-GDP ratio (0 to 60 scale shown). - Debt service-to-exports ratio (0 to 20 scale shown). ### External Debt Sustainability Framework — Baseline Scenario (Table 1: selected figures) - Coverage: Includes both public and private sector external debt (residency-based). - External debt (nominal) in percent of GDP: - 2022: 47.8 - 2023: 63.2 - 2024: 59.2 - 2025: 58.2 - 2026: 57.9 - 2027: 57.3 - 2028: 56.6 - 2033: 54.4 - 2043: 49.6 - Historical average: 41.7 - Projections average: 56.9 - Of which: public and publicly guaranteed (PPG): - 2022: 42.4 - 2023: 57.5 - 2024: 53.3 - 2025: 52.0 - 2026: 51.4 - 2027: 50.5 - 2028: 49.6 - 2033: 46.0 - 2043: 39.6 - Projections average: 49.9 - Change in external debt: - 2022: -0.8 - 2023: 15.4 - 2024: -4.0 - 2025: -1.0 - 2026: -0.4 - 2027: -0.6 - 2028: -0.7 - 2033: -0.3 - 2043: -1.0 - Identified net debt-creating flows (series includes values such as 2.1, 0.1, -2.2, -3.7 across 2022–2024 and beyond). - Non-interest current account deficit and components (selected percent of GDP figures): - Non-interest current account deficit: 2022: -0.2; 2023: 0.0; 2024: -0.4; 2025: -0.2; 2026: 0.4; 2027: 0.5; 2028: 0.6; 2033: 0.9; 2043: 1.3. - Exports (percent of GDP): 2022: 35.3; 2023: 39.1; 2024: 40.2; 2025: 39.7; 2026: 39.3; 2027: 38.3; 2028: 37.3; 2033: 37.2; 2043: 37.4. - Imports (percent of GDP): 2022: 36.1; 2023: 39.7; 2024: 40.6; 2025: 39.7; 2026: 39.4; 2027: 38.7; 2028: 37.7; 2033: 37.7; 2043: 37.5. - Net current transfers (negative = inflow): 2022: -4.9; 2023: -5.5; 2024: -5.5; 2025: -5.3; 2026: -5.1; 2027: -4.9; 2028: -4.7; 2033: -4.1; 2043: -3.2. - Net FDI (negative = inflow): 2022: -2.0; 2023: -2.0; 2024: -2.8; 2025: -3.5; 2026: -3.5; 2027: -3.4; 2028: -3.4; 2033: -3.4; 2043: -3.4. - Endogenous debt dynamics contributions: - Total endogenous debt dynamics: 2022: 4.3; 2023: 2.1; 2024: 1.0; 2025: 0.0; 2026: -0.1; 2027: -0.2; 2028: -0.2; 2033: 0.0; 2043: 0.4. - Contribution from nominal interest rate: 2022: 2.3; 2023: 2.8; 2024: 2.8; 2025: 2.7; 2026: 2.6; 2027: 2.5; 2028: 2.5; 2033: 2.6; 2043: 2.7. - Contribution from real GDP growth: 2022: -1.7; 2023: -0.8; 2024: -1.7; 2025: -2.6; 2026: -2.7; 2027: -2.7; 2028: -2.7; 2033: -2.6; 2043: -2.4. - Residual: - 2022: -2.8; 2023: 15.3; 2024: -1.8; 2025: 2.7; 2026: 2.8; 2027: 2.5; 2028: 2.3; 2033: 2.2; 2043: 0.8. - Sustainability indicators: - PV of PPG external debt-to-GDP ratio: 2022: 42.8; 2023: 48.7; 2024: 50.1; 2025: 49.1; 2026: 48.2; 2027: 47.3; 2028: 46.3; 2033: 43.2; 2043: 37.4. - PV of PPG external debt-to-exports ratio: 2022: 121.1; 2023: 124.7; 2024: 124.4; 2025: 123.6; 2026: 122.8; 2027: 123.3; 2028: 124.1; 2033: 116.1; 2043: 100.1. - PPG debt service-to-exports ratio: 2022: 12.3; 2023: 13.8; 2024: 12.7; 2025: 16.8; 2026: 14.9; 2027: 14.2; 2028: 12.7; 2033: 17.5; 2043: 13.1. - PPG debt service-to-revenue ratio: 2022: 28.1; 2023: 32.5; 2024: 29.9; 2025: 37.9; 2026: 31.6; 2027: 29.6; 2028: 25.7; 2033: 35.2; 2043: 26.4. - Gross external financing need (Million of U.S. dollars): - 2022: 2554.8 - 2023: 3186.2 - 2024: 2275.5 - 2025: 3197.7 - 2026: 3300.2 - 2027: 3397.9 - 2028: 3149.8 - 2033: 7188.0 - 2043: 11870.4 ### Key macroeconomic assumptions (Table 1) - Real GDP growth (in percent): - 2022: 3.2 - 2023: 1.5 - 2024: 2.8 - 2025: 4.7 - 2026: 5.0 - 2027: 5.0 - 2028: 5.0 - 2033: 5.0 - 2043: 4.6 - Historical average: 4.4 - GDP deflator in US dollar terms (change in percent): - 2022: -10.9 - 2023: -10.0 - 2024: -1.1 - 2025: 0.9 - 2026: 1.2 - 2027: 1.4 - 2028: 1.6 - 2033: 1.6 - 2043: 1.7 - Historical average: -1.5 - Effective interest rate (percent): - 2022: 4.3 - 2023: 5.4 - 2024: 4.4 - 2025: 4.8 - 2026: 4.7 - 2027: 4.6 - 2028: 4.6 - 2033: 5.1 - 2043: 5.8 - Historical average: 5.6 - Growth of exports of G&S (US dollar terms, in percent): - 2022: 7.7 - 2023: 1.0 - 2024: 4.7 - 2025: 4.3 - 2026: 5.0 - 2027: 4.0 - 2028: 3.7 - 2033: 6.7 - 2043: 6.9 - Historical average: 4.8 - Growth of imports of G&S (US dollar terms, in percent): - 2022: 1.4 - 2023: 0.3 - 2024: 3.9 - 2025: 3.3 - 2026: 5.5 - 2027: 4.7 - 2028: 3.8 - 2033: 6.7 - 2043: 6.6 - Historical average: 2.0 - Grant element of new public sector borrowing (in percent): series includes values such as 14.7, 13.9, 10.9, 8.8, 6.0, 6.9, 2.5, 2.2 and historical ellipses indicating gaps. - Government revenues (excluding grants, in percent of GDP): - 2022: 15.5 - 2023: 16.6 - 2024: 17.1 - 2025: 17.6 - 2026: 18.4 - 2027: 18.5 - 2028: 18.5 - 2033: 18.5 - 2043: 18.5 - Historical average: 13.6 - Projections average: 18.1 - Aid flows (Million of US dollars): - 2022: 132.4 - 2023: 884.0 - 2024: 932.9 - 2025: 942.0 - 2026: 875.6 - 2027: 845.2 - 2028: 883.8 - 2033: 692.8 - 2043: 842.9 - Grant-equivalent financing (in percent of GDP) shown for projection years with series including 1.2, 1.0, 1.0, 0.7, 0.6, 0.5, 0.4, 0.3 and historical ellipses. - Nominal GDP (Million of US dollars): - 2022: 72,839 - 2023: 66,499 - 2024: 67,621 - 2025: 71,480 - 2026: 75,920 - 2027: 80,851 - 2028: 86,225 - 2033: 119,188 - 2043: 228,880 - Nominal dollar GDP growth: - 2022: -8.0 - 2023: -8.7 - 2024: 1.7 - 2025: 5.7 - 2026: 6.2 - 2027: 6.5 - 2028: 6.6 - 2033: 6.7 - 2043: 6.8 - Historical average: 3.0 - Projections average: 4.7 ### Memorandum and additional external DSA items - PV of external debt (percent of GDP) series: 48.2, 54.4, 56.0, 55.3, 54.7, 54.0, 53.3, 51.6, 47.4. - PV of external debt in percent of exports series: 136.2, 139.1, 139.1, 139.2, 139.2, 140.8, 142.9, 138.6, 126.8. - Total external debt service-to-exports ratio: 16.1, 17.4, 16.3, 20.6, 18.9, 18.5, 17.3, 23.0, 19.7. - PV of PPG external debt (Million of US dollars) examples: - 2022: 31,165.9 - 2023: 32,404.8 - 2024: 33,846.3 - 2025: 35,080.0 - 2026: 36,591.8 - 2027: 38,223.2 - 2028: 39,901.6 - 2033: 51,510.3 - 2043: 85,666.2 - (PVt-PVt-1)/GDPt-1 (in percent): 1.7, 2.2, 1.8, 2.1, 2.1, 2.1, 2.5, 1.6. ### Public Sector Debt Sustainability Framework — Baseline Scenario (Table 2: selected figures) - Public sector debt (percent of GDP): - 2022: 88.1 - 2023: 98.1 - 2024: 92.0 - 2025: 90.2 - 2026: 88.4 - 2027: 86.1 - 2028: 83.9 - 2033: 75.5 - 2043: 61.8 - Historical average: 63.3 - Projections average: 84.8 - Of which: external debt (percent of GDP) mirrors Table 1 PPG external shares (e.g., 42.4 in 2022; 57.5 in 2023). - Change in public sector debt: - 2022: 0.8 - 2023: 10.0 - 2024: -6.1 - 2025: -1.8 - 2026: -1.8 - 2027: -2.3 - 2028: -2.2 - 2033: -1.6 - 2043: -1.5 - Identified debt-creating flows: shown (e.g., -2.2 in 2022; -8.2 in 2023; -1.1 in 2024; -1.3 in 2025). - Primary deficit: - 2022: 0.8 - 2023: 1.2 - 2024: 0.2 - 2025: -0.9 - 2026: -0.9 - 2027: -1.0 - 2028: -1.0 - 2033: -1.0 - 2043: -1.0 - Historical average: 2.9 - Projections average: -2.4 - Revenue and grants (percent of GDP): - 2022: 15.7 - 2023: 16.8 - 2024: 17.3 - 2025: 17.8 - 2026: 18.7 - 2027: 18.7 - 2028: 18.7 - 2033: 18.7 - 2043: 18.7 - Primary (noninterest) expenditure (percent of GDP): - 2022: 16.5 - 2023: 18.0 - 2024: 17.5 - 2025: 16.9 - 2026: 17.7 - 2027: 17.7 - 2028: 17.7 - 2033: 17.7 - 2043: 17.7 - Automatic debt dynamics: - 2022: -3.0 - 2023: -9.4 - 2024: -1.3 - 2025: -0.4 - 2026: -0.9 - 2027: -1.3 - 2028: -1.2 - 2033: -0.8 - 2043: -0.6 - Contribution from interest rate/growth differential example: - 2022: -9.6 - 2023: -9.4 - 2024: -1.3 - 2025: -0.4 - PV of public debt-to-GDP ratio (sustainability indicator): - 2022: 89.1 - 2023: 98.1 - 2024: 91.2 - 2025: 88.8 - 2026: 86.7 - 2027: 84.3 - 2028: 82.0 - 2033: 74.0 - 2043: 60.8 - PV of public debt-to-revenue and grants ratio: - 2022: 567.5 - 2023: 584.5 - 2024: 527.2 - 2025: 499.3 - 2026: 464.3 - 2027: 450.9 - 2028: 438.6 - 2033: 396.1 - 2043: 325.3 - Debt service-to-revenue and grants ratio: - 2022: 117.6 - 2023: 117.3 - 2024: 146.6 - 2025: 177.0 - 2026: 159.6 - 2027: 110.0 - 2028: 97.3 - 2033: 97.8 - 2043: 72.0 - Gross financing need (percent of GDP): - 2022: 19.3 - 2023: 23.1 - 2024: 24.9 - 2025: 30.0 - 2026: 28.3 - 2027: 19.0 - 2028: 16.8 - 2033: 17.3 - 2043: 12.5 - Key macro and fiscal assumptions repeated (Real GDP growth, interest rates, inflation) consistent with Table 1: - Real GDP growth (percent): 2022: 3.2; 2023: 1.5; 2024: 2.8; 2025: 4.7; 2026–2028: 5.0; 2033: 5.0; 2043: 4.6; historical average: 4.4. - Average nominal interest rate on external debt (percent): 2022: 4.3; 2023: 5.5; 2024: 5.2; 2025: 5.0; 2026: 4.8; 2027: 4.7; 2028: 4.7; 2033: 5.3; 2043: 6.2; historical average: 5.9; projections average: 5.0. - Inflation rate (GDP deflator, percent): 2022: 29.8; 2023: 39.9; 2024: 20.1; 2025: 10.9; 2026: 7.6; 2027: 7.6; 2028: 7.7; 2033: 7.7; 2043: 7.8; historical average: 14.7. - Primary deficit that stabilizes the debt-to-GDP ratio (percent): 2022: 0.0; 2023: -8.8; 2024: 6.3; 2025: 1.0; 2026: 0.8; 2027: 1.3; 2028: 1.2; 2033: 0.6; 2043: 0.5; historical average: -4.5. ### Sensitivity analysis — Public and PPG external debt (Table 3) and Public debt (Table 4) - Table 3 (PPG external debt indicators, percent): - Baseline PV of debt-to-exports ratio shown as series: 49 (2023), 50 (2024), 49 (2025), 48 (2026), 47 (2027), 46 (2028), 45 (2029), 44 (2030), 44 (2031), 43 (2032), 43 (2033). - A. Alternative scenario A1 (historical averages 2023–2033) shows higher series rising into the 60s. - Bound tests (B1–B6) and tailored tests (C1–C4) presented; bold values indicate breach of thresholds (thresholds shown as 40 for PV of debt-to-exports ratio). - Additional panels provide analogous series for Debt service-to-exports ratio, Debt service-to-revenue ratio, and PV of debt-to-GDP ratio with thresholds 180, 151, 181, 181, etc., and baseline and scenario paths. - Table 4 (Public debt indicators, percent): - Baseline PV of Debt-to-Revenue Ratio series: 98 (2023), 98 (2024), 91 (2025), 89 (2026), 87 (2027), 84 (2028), 82 (2029), 80 (2030), 78 (2031), 77 (2032), 74 (2033). - A1 scenario and bound tests B1–B6 and tailored tests C1–C4 reported; TOTAL public debt benchmark shown as 55 (row labeled TOTAL public debt benchmark555555...). - Baseline Debt Service-to-Revenue Ratio series: 117 (2023), 147 (2024), 177 (2025), 160 (2026), 110 (2027), 97 (2028), 99 (2029), 95 (2030), 96 (2031), 100 (2032), 98 (2033). - PV of Debt-to-GDP Ratio baseline series and scenario paths shown (e.g., baseline series including 585 notations aligned with percent-of-revenue/percent-of-GDP matrices). - Notes: - A bold value indicates a breach of the benchmark. - Variables in alternative scenarios include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. - Other flows include official and private transfers and FDI. ### Context and administrative details - Document: Request for an Arrangement under the Extended Credit Facility — Supplementary Information. - Prepared by the Ghana team of the African Department. - Supplement provides additional information to the Staff Report circulated to the Executive Board on May 3, 2023, including an update on financing assurances from official bilateral creditors and recent data releases. - Date on cover: May 12, 2023. *Sources: Country authorities; and staff estimates and projections.* ### 1. As foreseen in the staff report, staff’s assessment is that there are sufficient assurances ### 1ghaea2023001 - 1. As foreseen in the staff report, staff’s assessment is that there are sufficient assurances ### Financing assurances and IMF recommendation - Official bilateral creditors engaged through an Official Creditor Committee (OCC) formed under the G20 Common Framework for Debt Treatments beyond the DSSI (CF) provided financing assurances through creditor discussions and a joint statement (published on May 12). - With these financing assurances, staff recommends approval of the arrangement under the Extended Credit Facility (ECF). ### Authorities’ program request and commitments - Authorities request a 36-month arrangement under the IMF’s Extended Credit Facility (ECF) in the amount of SDR 2.242 billion (304 percent of quota or about US$3 billion) for budget support. - Authorities state the program incorporates adequate safeguards and should help catalyze financing for the Post Covid-19 Program for Economic Growth (PC-PEG). - Authorities have fully implemented all five prior actions and express strong commitment to timely corrective actions if needed. ### Recent data and short-term outlook - Preliminary 2022 national accounts: real GDP grew by 3.1 percent in 2022 (Staff Report estimate was 3.2 percent). - 2022 nominal GDP: GHS 610 billion (about 0.8 percent below the GHS 615 billion estimated in the Staff Report). - CPI year-over-year growth eased from 45 percent in March to 41.2 percent in April 2023. - Staff assesses that updating the macroeconomic framework with these data would not materially affect program design or analysis. ### Macroeconomic developments, risks, and projections - Growth history and projections: - Real GDP: rebounded to 5.1 percent in 2021; slowed to 3.1 percent in 2022. - Economic growth for 2023 projected at 1.5 percent. - Growth expected to pick up from 2024, averaging around 5 percent annually over the medium term. - Inflation developments and projections: - Headline inflation accelerated from 7.5 percent in May 2021 to 54.1 percent in December 2022. - Headline CPI eased to 41.2 percent in April 2023. - Inflation projected to decline to 29 percent by end-2023 and to fall within the Bank of Ghana’s medium-term target band of 6-10 percent by end-2025. - Monetary tightening and multi-year fiscal consolidation are central to this disinflation path; outcomes depend on ECF execution and timely debt restructuring. - External sector and exchange rate: - Overall balance of payments turned to a deficit in 2022, driven by a larger current account deficit, lower FDI flows, and a significant portfolio reversal. - FX reserves declined significantly in 2022. - Cedi depreciation: 30.0 percent against the US dollar in 2022 following a depreciation of 4.1 percent in 2021. ### Fiscal policy and debt management - 2023 budget and fiscal adjustment: - 2023 budget frontloads adjustment aimed at reducing the primary deficit (on commitment basis) by 3.1 percentage points. - Adjustment hinges on increasing non-oil (excluding grants) and oil revenues to GDP and reducing the primary expenditures-to-GDP ratio by 2 percentage points. - Main revenue measures: increase in the VAT rate; complete removal of discount on benchmark values at customs; review of the E-levy and income-based taxes. - Expenditure measures to achieve 2023 savings include: - Reducing the cap on transfers to statutory funds and reviewing earmarked funds. - A 30 percent cut in the salaries of political office holders. - Rationalizing financial clearance and negotiating wage adjustment to realize a reduction in Compensation of Employees by 0.5 percentage points of GDP. - Setting budgetary allocations to Use of Goods and Services and capital expenditure to prevent accumulation of arrears. - Calibrating 2023 appropriations for transfers to energy producers to cover the sector’s expected financial shortfall in full. - Medium-term fiscal targets and revenue strategy: - Target a primary surplus (on commitment basis) of 1.5 percent of GDP by 2025 through to 2028. - Objective to raise public revenue-to-GDP to over 18.5 percent by the end of the program (from 15.7 percent in 2022). - Development of a Medium-Term Revenue Strategy (MTRS) to progressively raise non-oil revenue. - Oil revenue expected to increase during the program years and return to 2022 levels by 2027. - Debt strategy and reforms: - Develop a medium-term debt strategy (MTDS) to prioritize concessional financing, build buffers, and strengthen SOE governance (financial and energy sectors including COCOBOD). - Publish MTDS and updated annual borrowing plan; deepen domestic debt market and strengthen debt transparency. ### Monetary and exchange rate policies - Bank of Ghana (BoG) policy stance: - Continue tightening monetary policy within an inflation-targeting framework until inflation is on a sustained declining path. - Cumulative increase in the policy rate of 1500 basis points since January 2022. - BoG will step up sterilization to absorb excess liquidity, while considering financial stability risks. - Revise the Bank of Ghana Act 2002 (Act 612) to reduce overdraft limits, enhance compliance, and specify permissible breaches under emergency situations. - An MoU to eliminate monetary financing of the government deficit has been signed between the BoG and Ministry of Finance. - Exchange rate and FX reserve objectives: - Prioritize greater exchange rate flexibility and rebuild FX reserves to at least 3 months of imports by the end of the program. - Restrict FX market interventions to periods of excessive market volatility and reform FX auctions to improve price discovery. - Maintain policy of no forex financing for non-critical imports producible locally and end temporary surrender requirement by mining firms. - Engage key exporters to purchase foreign exchange through voluntary repatriation. ### Financial sector and liquidity support - Banking sector resilience and challenges: - Banking sector remains relatively resilient after the 2017-2019 cleanup, but DDEP presents profitability challenges due to sizeable public sector exposure. - Temporary regulatory forbearance: lowered cash reserve requirement and reduced adjusted capital requirement for banks and other financial institutions. - Existing Repo and Emergency Liquidity Assistance facilities available if needed. - Ghana Financial Stability Fund (GFSF) and recapitalization: - Authorities developing a Ghana Financial Stability Fund (GFSF) consistent with international best practices. - World Bank to provide funding of US$250 million to facilitate build-up of capital buffers for qualifying banks. - Develop a Financial Sector Strategy (FSS) by end-June 2023 requiring time-bound recapitalization plans and incentives for early recapitalization. - Additional stress tests planned to monitor banking sector risks. ### Structural reforms, governance, and social protection - Governance and anti-corruption: - Enact the Conduct of Public Officers Act to address asset declaration weaknesses. - Continue implementing and updating the National Anticorruption Action Plan (NAAP) for 2015-25; requested a Governance and Anticorruption Diagnostic Assessment from the Fund. - Implement recommendations of the Covid-19 spending audit and prepare new guidelines for Emergency Expenditure Management. - Strengthen AML/CFT framework to align with FATF standards. - Social protection and inclusion: - Prioritize protection of vulnerable groups; better target social spending and strengthen safety nets including LEAP and the School Feeding Program. - 2023 budget doubled the level of benefits of LEAP to provide immediate cushion to the poorest households. - Increase coverage and efficiency of social spending in health and education; redefine lifeline tariffs and design a framework to shield vulnerable households from higher electricity tariffs. - Private-sector-led growth and climate policy: - Focus on diversifying the economy, strengthening agriculture, improving business environment, and bolstering private-sector participation. - Strengthen climate adaptation and mitigation: prioritize climate-responsive public infrastructure, build capacity to design bankable climate projects, and improve disaster risk management and climate risk assessment. ### Concluding assessment - Ghana faces deep economic, financial, and social crisis driven by global shocks and domestic vulnerabilities, currently in debt distress with debt assessed as unsustainable. - Authorities view the ECF-supported program as central to restoring macroeconomic stability, debt sustainability, and mobilizing development partner financing to support PC-PEG and strengthen social safety nets. - Authorities request the IMF Board’s approval of the ECF program to help unlock additional financing from development partners. *1ghaea2023001* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1ghaea2023001.pdf_