## 1ghaea2024001 ## Source details **Canonical URL:** [1ghaea2024001](https://www.imf.org/-/media/files/publications/cr/2024/english/1ghaea2024001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1ghaea2024001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1ghaea2024001.pdf.json) --- ### Executive summary — context, policy actions, and outcomes - Large external shocks exacerbated pre-existing fiscal and debt vulnerabilities, producing an acute crisis in 2022. - Authorities’ response: - Adjusted macroeconomic policies; completed domestic part of comprehensive debt restructuring over the summer. - Launched Post COVID-19 Program for Economic Growth (PC-PEG) reforms. - Tightened monetary policy, eliminated monetary financing, and limited FX interventions. - Outcomes to date: - Resilient growth in 2023; headline inflation down from 54 percent (December 2022) to about 26 percent (November 2023). - Improved fiscal and external positions; gross international reserves increased by US$ 1 billion by end-October 2023. - Exchange rate stabilized at a more appreciated level than envisaged at program approval. - Remaining challenges: - Inflation remains high; international reserves remain well below adequate levels. - Continued fiscal consolidation depends on domestic revenue mobilization and expenditure controls. - Successful completion of external debt restructuring and deep reforms (energy, cocoa, institutions) required to restore debt sustainability. ### Program status and financing - IMF arrangement: - Executive Board approved May 2023 a 36-month ECF arrangement equivalent to 300 percent of quota (SDR 2,241.9 million, about $3 billion). - First disbursement: SDR 451.4 million (about $600 million). - On completion of the first review, Ghana would have access to an additional SDR 451.4 million. - Performance: - All quantitative performance criteria for the first review and almost all indicative targets and structural benchmarks met. - All end-June 2023 PCs and ITs except one—the IT on non-accumulation of payables—were met. - Significant overperformance in the Net International Reserves (NIR) PC due to higher FX purchases by BoG and lower-than-anticipated payments to energy producers. - Structural benchmarks: Two out of three end-June SBs met; updated ESRP SB missed but completed in early October; all four end-September SBs met. - End-December 2023 SB on operationalizing ITAS will be missed; staff supports resetting it to end-December 2024. - Program financing table highlights (USD million): - Financing Gap total: 14,759. - Official Financing total: 4,653. - IMF total: 3,000 (2023: 1,200; 2024: 720; 2025: 720; 2026: 360). - Financing from external debt restructuring total: 10,106 (2023: 2,627; 2024: 1,928; 2025: 2,840; 2026: 2,711). - World Bank total: 1,550; AfDB total: 103. ### Recent economic developments and key statistics - Growth: - Real GDP growth averaged 3.2 percent in H1 2023 (y-o-y); program staff revised 2023 growth to 2.3 percent. - Sectoral contributions H1 2023: Services 6.3 percent; Agriculture 6.2 percent; Non-extractive industry -4 percent; Extractive sectors 0.6 percent. - Growth in non-extractive activities: 3.6 percent in H1 2023 (up from 2.4 percent in 2022). - Inflation: - Headline inflation: peak 54 percent (December 2022) → about 26 percent (November 2023); end-2023 projection/estimate 27.6 percent (program) / 27.7 percent (authorities’ projection). - BoG policy rate increased cumulatively by 1,550 basis points since January 2022 to 30.5 percent (reported at timepoints); Reserve Requirements raised by 800 basis points cumulatively. - External sector and reserves: - Current account turned into a surplus in H1 2023. - Gross international reserves increased to US$2.5 billion by end-October 2023 (1.1 months or 1.0 month of prospective imports reported in different tables); reserves at end-2022 were US$1.4 billion (0.7 months). - Program target: rebuild reserves to at least 3 months of imports by end-2026. - Fiscal and arrears: - Total Revenues (percent of GDP): Latest 15.8; Budget 15.7; Mid-Year 15.7; Latest (updated) 16.7. - Oil Revenues: 2.0 percent of GDP (Latest); Oil revenue H1 2023 about 50 percent below initial projections due to stronger Cedi. - Primary Expenditures: 20.2 percent of GDP (Latest) vs Budget/Mid-Year 16.2 percent. - Primary balance: Latest -4.4; Budget -0.5; Mid-Year -0.5; Latest updated 0.5. - Energy sector arrears: some US$ 1.6 billion (2.3 percent of GDP) at end-2022; non-energy sector arrears about GHS 35 billion (5.8 percent of GDP). - Government accumulated payables during H1 2023, breaching the related program IT; energy sector payables increased. - Financial sector: - Domestic Debt Exchange produced significant impairment losses for participating financial institutions. - Capital adequacy ratio (CAR) with BoG regulatory forbearance: 19.4 (June 2021) → 14.2 percent (August 2023). - NPL ratio: 14.1 percent (December 2022) → 18.7 percent (June 2023). - Private sector credit growth slowed to about 10 percent y-o-y in August 2023 from over 50 percent in November 2022. - Banks posted robust profits in Q1 2023 partly due to increases in low-cost deposits. ### Outlook and risks - Macroeconomic projections: - Real GDP growth: revised up to 2.3 percent in 2023; expected to recover gradually to around 5 percent by 2026/2027. - Inflation: projected to decline further, reaching 27.6 percent by year-end 2023 and BoG’s target of 8±2 percent by end-2025. - (Pre-debt restructuring) current account deficit expected to hover around 2.5 percent of GDP; would improve significantly after external debt restructuring. - Program objective: achieve 3 months of imports coverage in international reserves by 2026 (US$7.7 billion target cited). - Downside risks (selected): - Slippages in program execution; delays in external debt restructuring; deterioration in external environment. - Domestic vulnerabilities: exchange rate uncertainty, large domestic financing needs, political/election-related slippages (end-2024 elections). - Financial sector stability risks from domestic debt restructuring. - Climate risks and commodity price volatility. - Risk assessments (Annex II highlights): - Intensification of conflicts: Likelihood — High; Potential Impact — High. - Commodity price volatility: Likelihood — High; Potential Impact — High. - Social discontent from high inflation: Likelihood — Medium; Potential Impact — High. - Systemic financial instability from swings in rates and asset repricing: Likelihood — Medium; Potential Impact — High. ### Fiscal consolidation strategy and revenue measures - Fiscal anchor: achieve a primary balance on a commitment basis of 1.5 percent of GDP by 2025. - Adjustment magnitude: about 6 percentage points of GDP over three years, with about two thirds implemented in 2023. - MTRS targets and timeline: - MTRS published in September; target increase non-oil revenue-to-GDP to about 20 percent by end-2027. - Program objective: raise non-oil revenue from 13.6 percent of GDP in 2022 to at least 16.5 percent by 2026. - 2024 revenue package projected change in non-oil revenue: 0.90 percent of GDP (detailed line items sum to 0.90). - Major items: Removal of selected VAT exemptions: 0.52; 5% VAT on rental of commercial premises: 0.10; Emission Tax and Plastic and Packaging Tax: 0.07; administrative and other measures aggregate as specified. - Erosion of non-oil revenue to GDP ratio: -0.15. - Tax reliefs totaling -0.05 (import duty relief -0.04; other -0.01). - 2024 fiscal objective: improve primary balance by 1 percent of GDP in 2024, to be achieved mainly through revenue mobilization. - Authorities identified revenue measures to increase non-oil revenue by at least 0.9 percent of GDP. ### Social protection, mitigation, and spending priorities - LEAP (Livelihood Empowerment Against Poverty): - Doubling of benefits under LEAP (prior action) pulled over 80,000 individuals out of extreme poverty (World Bank estimate). - LEAP benefits to be doubled again in 2024; coverage increase from about 6 percent to 12 percent of household pre-transfer consumption; eventual goal coverage 20 percent. - Total budget of LEAP expected to remain within 0.2 percent of GDP. - Other social measures: - Ghana School Feeding Program benefits to increase by 25 percent in 2024 (target to cover 30 percent of child’s daily calorie intake). - Capitation Grant to be increased by 25 percent. - Allocation to National Health Insurance Authority to be expanded by over 40 percent. - Monitoring: these enhancements will be monitored through the program’s indicative target on social spending. ### Structural fiscal reforms and public financial management (PFM) - PFM reforms and structural benchmarks: - Arrear Clearance and Prevention Strategy and Strategy to Streamline Earmarked Funds prepared and approved by Cabinet (SBs). - Centralized inventory of ongoing and planned public investment projects to be prepared by end-March 2024 (new SB). - Mandatory use of GIFMIS functionalities (e.g., Blanket Purchase Order) and integration with GHANEPS targeted by end-September 2024 (new SBs). - Onboard 265 IGF-reliant institutions on GIFMIS by end-December 2023 (structural benchmark). - Integrate GIFMIS with HRMIS and SWIFT/GHIPSS by end-December 2024. - Expenditure controls: - Align quarterly allotments with 3-month cash forecasts; strengthen coordination between expenditure management and treasury; strict communication of cash constraints to MDAs. - Compliance desk at MoF to track tender advertisements and refer non-compliance to Attorney-General (MEFP ¶32). - Auditor General to publish report on implementation of 2022 Accounts of Ghana recommendations by end-September 2024. ### Energy and cocoa sector reforms - Energy sector: - Energy sector arrears at end-2022: US$ 1.6 billion. - ESRP updated; prior arrangement to prioritize flat monthly payments to IPPs started July 2023; modalities to be finalized (some conditional on PPA renegotiations). - Tariffs nearly doubled over the past year to approach cost recovery; ECG PIP target: reduce collection losses from 28.4 percent (2022) to 23.2 percent (2026). - Merge ECG sub-accounts into single collection account; publish audit of July-September 2023 by end-February 2024 (new SB). - Cocoa (Cocobod): - Turnaround strategy prepared; PPP (producer purchase price) range for 2024 and 2025 seasons set at minimum and maximum 60 and 70 percent of contract FOB price (inclusive of Living Income Differential). - Amendments to Cocobod Act (1984) to adopt the PPP framework; strengthen MoF oversight and establish a dedicated cocoa desk. ### Debt management, restructuring objectives, and public debt dynamics - Domestic debt: - Domestic debt reached 50 percent of GDP in 2022; 16 percent of GDP held by BoG. - Domestic debt restructuring completed over summer 2023; participation rates and terms reported for different holder types and instruments. - Domestic restructuring expected to generate about US$ 8 billion of debt service savings over 2023-26 and lower PV of overall public debt-to-GDP by 9 percentage points in 2028. - External debt and DSA: - Public debt rose from ~55 percent of GDP in 2018 to above 90 percent in 2022; public debt PV (US$ mn) reported as 66,478 (PV) and nominal GDP GHS mn 610,222. - Debt sustainability: Ghana remains in debt distress pending completion of external debt restructuring. - DSA targets by 2028: PV of overall and external debt to GDP below 55 percent and 40 percent, respectively; external debt service to revenues and exports below 18 percent and 15 percent, respectively. - Under baseline (post-domestic, pre-external restructuring) PV of public debt-to-GDP breaches 55 percent benchmark throughout DSA horizon. - Near-term debt management priorities: - Ensure sufficient issuance of T-bills to finance the government deficit; roadmap for gradual resumption of bond issuances once market confidence returns. - Upgrade CD-RMS securities operations infrastructure by end-2024. - Increase surveillance of SOE borrowing and strictly limit collateralized and non-concessional borrowing. ### Financial sector stability, recapitalization, and legacy issues - Recapitalization and BoG measures: - BoG approved recapitalization plans; banks required to inject one-third of required capital annually for three years ending 2025 to reach 13 percent CAR (without regulatory forbearance). - BoG to initiate corrective measures by end-March 2024 against banks that fail recapitalization requirements (new SB). - Government pledged to provide funds up to 2.6 percent of GDP to strengthen financial sector; Ghana Financial Stability Fund (GFSF) established to channel solvency support; World Bank emergency operation expected to support GFSF (approval shifted to early 2024). - Legacy financial sector tasks: - Address NIB insolvency: BoG and MoF to design and begin implementation of a plan by end-March 2024 to resolve NIB by end-2024 (new SB). - Orderly resolution of SDIs and fund management firms and payouts to clients of SEC-licensed fund managers to be finalized by end-2024. - Regulatory forbearance introduced for DDE to be lifted gradually (one-fourth per year from 2022 through 2025 for CAR recognition rule). - Financial indicators: - Outstanding credit to Fund as share of GDP to peak in 2025 at 5 percent. - Outstanding credit to Fund as share of GIR to peak in 2023 at 138 percent. - Debt service as share of revenue expected to peak at 3.1 percent in 2029 (PRGT capacity-to-repay metrics context). ### External sector assessment and FX policy - External position: - 2022 external position assessed as broadly in line with medium-term fundamentals. - Current account: deficit narrowed to 2.1 percent of GDP in 2022; turned into surplus in H1 2023. - Medium-term projection: current account expected to stabilize around 2-2.5 percent of GDP. - Reserves and FX interventions: - Gross reserves: 2 percent of GDP (0.7 months) end-2022 → 3.1 percent of GDP (1.0 month) in H1 2023; projected to reach 9.2 percent of GDP (3.5 months) in 2027. - Program policy: limit BoG FX interventions, adopt FX auction framework, adopt FX reference rate reflecting wholesale market, phase out special auctions, and rebuild reserves to 3 months of imports by end-2026. - Exchange rate: - 2022 average nominal depreciation ~45 percent vs USD; NEER and REER depreciating over 10 years by 68 and 19 percent respectively. - 2023: exchange rate stabilized; depreciated by 7.3 percent vis-à-vis USD since end-2022 (first 7 months). - Model-based assessments show real exchange rate undervaluation estimates: CA model -3.5 percent; REER model -30 percent (EBA-Lite results). ### Climate adaptation and mainstreaming - Climate risks and costs: - Temperatures rose by around 1 O C in last 30 years; projected increase another 1 to 3 degrees by 2050. Implementing NDC measures estimated to require US$ 9.3-US$ 15.5 billion. - Policy recommendations: - Consolidate climate initiatives in unified legal framework; mainstream adaptation into PFM; mobilize grants/highly concessional financing and private sector participation. - Develop Climate Budget Tagging and integrate climate in public investment management and SOE performance contracts. - Agriculture-specific impacts and guidance (Box 1): - Agriculture: employment 40 percent of labor force; about 20 percent of GDP; over 40 percent of export earnings. - Projected crop impacts: Cassava yields projected to fall by 30 percent by 2080; Corn yields projected to fall by 7 percent by 2050. - Water/flood damages projected at US$160 million annually. ### Monitoring, TMU, data provision, and capacity development - TMU and performance criteria: - Quantitative performance criteria and indicative targets defined, including NIR floor (USD millions), BoG claims on government (billions of Cedis), PV of newly contracted external debt (USD millions), primary fiscal balance (millions of Cedis), and non-accumulation of external debt payments arrears (USD millions). - Gold price for program operations: US$ 1,826.92 per ounce (Bloomberg, Feb 2023). - Program requires prompt reporting of new external loans and monthly reporting of key fiscal, monetary, and financial data per Table 1 (periodicity and lags specified). - Data adequacy and statistical gaps: - Data provision broadly adequate for surveillance; shortcomings in timeliness and quality of certain real, fiscal and BoP statistics. - IMF TA priorities: tax policy diagnostic TA (completed Dec 2022), revenue administration, MTRS, BoP compilation, reserve template, FX auction design, and BoG balance sheet assessments. ### Staff appraisal, recommendations, and review - Staff appraisal: - Strong policy and reform commitment yielding results: PCs and most SBs met; growth more resilient; inflation declining; reserves rebuilding. - Ghana remains in debt distress; durably restoring sustainability requires completion of external debt restructuring plus fiscal consolidation and reforms. - Staff recommendations (selected priorities): - Continue large and frontloaded revenue-led fiscal consolidation while protecting vulnerable groups; raise non-oil revenue-to-GDP ratio toward 16.5 percent by 2026 and about 20 percent by end-2027 per MTRS. - Strengthen PFM: tighten spending controls, cash management, arrears prevention, expand GIFMIS and integrate with procurement and payroll systems. - Maintain tight monetary policy, flexible exchange rate, and avoid monetary financing; improve FX market functioning and limit FX interventions. - Preserve financial sector stability: implement bank recapitalization plans, operationalize GFSF, address legacy issues (NIB, SDIs), and lift regulatory forbearance per schedule. - Advance structural reforms to bolster private sector-led growth, enhance governance/anti-corruption, and mainstream climate adaptation. - Reviews and next steps: - Staff supports completion of the first review under the ECF arrangement and the financing assurances review, subject to authorities reaching a debt treatment agreement with the OCC consistent with financing assurances. - Proposed modifications to program conditionality: adjust end-December 2023 primary balance PC and non-oil revenue IT to reflect lower nominal GDP projection while preserving fiscal effort; reset NIR end-year target to lock in overperformance at end-June. *Source: IMF staff report excerpts as provided in the supplied content unit.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and recent policy actions - Large external shocks in recent years exacerbated pre-existing fiscal and debt vulnerabilities, resulting in an acute crisis in 2022. - Authorities’ response: - Adjusted macroeconomic policies. - Made significant progress on a comprehensive debt restructuring (domestic part completed over the summer). - Launched wide-ranging reforms under the Post COVID-19 Program for Economic Growth (PC-PEG). - Tightened monetary policy—including by eliminating monetary financing—and limited foreign exchange interventions. - Outcomes to date: - Signs of economic stabilization: resilient growth in 2023, declining inflation, improved fiscal and external positions, recovery in international reserves, and eased exchange rate volatility. - Remaining challenges: - Inflation remains high. - Continued fiscal consolidation depends on further domestic resource mobilization and expenditure control. - International reserves remain well below adequate levels. - Successful completion of external debt restructuring and deep reforms (energy, cocoa, institutions) are required to restore debt sustainability and foster inclusive growth. ### Program status and financing - IMF support: - Executive Board approved in May 2023 a 36-month arrangement under the Extended Credit Facility in an amount equivalent to 300 percent of quota (SDR 2.241.9 billion, or about $3 billion). - First disbursement of SDR 451.4 million (about $600 million). - On completion of the first review, Ghana would have access to an additional SDR 451.4 million. - Program performance: - All quantitative performance criteria for the first review and almost all indicative targets and structural benchmarks were met. - All end-June 2023 performance criteria (PCs) and indicative targets (ITs) but one—the IT on non-accumulation of payables—were met. - Significant overperformance in the Net International Reserves (NIR) PC due to higher FX purchases by the Bank of Ghana (BoG) and lower-than-anticipated payments to energy producers. - Structural benchmarks (SBs): Two out of three end-June SBs were met; updated Energy Sector Recovery Program (ESRP) SB was missed but completed in early October. All four end-September SBs were met. End-December 2023 SB on operationalizing the Integrated Tax Administration System will be missed; staff supports resetting it to end-December 2024. ### Recent economic developments and key statistics - Growth: - Real GDP growth averaged 3.2 percent in the first two quarters of 2023 (year-on-year), around the same level as 2022 annual average and above the 1.5 percent forecast at program approval. - Sectoral contributions (first half of 2023): - Services: 6.3 percent. - Agriculture: 6.2 percent. - Non-extractive industry: -4 percent (contraction). - Extractive sectors: 0.6 percent (slowdown, partly due to decline in oil production in Q1). - Growth in non-extractive activities: 3.6 percent in the first half of the year, up from 2.4 percent last year. - Inflation: - Headline inflation decreased from a peak of 54 percent in December 2022 to about 26 percent in November 2023. - Food price inflation: uptick over the summer, dropping to about 32 percent in November 2023. - Non-food inflation decline more pronounced due to monetary tightening. - External sector: - (Actual) current account turned into a surplus during the first half of 2023 (benefitted from external debt service suspension, higher remittances, higher income repatriation by mining and oil companies, and import compression). - Gross international reserves increased by US$ 1 billion by end-October 2023. - Exchange rate stabilized at a more appreciated level than envisaged at program approval. - External position for 2022 assessed as broadly in line with medium-term fundamentals and desirable policies (Annex II). - Fiscal developments: - Revenue measures (prior action) began yielding results; authorities met end-June non-oil revenue target. - Oil revenue in H1 2023 was about 50 percent below initial projections, mainly due to the stronger Cedi. - Primary expenditures significantly lower than programmed (lower capital expenditure, smaller energy sector payments, automatic spending adjustments). - Primary balance outperformed end-June primary balance performance criterion. - Energy sector arrears: assessed at some US$ 1.6 billion (2.3 percent of GDP) at end-2022; non-energy sector arrears about GHS 35 billion (5.8 percent of GDP). - During H1 2023 government continued to accumulate payables, breaching the related program indicative target; energy sector payables increased. - Financial sector: - Domestic Debt Exchange (DDE) caused significant impairment losses for participating financial institutions. - Capital adequacy ratio (CAR), measured with BoG regulatory forbearance, declined from 19.4 in June 2021 to 14.2 percent in August 2023. - Non-performing loans (NPLs) ratio increased from 14.1 percent in December 2022 to 18.7 percent in June 2023. - Growth in private sector credit slowed to about 10 percent year-on-year in August 2023 from over 50 percent in November 2022. - Banks posted robust profits in Q1 2023 due in part to increases in low-cost deposits enabling higher interest margins. - Debt and arrears: - Ghana remains in debt distress; debt assessed as unsustainable pending completion of debt restructuring. - Government accumulated arrears to domestic debt holders and to official bilateral and private external creditors while remaining current on newly exchanged domestic debt and multilateral debt. - Government financed itself in domestic T-bill market at nominal interest rates below headline inflation. - Fiscal financing remained tight with development partners’ disbursements backloaded in 2023. ### Outlook and risks - Macroeconomic projections: - Real GDP growth revised up to 2.3 percent in 2023 (smaller-than-expected slowdown). - Growth is expected to recover gradually to long-term potential of around 5 percent by 2026. - Inflation projected to decline further, reaching 27.6 percent by year-end 2023 (within the program target band) and the BoG’s inflation target of 8±2 percent by the end of 2025. - (Pre-debt restructuring) current account deficit expected to hover around 2.5 percent of GDP over the next few years but would improve significantly after restructuring of external debt. - Program target: achieve 3 months of imports coverage in international reserves by 2026. - Downside risks: - Slippages in program execution. - Delays in restructuring external debt. - Deterioration in the external environment. - Need to preserve financial stability in the wake of the domestic debt restructuring. ### First review and Article IV discussion focus areas - Continued progress on large and frontloaded fiscal consolidation while protecting the vulnerable. - Tight monetary policy and flexible exchange rate to bring inflation back to single digits and rebuild foreign reserves. - Reforms to policy frameworks and institutions to entrench macroeconomic stability and debt sustainability. - Preserving financial stability following the domestic debt restructuring. - Bolstering private sector-led and inclusive growth, strengthening governance and transparency, and adapting to and mitigating climate risks. *Source: EXECUTIVE SUMMARY (December 18, 2023).* ### 14. The outlook is subject to significant downside risks (Annex II). Baseline projections ### 14. The outlook is subject to significant downside risks (Annex II). Baseline projections ### Outlook and Risks - Baseline projections hinge on successful execution of the authorities’ external debt restructuring and plans to address domestic arrears, including to energy producers, as well as reform implementation, including ensuring strong expenditure commitment controls and reaching the program’s revenue mobilization targets. - Risks highlighted: - Inflation may remain high and inflation expectations could become unanchored despite BoG’s policy tightening and progress on the inflation front. - Domestic debt restructuring presents risks to financial sector stability. - Exchange rate, credit, and liquidity risks add to vulnerabilities. - Continued uncertainty regarding the exchange rate path, large domestic financing needs, and policy slippages due to the approaching end-2024 general elections are additional domestic vulnerabilities. - Projections assume a benign external environment; intensification of regional conflicts or spillovers from the war in Ukraine and commodity price volatility would negatively impact Ghana through higher imported inflation and risk aversion. - Ghana is subject to significant climate risks. ### Authorities’ View and Program Alignment - Authorities broadly agreed with staff’s assessment of the outlook and risks, while highlighting that growth could continue to surprise on the upside. - Authorities expressed strong commitment to fiscal discipline and the program objectives despite the challenging political environment. ### Policy Discussions (Program Priorities) - Focus: immediate ECF-supported program priorities and medium-term reforms to anchor stability and deliver stronger and more inclusive growth. - Article IV consultation used to engage on reforms to spur growth, policies to address climate risks, and governance weaknesses and corruption vulnerabilities. ### A. Fiscal Consolidation to Underpin Return to Sustainability - Government strategy: large and frontloaded fiscal consolidation coupled with debt restructuring to restore confidence and return public finances to a sustainable path. - Fiscal anchor: the government is seeking to achieve a primary balance on a commitment basis of 1.5 percent of GDP by 2025. - Adjustment magnitude: entails an adjustment of about 6 percentage points of GDP over three years, with about two thirds of the fiscal effort implemented in 2023. - Revenue mobilization: - Ghana’s tax-to-GDP ratio is low relative to peers. - A Medium-Term Revenue Strategy (MTRS) published in September (structural benchmark) lays out priority tax policy and revenue administration reforms to raise non-oil revenue to GDP ratio over the medium term. - MTRS target: increase the ratio of non-oil revenue to GDP to about 20 percent by end-2027, consistent with the program objective of raising this ratio from 13.6 percent of GDP in 2022 to at least 16.5 percent of GDP by 2026. - Expenditure rationalization: create fiscal space through efficiency gains and reduction of the large shortfall in the energy sector. Key fiscal status and projection points (selected) - Authorities on track to meet their 2023 primary balance objective but relying more on spending adjustment than envisaged at program approval. - Mid-Year Budget Review (MYBR) revised program’s primary expenditure on commitment basis down to safeguard the primary balance objective while protecting highly targeted social protections and priority capital expenditures. - Program spending envelope had been set at a higher level than entailed by the 2023 budget spending ceilings, creating buffers to absorb shortfalls while meeting the primary deficit target of 0.5 percent of GDP for the year. Ghana: Selected Fiscal Indicators (Percent of GDP) — Latest, Budget, Mid-Year, Latest - Total Revenues: 15.8, 15.7, 15.7, 16.7 - Grants: 0.2, 0.2, 0.3, 0.3 - Oil Revenues: 2.0, 1.3, 1.3, 1.3 - Non-oil Revenues: 13.7, 14.1, 14.1, 15.0 - Primary Expenditures: 20.2, 16.2, 16.2, 16.2 - Compensation of Employees: 6.5, 6.0, 6.0, 6.1 - Goods and Services: 2.1, 1.0, 1.0, 1.1 - Grants to Other Gov. Units: 4.8, 4.0, 4.0, 3.9 - Energy Sector Transfer: 2.3, 2.8, 1.9, 1.7 - Capital Expenditures: 4.0, 2.3, 3.3, 3.3 - Domestically financed: 1.9, 1.2, 2.1, 2.7 - Foreign financed: 2.0, 1.1, 1.2, 0.6 - Other Expenditure: 0.6, 0.0, 0.0, 0.0 - Primary balance: -4.4, -0.5, -0.5, 0.5 - Memorandum: Non-Oil Primary Balance: -6.3, -1.8, -1.8, -0.8 - Highly-targeted social spending (Ghana School Feeding Program, NHIS, LEAP, and Capitation Grant): 0.40, 0.48, 0.48, 0.53 (2023, 2022) - Authorities committed to non-accumulation of payables on a net basis during the year (indicative target); given payables accumulation in the energy sector, this implies accelerating clearance of non-energy payables and negotiating clearance path for energy sector payables with IPPs. - 2024 primary balance objective: improvement of one percent of GDP in 2024, to be achieved mainly through revenue mobilization. - Authorities identified revenue measures to increase non-oil revenue by at least 0.9 percent of GDP. Ghana: 2024 Revenue Measures (Percent of GDP) — Measure yields and details - Projected Change in Non-Oil Revenue: 0.90 - Direct Taxes: - Revision and expansion of taxes on gambling revenues: 0.06 - Expansion of entities subject to Communication Service Tax: 0.06 - Increase of Stamp Duty: 0.06 - Introduction of a simplified mechanism for the modified taxation scheme for small taxpayers: 0.05 - Indirect Taxes: - Removal of selected VAT exemptions: 0.52 - Alignment of the exemption and relief provisions in the VAT Act with the Customs Tariffs, and introduction of 5% VAT rate on rental of commercial premises: 0.10 - Introduction of Commissioner-General's authorised VAT invoice for Income Tax purposes: 0.06 - Introduction of the Emission Tax and the Plastic and Packaging Tax: 0.07 - Administrative Measures: - Implementation of the second phase of E-VAT and ongoing E-VAT compliance measures: 0.04 - Implementation of minimum chargable income system: 0.02 - Enhanced implementation of Vehicle Income Tax (VIT) sticker mechanism: 0.01 - Implementation of the World Customs Organisation SAFE Framework of Standards, Pillar 1 (Custom-to-Custom cooperation for exchange of information): 0.05 - Tax reliefs: - Introduction of import duty relief for selected agricultural inputs for Foods for Planting and Jobs: -0.04 - Introduction of other tax reliefs: -0.01 - Erosion of non-oil revenue to GDP ratio: -0.15 - Authorities and staff aligned on fiscal policy; authorities stand ready to deploy contingency measures if needed (MEFP ¶9), including bringing forward MTRS measures and reducing MDAs budget allocations during the year if needed. ### B. Social Impact, Spending and Policies - Agreement on importance of mitigating the impact of the crisis and reforms on the most vulnerable due to high inflation, below-trend growth, and acute financing constraints that led to delayed access to benefits, erosion of benefits’ real value, and buildup of arrears to suppliers. - Emphasis on bolstering delivery of key public services in health, education, and social protection. Key social protection actions - LEAP (Livelihood Empowerment Against Poverty): - Doubling of benefits under LEAP (prior action for program approval) has pulled over 80,000 individuals out of extreme poverty (World Bank estimate). - Authorities adopted an indexation framework to protect the real value of LEAP benefits (structural benchmark). - With WB support, authorities aim to increase benefits and expand LEAP coverage to all extreme-poor households. - LEAP benefits will be doubled again in 2024, increasing benefit coverage from about 6 percent to 12 percent of household pre-transfer consumption; eventual goal is coverage of 20 percent. - These measures are expected to significantly reduce poverty and inequality while keeping total budget of the program within 0.2 percent of GDP. - Education: - Increase in 2024 of benefits under Ghana School Feeding Program by 25 percent to eventually cover 30 percent of child’s daily calory intake. - Capitation Grant to be increased by 25 percent. - Health: - Allocation to National Health Insurance Authority to be expanded by over 40 percent to cover medical claims, essential medicines, and vaccines for the most vulnerable. - These enhancements will be monitored through the program’s indicative target. Other mitigation steps under consideration - Electricity subsidy reforms may require additional budget allocations to protect vulnerable populations from periodic tariff adjustments; upcoming FAD TA mission will review tariff structure and devise a targeted subsidy mechanism for poor households. - Health sector aim: ensure availability of essential medicines and bring child vaccination rate back to pre-crisis levels. - Authorities plan to design a strategy to improve basic education. Ghana: Impact and Cost Analysis of LEAP (selected indicators) - Poverty impact of doubling benefits (2023) and additional poverty impact from indexation and level reform (2024) are presented in source charts (World Bank). Sample numeric indicators from those analyses: - Households reached: 346K HH, 350k HH, 450k HH (across scenarios) - Estimated cost of LEAP after indexation, level reform and higher coverage presented as percent of GDP in source charts. ### C. Structural Fiscal Reforms to Entrench Fiscal Discipline - Objective: bolster fiscal policy frameworks and institutions to underpin lasting adjustment by: - Addressing widespread tax exemptions and limited compliance. - Strengthening public financial management practices, especially spending controls, cash management, and investment management. - Addressing vulnerabilities in energy and cocoa sectors. - Bolstering SOE governance to reduce fiscal risks. - IMF-supported program lays out next steps; reforms coordinated with WB. Domestic Revenue Mobilization - MTRS aims to broaden tax base and strengthen compliance to avoid excessive burden on few compliant taxpayers. Key envisaged tax policy reforms include: - Review and further rationalization of tax expenditures, including VAT-associated expenditures. - Measures to reduce informality and expand tax base. - Development of an automatic adjustment formula for rates of special petroleum tax (SPT), energy sector levies, and excise duties. - Frontloading some reforms in 2024 considered credible; agreed importance of reviewing existing policies and legislations, embedding measures in strategic plans of relevant institutions, and setting centralized governance oversight for implementation. Revenue Administration (GRA reforms and progress) - GRA performance hampered by limited compliance and recoveries; needs: - Clean up of taxpayer registry (inaccurate and unreliable). - Ensure timely filing, improve audit processes and yields by centralizing risk-based selection. - Reduce tax arrears, update taxpayer segmentation criteria, and design systematic compliance improvement plan for high-net worth individuals. - With TA support, GRA is implementing an ambitious reform agenda: - Pilot phase of E-VAT system (50 companies) completed, generating additional revenue of GHS 125.7 million. - Upscaling delays: instead of 600 companies, 200 more companies targeted for phase 2 scheduled to be completed by October 2023. - E-commerce portal: 62 companies registered and produced good tax collection results. - WB-supported Datawarehouse project near completion; use of third-party data improved audit planning and recoveries, but Data Mining Unit capacity issues remain. - ITAS (integrated tax administration system): - Procurement and operationalization key but significant delays encountered to ensure compatibility with GRA requirements. - Operationalization will require substantial organizational transformation. - Authorities request associated structural benchmark be reset from end-2023 to end-2024. - To ensure ITAS reflects accurate data, GRA will finalize clean-up of tax registry and submit to MoF the report by end-June 2024 (new structural benchmark). Clean-up actions include: - Eliminate duplication of Taxpayer Identification Numbers (TIN). - Identify a separate active taxpayer list from pool of registered individuals/entities. - Eliminate individuals with no payment or filing obligations from list of registered PIT taxpayers (MEFP ¶43). *Source: IMF staff report excerpts as provided in the supplied content unit.* ### 30. The authorities have initiated PFM reforms, but sustained efforts to change ### 30. The authorities have initiated PFM reforms, but sustained efforts to change ### PFM reform strategy and structural benchmarks - Authorities prepared and approved by cabinet two strategy documents (structural benchmarks): (i) an Arrear Clearance and Prevention Strategy, and (ii) a Strategy to Streamline Earmarked Funds. Implementation of measures in these documents is critical to ease budget rigidities and improve budget execution. ### Cash management and expenditure controls - Authorities endeavor to strictly align quarterly allotments with the 3-month cash forecasts and to tighten the use of allotments as a control on Ghana’s Integrated Financial Management Information System (GIFMIS) rather than the budget (MEFP ¶31). - Staff and authorities agreed strong and proactive coordination between expenditure management and treasury divisions within the MoF is necessary to derive full benefits of changed practices. - Regularly apprise MDAs of prevailing cash constraints to anchor their spending commitments. ### Enforcement under the PFM Act and compliance capacity - MoF established a compliance desk to closely track tender advertisements by MDAs to ensure necessary allotments; in case of non-compliance, referrals to the Attorney-General for penal actions will be made (MEFP ¶32). - Authorities committed to train finance officials on evidentiary requirements for prosecution under the Public Financial Management Act. - The Auditor General will publish a report on implementation of recommendations from the 2022 reports on the Accounts of Ghana by end-September 2024 (MEFP ¶32). ### Public investment management and arrears prevention - Authorities committed to prepare a centralized inventory of all ongoing and planned public investment projects by end-March 2024 (new structural benchmark). Inventory to include each project’s size, age, completion status, funding requirement and priority status. - Authorities will publish by end-March 2024 the list of priority planned and ongoing projects, and the required multi-year budget allocation with annual funding requirements (MEFP ¶33). This will be updated and published annually as part of the annual budget documents. - To fully capture multi-year contracts in GIFMIS, enable blanket-purchase order functionality and MoF will issue a circular to make its use mandatory for all MDAs by end-September 2024 (new structural benchmark). - Enhance use of Ghana Electronic Procurement System (Ghaneps) for all public procurements; integrate Ghaneps with GIFMIS by end-September 2024 so only projects/purchase orders with approved budgets and allotments can obtain procurement approvals. - Concerted efforts needed to tighten use of sole source and restricted tendering. A PIMA update planned in 2024 will identify and prioritize other public investment management reforms. ### Streamlining earmarked funds and oversight - Strategy published in September 2023 envisages several funds will be merged with relevant line ministries; others maintained with measures to improve operational efficiency and oversight. - Authorities will develop necessary legislation to proceed with these reforms. - Enforce use of GIFMIS to enhance oversight of financial transactions in all earmarked funds, ensure more regular audits, and introduce mechanism to prevent institutions from collateralizing receivables and accumulating debt (MEFP ¶38). ### GIFMIS expansion and systems integration - Need to expedite expansion of GIFMIS coverage across institutions and integration with other portals for effective use (MEFP ¶35). - Large earmarked funds started using GIFMIS for budget execution as part of prior action for program approval, but technical challenges persist. - On track to onboard 265 institutions reliant on internally generated funds (IGFs) by end-December 2023 (structural benchmark). - Integration of GIFMIS with HRMIS and SWIFT/Ghipps on track to be completed by end-December 2024. - Roll-out of automatic bank reconciliation functionality for GIFMIS-linked accounts will be completed by end-March 2025 (progress lagging). - Complete integration of all MDAs and MMDAs accounts at BoG and commercial banks into the TSA will be completed by end-December 2024 (MEFP ¶36). ### Fiscal framework, rules, and institutions - Existing fiscal rules present weaknesses: no specified debt target, complex operational rules, narrow perimeter, weak escape clauses and enforcement mechanism; rules suspended since 2020. - In consultation with IMF staff, fiscal rules will be modified and reinstated, and the Fiscal Responsibility Act will be amended to ensure effective yet simple fiscal rules. - Fiscal council will be reformed to enable independent assessment of credibility of macro-fiscal assumptions and compliance with fiscal rules. - Reforms to fiscal rules and the council will be submitted to parliament by end-October 2024 (new structural benchmark). - Authorities working with the WB to ensure budget process based on a Medium-Term Expenditure Framework (MTEF); endeavor to ensure MDA-specific MTEFs are reflected in the Budget Statement by 2025. ### Public spending efficiency and MDA reviews - Public spending will be reviewed and rationalized to create room for development, social, and climate-related priorities; ongoing Public Expenditure Review underway with WB support. - Authorities will complete a functional review of selected MDAs by end-June 2025 to identify areas for cost savings. - Authorities working to shift composition of spending by MDAs responsible for social spending from personnel expenses toward targeted and well-designed interventions (MEFP ¶46). - Key flagship programs will be reviewed and a rationalization strategy will be published by end December 2024 (MEFP ¶48). ### Energy sector: shortfalls, tariffs, and ESRP measures - Energy sector challenges: below-cost-recovery tariffs, distribution and recovery losses, excess capacity, and take-or-pay contracts have led to large financial shortfalls. - By end-2022, outstanding energy sector debt had reached US$ 1.6 billion owed mainly to IPPs and fuel suppliers. - Authorities almost doubled electricity tariffs over the past year to bring them close to cost recovery level, but distribution and commercial losses persist; collections by ECG and payments to power producers lagged tariff adjustments in first half of 2023; arrears to IPPs continued to build up. - Government’s updated Energy Sector Recovery Program (ESRP, structural benchmark) outlines structural reforms to reduce shortfalls and settle legacy arrears. - ESRP includes a short-term payment arrangement between ECG and IPPs—prioritization of flat monthly payments sufficient to cover energy purchase costs; these payments started in July 2023. - Government intends to finalize discussions on other modalities of the arrangement by end-November 2023, including treatment of excess capacity charge, energy costs over and above flat payments, SOE payments, shortfall covered by MoF, and settlement of legacy arrears; some elements conditional on progress on Power Purchase Agreement renegotiations expected to be finalized next year. - ESRP proposes to merge ECG’s sub-accounts into a single collection account; account audited quarterly; authorities will publish final report of July-September 2023 audit by end-February 2024 (new structural benchmark). - Tariff adjustment policy: periodically adjust tariffs to reflect changes in exchange rate, inflation, and fuel prices in line with the Quarterly Adjustment Formula. - Reduce grid and recovery losses through strict enforcement of Performance Improvement Plans (PIPs); ECG PIP envisages reduction in collection losses from 28.4 percent in 2022 to 23.2 percent in 2026 via replacement of distribution transformers and customer meters, audit of high-end users, increased deployment of pre-paid meters, and registering nearly one million unregularized customers into ECG’s billing system. ### Cocoa sector reforms (Cocobod) - Cocobod developed a turnaround strategy to strengthen transparency and efficiency and ensure financial viability; focuses on rationalizing development spending, better aligning the producer purchase price (PPP) setting process with Board’s financing constraints, and enhancing oversight. - Quasi-fiscal activities: Cocobod reviewed cocoa road contracts to rationalize them considering completion status, performance, and termination costs; additional rationalization may be pursued if financing pressures arise (MEFP ¶55). Board intends to scale down fertilizer and pesticide subsidy programs (MEFP ¶54). - Price setting: Authorities will introduce a range for PPP set as a share of the FOB export price; range reviewed every other year. For the 2024 and 2025 seasons, minimum and maximum PPP (inclusive of Living Income Differential cost) set at 60 and 70 percent of the contract FOB price. - Amendments will be made to the Cocobod Act (1984) to adopt the new PPP framework. - Oversight: Strengthen MoF oversight of Cocobod’s finances, including establishing a dedicated cocoa desk at the MoF (MEFP ¶56). ### Debt management and restructuring objectives and progress - Comprehensive debt restructuring strategy aims to restore a “moderate” risk of debt distress under the IMF-WB LIC-DSF. - Targets by 2028: (i) external debt service to revenues and exports ratios below 18 percent and 15 percent, respectively; (ii) present value of overall and external debt to GDP below 55 percent and 40 percent, respectively. - Restructuring targets external debt service relief during program period (2023-26) to help close external financing gap; domestic debt restructuring designed to reduce domestic financing pressures significantly. - Progress: Domestic restructuring completed over the summer. After DDE’s first phase in February, Cocobills, US$-denominated domestic debt, and pension funds’ holdings of government bonds exchanged for new instruments. Government restructured BoG’s holdings of non-marketable debt. - External engagements: Continued engagement with external official bilateral and commercial creditors; discussions with external commercial creditors continuing with good prospects for near-term agreement. - Near-term debt management priority: ensure sufficient issuance of T-bills to finance the government. - As market confidence increases, authorities will develop roadmap for gradual resumption of bond issuances; initial domestic bond issuances to be carefully managed, perhaps using placements rather than auctions and starting with small volumes (MEFP ¶16). - MoF should increase surveillance of debt issuance by SOEs and other public entities, monitor and prevent collateralized debt issuance, strictly limit borrowing on non-concessional terms, and ensure debt payments are made on time (MEFP ¶17). - Once external debt restructuring completed, authorities should develop and publish a medium-term debt management strategy and an annual borrowing plan. ### Financial sector stability and recapitalization - Credit to the private sector as a share of GDP is relatively low and declining over past decade; lack of access to finance cited as key constraint to investment, particularly for SMEs. - Banking sector restructuring 2016-19 improved capital adequacy ratio from less than 15 percent in mid-2017 to above 20 percent in early 2021; banks entered the domestic debt restructuring in a strong position, but government securities represent a third of bank assets and DDE affected bank capital significantly; NBFI sector also highly exposed to government securities. - Swift implementation of financial sector strengthening strategy (structural benchmark) crucial to preserve stability. - BoG approved recapitalization plans submitted by undercapitalized banks (structural benchmark); plans estimate capital needs based on forward-looking assessments of losses from government debt restructuring and NPL increases (MEFP ¶25). - Corrective actions initiated for plans deemed unsatisfactory; most banks submitted recapitalization plans with front-loaded recapitalization efforts. - For viable state-owned banks, government committed to providing solvency support through Ghana Financial Stability Fund (GFSF); given limited access to new financing, part of support will be provided through recapitalization bonds designed to be marketable and avoid distortions for recapitalized banks. WB to provide support to Ghanaian banks through GFSF conditional on existing shareholders contributing to recapitalization (MEFP ¶24). - Undercapitalized banks required to inject one-third of the capital required annually for each of the three years ending in 2025 to reach a 13 percent CAR (without regulatory forbearance); banks to inject in 2023 the minimum necessary to ensure solvency by end of 2023 (MEFP ¶25-26). - BoG will initiate corrective measures by end-March 2024 against banks that fail to uphold recapitalization requirements (new structural benchmark). - BoG stands ready to deploy contingency measures if needed to ensure financial sector stability. *Source: IMF staff report excerpts as provided in the source content.* ### 49. The authorities also aim to address the legacy issues of the financial sector and ### 1ghaea2024001 - 49. The authorities also aim to address the legacy issues of the financial sector and ### Financial sector legacy issues and state-owned banks - Remaining tasks from the earlier sector cleanup include addressing challenges of NIB and long-standing undercapitalization of several special deposit taking institutions (SDIs). - The Bank of Ghana (BoG) and Ministry of Finance (MoF) will design and begin to implement, by end-March 2024, a credible, comprehensive, and cost-effective plan that seeks to address NIB’s insolvency challenges by end-2024 (new structural benchmark). - To limit buildup of additional risks until the plan is concluded: - BoG committed to enhancing monitoring of NIB and to further imposing appropriate constraints on key risk areas. - Orderly resolution of other SDIs and fund management firms, as well as outstanding payouts to clients of SEC-licensed fund management companies, will be finalized by end-2024 (MEFP ¶28). - Any payouts by the government will be made through a burden sharing approach that will minimize fiscal costs. - Authorities will design a strategy to ensure state-owned banks adopt sound governance principles, business models and risk management systems to ensure long-term viability and facilitate orderly government exit (MEFP ¶29, ¶60). ### Monetary policy stance and inflation objectives - Large monetary financing—equivalent to 7.2 percent of GDP—that the BoG undertook after the government lost market access and the Cedi depreciation (by more than 45 percent in 2022) contributed to a surge in inflation. - In response, the BoG hiked its policy rate by more than 1,500 basis points since January 2022 to 30.5 percent. - Monetary financing, which had started to decline in early 2023, has been eliminated since program approval. - Fund-supported program objective: bring inflation back to the 6-10 percent target range by the end of the program. - Short-term BoG commitments under the program: - Maintain an appropriately tight policy stance and absorb excess liquidity. - Continue to refrain from providing monetary financing (performance criterion). - Program’s monetary policy consultation clause to monitor BoG’s performance in meeting inflation objectives (MEFP ¶18). ### Exchange rate policy and FX reserves - BoG aims to rebuild reserve buffers and strengthen FX market functioning. - Target: rebuild reserves to at least 3 months of import cover by the end of the program. - Medium-term objective: deepen interbank FX market and ensure greater exchange rate flexibility. - With IMF TA, BoG will devise a formal FX intervention framework and eventually conduct all FX interventions through auctions designed in line with best practice. - BoG will adopt an FX reference rate computation method that fully reflects the wholesale market rate (MEFP ¶20). - Actions to eliminate official actions that may give rise to multiple currency practices (MCPs). - Authorities committed to: - Revert to previous arrangement under which FX from mining companies was sold to commercial banks instead of to the BoG. - Phase out special auctions for oil importers. - Capital flow management measure: a limit of US$10,000 withdrawal per trip and per annual transfer without documentation remains in place. ### BoG safeguards, governance, and operational efficiency - BoG implementing 2023 safeguards assessment (SA) recommendations. - BoG preparing draft amendments to the BoG Act with a view to having them approved by Cabinet by end-May 2024 (new structural benchmark). - BoG conducting a risk assessment of the gold-for-oil program and will design an exit strategy, both to be presented to the BoG Board by end-June 2024 (new structural benchmark). - BoG’s participation in the domestic debt restructuring contributed to reducing its net equity to a negative value (around -6 percent of 2023 GDP), but analysis with IMF TA support indicated this does not hinder the central bank’s ability to fulfill its price stability mandate. - BoG net equity is expected to improve over time; measures include: - External efficiency review and design of a strategy to streamline operational costs to be adopted by the board by May 2024 (MEFP ¶21). - Phase out costly FX borrowing operations (MEFP ¶19). - Improving financial statement disclosures and reviewing investment policy for Board approval. ### Structural reforms to support inclusive, private sector-led growth - Authorities’ growth agenda articulated in policy initiatives including Ghana Beyond Aid, CARES, PC-PEG, and the Ghana mutual prosperity dialogue framework. - Key binding constraints identified: constrained access to finance, land, quality infrastructures (including energy), and skills mismatches. - Short-term reform priorities (all supported by the World Bank) include: - Operationalizing the new Development Bank of Ghana. - Reducing minimum foreign capital requirements to attract FDI. - Finalizing the new policy for Special Economic Zones (MEFP ¶60). - Priority sectors: agriculture, agro-processing, automotive, and pharmaceutical sectors. - Emphasis on strong governance frameworks for sectoral initiatives and avoiding costly/distortionary tax exemptions or subsidies. ### Climate change adaptation, mitigation, and financing - Ghana faces high climate change costs: rising temperatures, coastal erosion, erratic rainfalls, increased heatwaves; risks to agriculture and cocoa production; potential balance of payments vulnerabilities from global net zero transition effects on oil and gas. - Revised NDCs include ambitious adaptation and mitigation actions but lack legal enforceability and require massive investments. - Implementing the 47 NDC measures is estimated to require investment of US$ 9.3-US$ 15.5 billion. - Staff recommendations: - Streamline policy and regulatory initiatives into a unified legal framework. - Mainstream adaptation goals into public financial management. - Lay out a sustainable investment and financing strategy centered on mobilizing grants/highly concessional financing, private sector participation, and reforming environment-related taxes. - Authorities progress: - EPA bill approved by Cabinet to consolidate climate change issues into a legislative framework. - Once adopted, expedite associated regulatory changes including Environmental and Social Impact Assessments applicability and operationalizing a framework for carbon markets. - Climate financing challenges: - Ghana has not been able to issue green bonds given financing environment. - Limited capacity to develop bankable proposals constrains use of dedicated global funds. - Agreement to prioritize capacity building and develop an Environment Fiscal Reform Policy (EFRP) supported by the World Bank. ### Governance, anticorruption, and AML/CFT - Recent governance and AML/CFT actions: - Office of Special Prosecutor created in 2018. - Witness Protection Act (2018). - Criminal Offences Act amended in 2020 to make corruption a felony. - New Public Finance Management Act in 2016 introduced fiscal responsibility principles and sanction regime. - Electronic procurement system introduced in 2019. - AML/CFT Act adopted in 2020; Ghana exited FATF gray list in June 2021. - Governance challenges: - Performance in government effectiveness, regulatory quality, and control of corruption has deteriorated over the last 10 years. - Constrained resources for judiciary and anticorruption agencies contribute to lengthy investigations, prosecutions, and trials. - Sanctions under the PFM Act have not been systematically applied. - Authorities’ commitments under ECF-supported program: - IMF conducting a Governance Corruption Diagnostic Assessment to develop a roadmap to address vulnerabilities. - Assessment of the National Anticorruption Plan (NACAP) 2014-24 with UNODC support; update of NACAP to be finalized by early 2025. - Preparing a new Conduct of Public Officials Act to be adopted by Cabinet by May 2024 to strengthen asset declaration and verification system (MEFP ¶58). - Implementing recommendations from the Auditor General’s report on Covid-19 spending; follow-up report to be validated by the AG office and published by end-December 2023. - AML/CFT strengthening: - Financial Intelligence Center engaging in capacity building for reporting entities on CDD, risk assessment, trends, and typologies. - Priority to further strengthen transparency of Beneficial Ownership, including implementation of March 2022 updates to FATF’s R.24 (MEFP, ¶59). - Finalizing a Bill on Non-Profit Organization to limit AML/CFT risk of that sector. - Pursue recommendations concerning new technologies, regulation and supervision of designated non-financial businesses and professions, and extradition. ### Capacity building and statistics - IMF capacity development (CD) strategy aligned with ECF-supported program and surveillance agenda. - Resident advisor deployed to support BoG on banking supervision and regulation. - IMF CD provided in close collaboration with the Regional Technical Assistance Center for West Africa 2 in Accra and other partners including the World Bank. - Data provision broadly adequate for surveillance with improvements: - Good progress in publication of quarterly GDP series and monthly prices statistics. - Shortcomings remain in quality and timeliness of certain data in real, fiscal and BoP statistics (see attached Informational Annex). - Identified IMF CD priorities include tax policy diagnostic TA (completed in December 2022) and continuous support on revenue administration and MTRS preparation. *Source: IMF staff report content (selected sections).* ### 67. Adequate financing assurances are in place. The program is fully financed, with firm ### Adequate financing assurances are in place. ### Financing assurances and program financing - The program is fully financed, with firm financing commitments in place for the next 12 months and good prospects for adequate financing for the remainder of the program. - Disbursement plans from the WB and the AfDB have been confirmed. - Approval of the WB’s emergency Financial Sector Support operation is now expected in early 2024 instead of late 2023. - The AfDB is now preparing a budget support operation of about US$ 100 million over 2023-24, which has been added to the program’s financing envelope. - Ghana: Proposed Program Financing (USD million) - Financing Gap: 2023: 4,216; 2024: 3,312; 2025: 3,910; 2026: 3,321; Total: 14,759 - Official Financing: 2023: 1,589; 2024: 1,384; 2025: 1,070; 2026: 610; Total: 4,653 - IMF: 2023: 1,200; 2024: 720; 2025: 720; 2026: 360; Total: 3,000 - World Bank: - 2023: 330; 2024: 620; 2025: 350; 2026: 250; Total: 1,550 - DPO: 2023: 300; 2024: 300; 2025: 300; 2026: 250; Total: 1,150 - Emergency projects: 2023: 30; 2024: 320; 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: 0; 2024: 250; 2025: 0; 2026: 0; Total: 250 - African Development Bank: 2023: 59; 2024: 44; 2025: 0; 2026: 0; Total: 103 - Financing from external debt restructuring: 2023: 2,627; 2024: 1,928; 2025: 2,840; 2026: 2,711; Total: 10,106 - Footnote: Beyond the IDA20 period, IDA financing figures are based on assumptions; actuals will depend on IDA replenishment volumes, country performance, and other operational factors. Delivery of DPFs will be dependent on an agreement with the government on a strong program of policy and institutional reforms, and adequacy of the macroeconomic policy framework. In addition, the World Bank is planning to disburse $1.45 billion for project loans during 2023-26, already included in the baseline. ### IMF capacity-development activities (identified priorities) - Public financial management - 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. Status: Completed in June 2023 - TA on fiscal rule and fiscal council — Objective: Strengthen fiscal framework and institutions to underpin durable fiscal adjustment. Status: Expected in early 2024 - TA on cash management — Objective: Improve cash management to reduce the risk of arrears buildup. Status: Expected early 2024 - TA on public investment management — Objective: Improve the monitoring of capital expenditure and ensure rigorous selection process of [projects]. Status: Expected 2024 - Monetary and exchange rate policy - 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. Status: Completed in May 2023 - 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. Status: Ongoing, to be completed before end-2023 - Governance - Governance and corruption diagnostic assessment — Objective: Bolster governance and strengthen anticorruption framework. Status: Ongoing, to be completed in early 2024 - Social protection - Energy subsidy and social protection — Objective: Review the current electricity tariff structure and devise a targeted subsidy mechanism for poor households. Status: Expected early 2024 - Statistics - 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. Status: Expected in early 2024 ### Debt restructuring, financing assurances, and capacity to repay - Staff is assured that the ongoing debt restructuring will generate financing consistent with program parameters and will restore debt sustainability. - Authorities expected to reach a debt treatment agreement with the OCC shortly and before consideration of Ghana’s first review under the ECF arrangement by the IMF Executive Board; the agreement would then be expected to be codified in an MoU within the following weeks. - In line with the Fund’s Lending into Arrears (LIA) policy, the authorities are making good faith efforts to reach a restructuring agreement with external private creditors on comparable terms and consistent with program parameters. Authorities have been actively engaging with financial advisors to the two groups of bondholders and have made several presentations to the investor community. - Enterprise risks and capacity-to-repay assessment - Ghana is the largest PRGT borrower, with total commitments accounting for 10 percent of total PRGT outstanding and credit outstanding accounting for 40 percent of the PRGTs credit buffer/reserve account. - The country’s capacity to repay the Fund is assessed as adequate but subject to substantial downside risks, assuming successful program and debt restructuring implementation predicated on achieving moderate risk of debt distress and restoring adequate market access. - Under the baseline (which does not reflect external debt restructuring), several capacity-to-repay indicators are consistently above the top quartile of past UCT-quality arrangements for PRGT programs—indicating strains on Ghana’s capacity to repay. - Outstanding credit to the Fund as a share of GDP will peak in 2025 at 5 percent. - Outstanding credit to the Fund as a share of GIR will peak in 2023 at 138 percent. - Debt service as a share of revenue is expected to rise over the medium term and peak at 3.1 percent in 2029, more than double the median PRGT country. - Downside risks to capacity to repay stem from high level of access driven by large BOP needs, implementation complexity of the Fund-supported program, and uncertainties surrounding the outcome of the debt restructuring operation until completed. - Mitigating factors: Ghana’s strong track record of debt service to the Fund, continued strong commitment and ownership of the program, and the financing assurances provided by creditors and development partners. - Not supporting a member facing deep macroeconomic challenges and strongly committed to reform would entail significant reputational risk for the Fund and could undermine prospects for external debt restructuring, including under the Common Framework platform supported by the G20. ### Proposed modifications to program conditionality - Modification of the end-December 2023 primary balance PC and non-oil revenue IT to accommodate macroeconomic developments while keeping the fiscal effort relative to GDP as envisaged under the program and modification of the end-year NIR target to lock in part of the overperformance observed at end-June (MEFP Table 2). - Establishment of PCs and ITs for end-June 2024 and end-December 2024, as well as 9 new SBs focused on macro-critical reforms (MEFP Table 3). ### Staff appraisal: progress, remaining priorities, and policy recommendations - Program rationale and context - The authorities’ reform program is designed to respond to immediate pressures and pave the way for a more resilient and prosperous economy following episodes of volatility driven by rising inflation, exchange rate depreciation, and loss of external buffers, compounded by severe external shocks in 2022. - The IMF-supported program provides a framework to restore macroeconomic stability, address long standing vulnerabilities, and lay foundations for higher and more inclusive growth. - Evidence of progress - Strong policy and reform commitment is yielding results: all quantitative performance criteria and almost all indicative targets and structural benchmarks met. - Outcomes observed: growth somewhat more resilient than initially envisaged; inflation has started to decline; fiscal and external positions have improved; reserves are being rebuilt; exchange rate volatility has eased significantly. - Remaining priorities and recommendations - Steadfast policy and reform implementation is critical to durably restore macroeconomic stability, debt sustainability, and foster sustainable increases in growth and poverty reduction. - Envisaged fiscal adjustment remains essential to relieve financing pressures and restore debt sustainability. Government plans include mobilizing additional domestic revenue and streamlining expenditure to underpin a sustainable debt trajectory and ease fiscal and external financing constraints. - Fiscal space should be created to bolster targeted social protection programs and protect vulnerable households; over the medium term it is needed for higher social and development spending, including climate adaptation and mitigation. - Continued progress on structural fiscal reforms is key: improve tax administration and public financial management, strengthen expenditure control and management of arrears, enhance fiscal rules and institutions, and improve SOEs management. - Maintain appropriately tight monetary policy to bring inflation down while rebuilding international reserves and enhancing exchange rate flexibility; elimination of monetary financing of the budget noted as an important step. - BoG should improve FX market functioning and avoid actions that may give rise to multiple currency practices; one longstanding exchange restriction related to an import verification form and MCPs related to different rates are outlined in the informational annex; authorities are not requesting, and staff is not recommending, approval for these measures. - Preserve financial sector stability: implement bank recapitalization plans, operationalize Ghana’s Financial Stability Fund, address legacy financial sector issues, and rebuild financial buffers using resources from private sector, government, and multilaterals. - Advance reforms to raise private sector-led growth, create an environment more conducive to private investment, enhance potential and job creation, and promote a green recovery by advancing adaptation and mitigation agendas given Ghana’s exposure to climate shocks. *Content derived from the supplied IMF document excerpt.* ### 79. Given Ghana’s overall strong performance and commitments under the program, ### 1ghaea2024001 - 79. Given Ghana’s overall strong performance and commitments under the program, ### Program review and staff recommendations - Staff supports completion of the first review under the ECF arrangement and the financing assurances review, subject to the authorities having reached a debt treatment agreement with the OCC consistent with the financing assurances provided in May 2023. - Staff recommends that the next Article IV consultation be held within 24 months in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements. ### Fiscal developments and public debt dynamics - Persistent high fiscal deficits, particularly during the Covid-19 pandemic, led to a rapid debt accumulation: - debt-to-GDP ratio surged from ~55 percent in 2018 to above 90 percent in 2022. - Interest expense had consumed about half of government revenues. - Given relatively weak revenue mobilization, the authorities are embarking on a large, front-loaded revenue-led fiscal consolidation program aimed: - to restore debt sustainability while preserving fiscal space for critical expenditure and stronger, inclusive growth. - Selected gross financing needs and related program figures (from Table 2c): - Gross financing needs (I): 129.3 133.1 204.6 120.8 269.2 135.1 375.2 197.6 212.7 214.1 236.6 - Primary deficit (cash basis): 5.0 19.5 10.6 3.9 2.3 4.2 -11.0 -10.2 -12.0 -11.5 -14.8 - Debt service (3,4): 124.2 113.5 171.9 97.6 266.0 127.4 386.2 207.8 224.7 225.5 251.4 - Gross financing sources (II): 125.7 133.1 74.9 73.8 91.3 88.7 126.6 135.1 156.5 188.8 219.3 - Financing gap (II)-(I): 0.0 0.0 129.7 46.9 177.8 46.4 248.6 62.6 56.2 25.3 17.4 - Exceptional financing: 0.0 22.7 17.7 18.2 19.3 18.7 17.1 10.3 0.0 0.0 0.0 - IMF exceptional financing entries: 0.0 0.0 15.8 13.4 11.5 10.1 12.6 11.5 6.1 0.0 0.0 - Residual gap: 0.0 0.0 107.0 29.2 159.7 27.0 229.9 45.5 45.9 25.3 17.4 (Note: Table notes indicate program approval debt service projections corresponded to a pre-domestic and external debt restructuring scenario; updated projections correspond to a post-domestic debt restructuring and pre-external debt restructuring scenario.) ### Monetary and financial developments - Net foreign assets (NFA) are starting to recover and net domestic assets (NDA) growth is slowing, driven by lower financing of the government and reduced private sector financing. - Monetary policy has been significantly tightened by raising the policy rate and through significant liquidity absorption by the Bank of Ghana (BoG). - Banking sector indicators: - Average capitalization of the banking sector has decreased on the back of the Domestic Debt Exchange Programme (DDEP) and nonperforming loans (NPL) are rising. - Growth of credit to the private sector has decreased in nominal terms and is negative in real terms. - Policy commitments under the 2023 ECF program include: - Elimination of monetary financing starting in May 2023. - Renewal of the Memorandum of Understanding (MOU) on monetary financing and commitment to prepare amendments of the BoG Act to enact stricter monetary financing limits and strengthen BoG independence. - Aim to rebuild FX reserve buffers to at least 3 months of imports and to limit central bank FX intervention. - Reforms and prudential measures to reduce the sovereign-bank nexus and promote credit to the private sector. ### Capacity to repay indicators and Fund exposure - Figure comparisons present Ghana’s indicators versus the distribution of UCT arrangements for PRGT countries (2010–2020), including series for: - Percent of Gross International Reserves, Percent of GDP, Percent of PPG External Debt, Percent of Revenue excl. Grants, Percent of Exports of Goods and Services, Percent of PPG External Debt Service. - Panel C highlights "38 Largest Peaks for Fund Credit Outstanding (Percent of Gross International Reserves)" and "38 Largest Peaks for Total Debt Service to the Fund (Percent of Revenue excl. Grants)", with Ghana (GHA PRGT) shown among comparator events. ### Structural and policy progress since the 2021 Article IV - Fiscal policy and social protection: - Under the 2023 ECF programme, authorities have doubled social protection spending for the Livelihood Empowerment Against Poverty (LEAP) targeted cash transfer program and increased allocation for the Ghana School Feeding Program. - Monetary/FX policy: - Monetary financing eliminated starting in May 2023; MOU renewed; commitment to strengthen BoG Act. - Authorities aim to rebuild FX reserves to at least 3 months of imports and limit FX intervention. - Public debt management: - Authorities included ESLA, Daakye, Synohydro, Cocobills, and energy sector debts in the perimeter of the domestic debt exchange and fiscal framework. - Structural policies and sectoral reforms: - Updated Energy Sector Reform Program (ESRP) is under preparation; measures implemented include nearly doubling electricity tariffs over the past year. - Cocobod turnaround strategy prepared; completed domestic debt exchange that included Cocobills. - Auditor General Audit of COVID-19 spending completed and published in January 2023. - Comprehensive stock-taking of domestic and energy sector arrears finalized; payable clearance plan and reform plan laid out. - Continued capacity building on AML/CFT enforcement; gradual lifting of regulatory forbearances introduced in the context of the DDEP as the economy stabilizes. - Financial-sector measures: - Domestic debt exchange has directly and indirectly reduced bank holdings of government securities; authorities will implement reforms and prudential measures to further reduce sovereign-bank nexus and promote private-sector credit. - Authorities aim to design adequate bank and NBFIs recapitalization strategies and encourage acquisitions/mergers if needed. ### Risk assessment highlights (Annex II) - Conjunctural risks: - Intensification of conflicts (e.g., escalation of Russia’s war in Ukraine): Likelihood — High; Potential Impact — High. - Policies to mitigate: build external buffers under the program; implement structural reforms for domestic production/import substitution; improve governance and business environment. - Commodity price volatility: Likelihood — High; Potential Impact — High. - Policies to mitigate: improve governance for commodity production/processing/diversification; enhance social protection. - Social discontent from high inflation and real income loss: Likelihood — Medium; Potential Impact — High. - Policies to mitigate: strengthen governance and anti-corruption frameworks; implement orderly fiscal consolidation; strengthen social and financial safety nets. - Systemic financial instability from sharp swings in interest rates and asset repricing: Likelihood — Medium; Potential Impact — High. - Policies to mitigate: strengthen financial safety nets; closely monitor bank and NBFIs liquidity and asset quality; design recapitalization strategies; encourage consolidation where needed. - Domestic risks: - Delays in debt restructuring negotiation and implementation: Likelihood — Medium; Potential Impact — High. - Policy mitigation: engage with creditors and provide needed data/information to mitigate undue delays to Board approval of program reviews. - Domestic policy slippages (e.g., due to election pressures): Likelihood — Medium; Potential Impact — High. - Policy mitigation: firm commitment to program implementation to ensure full fiscal and external adjustment and continuation of exceptional financing. *Source: IMF staff summary of Ghana program documents and figures as presented in the supplied content.* ### Annex III. External Sector Assessment ### Annex III. 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. - 2022 dynamics: - The current account deficit narrowed in 2022 on the back of higher commodity exports. - The deficit, along with massive portfolio outflows and large external debt-service, were financed by a reserves’ drawdown, amid loss of international market access and lower FDI. - 2023H1 dynamics: - The external position improved during the first half of 2023. The current account turned into a surplus as a decline in oil exports was more-than-offset by import compression, strong remittances, and higher income repatriation by mining and oil companies; and international reserves have increased. - 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, tame exchange rate volatility and contain 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 the business environment would help bolster external competitiveness and shift financing of capital investment from debt to FDI. ### Foreign assets and liabilities: position and trajectory - Background and 2022 outcome: - The external assets and liabilities position deteriorated in 2022. - External debt remained virtually flat at 48 percent of GDP in 2022. - Gross foreign exchange reserves fell from 9.9 in 2021 to 2 percent of GDP (0.7 months of prospective imports) on the back of large capital outflows, difficulties in rolling over central bank FX liabilities and reserve draw downs, suggesting a weaker external financial asset-liability balance (Ghana does not report NIIP statistics). - 2023H1 and medium-term projections: - Gross reserves increased in the first half of the year to reach 3.1 percent of GDP, equivalent to 1.0 month of prospective imports, on the back of a stronger current account and lower FX interventions. - Over the medium term, gross reserves are projected to continue increasing to reach 9.2 percent of GDP in 2027, equivalent to 3.5 months of prospective imports. - External debt is projected to follow a downward path—after peaking at 55.6 percent of GDP in 2024—to hover around 53 percent of GDP in 2027, reflecting lower financing needs as the fiscal consolidation and growth-enhancing structural reforms start bearing fruit. - The ongoing external debt restructuring should bring external debt further down. - Assessment: - Greater exchange rate flexibility, deeper FX market and policies that support further revenue mobilization and more efficient spending, together with shifting financing away from debt towards FDI would help contain the growth of external debt and help rebuilding reserves. - Note: - Gross reserves refer to headline official reserves, excluding foreign assets held by Ghana Petroleum and Stabilization Fund and encumbered and pledged assets as per IMF-supported program definition. ### Current account - Background (2017–2021 trends): - The current account had steadily improved in the five years to 2021 and stabilized around an average deficit of 2.8 percent of GDP, benefiting from growing volumes of exports and remittances. - Imports of goods and services decreased from 36.6 to 31.7 percent of GDP between 2017-2021 despite persistent primary government deficits and robust FDI. - 2022 outcome: - The current account deficit narrowed in 2022 to 2.1 percent of GDP down from 2.7 percent of GDP in 2021. - Trade surplus improved from 1.4 in 2021 to 4 percent of GDP in 2022. - Exports of goods and services increased from 30 in 2021 to 35.6 percent of GDP in 2022. - Imports of goods and services increased from 31.7 in 2021 to 36.4 percent of GDP in 2022. - Remittances improved from 4.2 in 2021 to 4.9 percent of GDP in 2022. - Commodity specifics in 2022: - Oil exports increased by 37.5 percent. - Gold exports increased by 30 percent. - Cocoa exports declined by around 19 percent compared to 2021. - 2023H1 and medium-term outlook: - The current account turned into a surplus in 2023H1 as a decline in cocoa and oil exports was more-than-offset by import compression, strong remittances, and larger income repatriation by mining and oil companies. - The current account is expected to stabilize around 2-2.5 percent of GDP over the next five years. - In the medium term, an expected increase in cocoa, oil and gold production would maintain the trade balance surplus at 4.8 percent of GDP on average. - With a lower government deficit as reforms under the Fund-supported program start bearing fruit and the ongoing external debt restructuring, the current account deficit should be further reduced. - Assessment and model results: - A model-based approach indicates a small positive current account gap in 2022. - The EBA-Lite CA model shows a cyclically 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. - Comparing the cyclically adjusted current account balance to a norm based on fundamentals and desired policies estimated at -3.0 results in a positive current account gap of 0.9 percent of GDP, suggesting the external position is broadly consistent with fundamentals and desirable policy settings. - The policy gap estimated at -3.8 percent of GDP in the CA model is dominated by the impact of expected fiscal adjustment and further exchange rate flexibility through reduced FX interventions. - Debt restructuring, tight fiscal and monetary stances, and structural reforms aimed at improving business environment, diversifying the economy, strengthening governance (especially in leading export sectors), and mobilizing larger fiscal revenues would also help further strengthen the external position by reducing dependence on debt financing and attracting FDI. ### Real exchange rate and exchange rate developments - 2022 depreciation and volatility: - The exchange rate depreciated in 2022, amidst extreme volatility. - The average nominal exchange rate depreciated by around 45 percent on average against the US. dollar in 2022, with the sharpest depreciation in 2022Q4 (by 25 percent Q-o-Q and 50 percent Y-o-Y). - 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). - The real effective exchange rate depreciated by 4 percent in 2022. - Over the last 10 years, the NEER and REER have been depreciating by 68 and 19 percent on average, respectively. - 2023 developments: - The exchange rate has stabilized in 2023. Exchange rate volatility declined substantially in the first 7 months of 2023, with the exchange rate depreciating by 7.3 percent vis a vis the U.S. dollar since end-2022. - Assessment: - EBA-Lite exchange rate models point to an undervaluation of the real exchange rate. - The CA model estimates an undervaluation of 3.5 percent. - The REER model estimates an undervaluation of 30 percent. ### Capital and financial accounts: flows and policy measures - 2022 flows: - The capital and financial account declined from a 3.4 percent of GDP surplus in 2021 to a deficit of 3.2 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. - Large capital outflows—particularly by non-residents—and loss of market access weighed significantly on portfolio investment. - 2023H1 developments: - With the announcement of the standstill in December 2022 and the approval of the IMF-supported program in May 2023, capital flight has slowed and debt obligations declined, leading to a stronger financial account in 2023H1 despite a decline in FDI. - Five-year averages and medium-term outlook: - Over the past five years the capital and financial account averaged 3.7 percent of GDP reflecting strong FDI and portfolio flows. - FDI averaged 3.9 percent of GDP while net positive portfolio flows averaged 2.8 percent of GDP. - Over the next five years, the capital and financial account is expected to gradually improve with FDI expected to increase and reach 3 percent of GDP by 2027, while portfolio inflows are expected to remain subdued assuming a gradual recovery in international market access over the medium term. - Assessment and policy measures: - A further tightening of global financial conditions or a delay in implementing the sovereign debt restructuring and/or failure to implement the reform program could undermine the financial account. - A capital flow management measure (CFM)—consisting of a US$10,000 withdrawal limit per trip and per annual undocumented transfer—remains in place since 2014. The removal of this CFM would be consistent with the Fund’s Institutional View on CFMs. - Implementing a growth-friendly fiscal consolidation, tighter monetary policy and structural reforms to enhance business environment and strengthen governance and private sector competitiveness is critical to diversify the economy and boost foreign investors’ interest in the domestic market. ### FX intervention and reserves level - 2022 reserves and interventions: - Gross Foreign Assets are estimated to have reached 0.7 months of prospective imports, 2 percent of GDP, and 27.3 percent of foreign currency deposits at end-December 2022. - Gross reserves declined from US$7.9 billion in 2021 and reached US$1.4 billion at the end of 2022. - Frequent and broad-based FX interventions, failure to roll over central bank FX liabilities, larger profits and dividends distribution by oil and mining companies, the sharp decline in portfolio inflows and the surge in portfolio outflows from domestic debt market weighed significantly on reserves. - 2023 outcome: - Stronger current and financial accounts have boosted gross reserves to US$2.5 billion (3.2 percent of GDP) at end-October 2023. - Assessment of adequacy and program targets: - Reserve coverage is lower than adequate. Gross reserves at 0.7 months of prospective imports at end-2022 were well below the standard 3-month metric and represented only 15 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 (corresponding to the average effective interest rate on external debt for the past five years). - FX interventions were lower in 2023H1. Consistent with the program targets, the BoG’s interventions in the FX market were more limited and allowed for further reserves accumulation. - In 2022, the central bank 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 to cope with higher global energy and food prices. - The proposed Fund-supported program is targeting a buildup of reserves over the medium term to reach 3 months of prospective imports by end-2026. This will be supported by lower external debt service (thanks to the debt restructuring), tighter fiscal and monetary policies, and policies to increase exchange rate flexibility—including more limited FX interventions and a revision of the FX auction design to improve FX allocation and price discovery. *Source: Annex III. External Sector Assessment (content unit 1ghaea2024001).* ### Annex IV. Mainstreaming Ghana’s Climate Adaptation Strategy ### Annex IV. Mainstreaming Ghana’s Climate Adaptation Strategy ### Climate risks and urgency - Ghana has experienced rising mean temperatures (by around 1 O C in the last 30 years), erratic rainfalls, coastal erosion, and increased incidence (with higher intensity and frequency) of heatwaves. - Temperatures are expected to increase by another 1 to 3 degrees by 2050. Beyond 2050, severe heatwaves will become more frequent, with some parts of Ghana experiencing near-unlivable conditions. - Key adaptation objectives: build climate resilience, enhance early warning and disaster risk management, improve food security, and strengthen integrated agriculture and water resource management. - Ghana faces both a strong urgency for climatic action and large investment and innovation needs to improve readiness. ### Policy framework and commitments - Ghana’s Country Climate Development Report recommends a Climate Resilient and Low Carbon Development pathway focusing on priority areas and actions. - Ghana’s updated Nationally Determined Contribution (NDC) comprises 13 programs of action on adaptation and 34 on mitigation (47 actions total). - An NDC Implementation Plan estimates an investment requirement between US$9.3 and US$15.5 billion. - Existing adaptation-related instruments being consolidated into the National Adaptation Planning (NAP) program include: - National Climate Change Adaptation Strategy (NCCAS, 2012) - National Climate Change Policy (NCCP, 2013) - Nationally Determined Contributions (NDC, 2015) - National Climate Change Master Plan Action Programmes for Implementation (2015–2020) - The NAP/AdCom priority areas for immediate action include: climate adaptation data architecture, targeted ecological-zone risk assessments, expedited national climate legislation emphasizing adaptation, national and sub-national adaptation capacity building, climate financing skills development, adaptation for social transformation, and leveraging local governance/decentralization for adaptation planning. ### Priority development areas and recommended actions (summary of Table 1) - Climate-resilient and low-carbon development: - Adopt an integrated approach to agriculture and the environment - Foster integrated landscape management - Promote climate-smart agriculture - Support adaptation of coastal communities - Build sustainable cities and infrastructure systems: - Improve urban development and resilient infrastructure - Enhance resilient mobility infrastructure and services - Improve waste management - Boost disaster risk preparedness: - Enhance early warning systems - Improve national financial preparedness against climate shocks - Advance adaptive health and social protection systems - Realize new opportunities for carbon sinks and clean energy transition: - Operationalize the ambition for zero deforestation - Enable participation in global carbon markets - Reduce use of biomass with clean cooking - Increase access to clean and efficient energy; scale up share of renewable energy sources; strengthen regional energy markets - Modernize transport: - Develop public transport system; improve vehicle standards; electrify mobility - Cross cutting: - Strengthen institutional capacity and legal framework - Unlock finance for climate action and sustainable development - Manage distributional impacts to ensure a just transition ### Main recommendations to mainstream adaptation into legislation, planning, and public financial management - Legal and institutional reform: - Create comprehensive climate change legislation to incorporate NDC priorities into binding and enforceable sectoral laws. - Ongoing legislative work includes amendments to the Environmental Protection Authority Bill to consolidate existing laws, policies and development plans related to environmental protection. - Data, information systems, and decision-support: - Develop data and information systems for climate risk and impact assessment and adaptation needs assessment. - Prioritize frameworks for (i) early warning systems in identified priority areas, (ii) climate-smart agriculture (CSA) and integrated water management, and (iii) climate-informed urban planning and infrastructure. - Develop decision-support tools for private sector adaptation decision-making. - IMF diagnostic mission (June 26-30) recommended prioritizing development of statistics pertaining to air emissions accounts and forward-looking physical and transition risk indicators. - Investment sequencing and efficiency: - Without sufficient adaptation investment, much higher investment spending would be needed to promote development in climate-vulnerable sectors. - Optimal adaptation investment should reduce climate change damages in a cost-efficient manner (see Box 1 on agriculture). - Financing and capacity for bankable projects: - Financing needs for mitigation and adaptation exceed available external funding and public resources; mobilizing new funds, including from the private sector, is crucial. - Authorities identify lack of capacity to prepare bankable proposals as a binding constraint and call for technical support from development partners. - Public Financial Management (PFM) integration: - The new PFM Strategy (2022-26) supports both adaptation and mitigation and a Climate Budget Tagging system has been developed, but implementation is incomplete. - Climate considerations need to be mainstreamed in public investment management, notably project appraisal and selection. - Constraints to green public procurement include (i) insufficient institutional capacity at MDAs level, (ii) absence of a binding requirement for environmental compliance in bidder eligibility, and (iii) continued focus on cost-minimization. - FAD will work with the newly established Climate Unit within MoF to provide CD support on Climate PIMA and assessment of fiscal risks from climate change. - Subnational and SOE integration: - Integrate climate change into PFM at the subnational level; subnational governments currently lack sufficient funds and capacity and face lower-than-planned transfers affecting project execution. - Integrate climate action plans into Annual Performance Contracts between SOEs (especially in energy and mining) and their supervisory agency. - Assess contingent climate-related risks to SOEs’ financial viability and operational performance and implement systematic tracking and reporting of SOEs’ climate-related actions and climate-smart investments. ### Agriculture: vulnerability, adaptive capacity, and adaptation investment (Box 1) - Agriculture is critical to Ghana’s economy: - Provides employment to 40 percent of the labor force. - Accounts for about 20 percent of GDP. - Agricultural products account for over 40 percent of export earnings. - Sector characteristics and climate vulnerability: - Dominated by smallholder family farms that are mostly rain fed and therefore sensitive to climate change. - Most agriculture employment is informal, often lacking resources and technology for adaptation. - Projected crop impacts: - Cassava yields are projected to fall by 30 percent by 2080. - Corn yields are projected to fall by 7 percent by 2050. - Water and flood impacts: - Damage and flood exposure are projected to result in damages of US$160 million annually. - Ghana’s adaptive capacity: - Broadly comparable with peers in Western Africa and strengthened by infrastructure investments, land and water management, and research and development. - Investment guidance: - Adaptation investment in agriculture is necessary to reduce damages and maintain food security. - An optimal level of adaptation investment seeks to reduce climate change damages in a cost-efficient manner; efficiency varies across adaptation strategies (for example, rehabilitating existing irrigation systems may be more cost-effective than equipping new land with irrigation). *Source: Annex IV. Mainstreaming Ghana’s Climate Adaptation Strategy, IMF country report content.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Commitments and Requests - Confirms commitment to policies, reforms, and objectives of the program under the post-Covid-19 Program for Economic Growth (PC-PEG) and an IMF arrangement under the Extended Credit Facility (ECF). - Requests: - Completion of the first review. - Completion of the financing assurances review. - A disbursement of SDR 451.4 million. - Modification of (i) the end-December nominal fiscal objectives (primary balance QPC and non-oil revenue IT) to reflect a lower nominal GDP projection while keeping the fiscal effort relative to GDP; and (ii) the end-December net international reserves QPC to lock-in part of the overperformance to date. - Resetting of the end-December 2023 structural benchmark on the procurement and operationalization of ITAS to end-2024. - Program monitoring: semi-annual reviews with QPCs and ITs described in the attached MEFP and TMU; prior actions and structural benchmarks cover critical reform areas; continuous performance criteria related to exchange restrictions and multiple currency practices in the context of Article VIII. ### Program Implementation and Performance - Recent implementation: - Met all end-June 2023 quantitative performance criteria (QPCs) and continuous performance criteria. - Met all end-June indicative targets (ITs) except one: the IT on payables was missed due to delayed payments to IPPs amid IPP arrears renegotiation. - Almost all of the 7 structural benchmarks due by end-June and end-September 2023 but one were met. - End-December 2023 structural benchmark on procurement and operationalization of ITAS will not be met due to compatibility and organizational transformation requirements. - Energy Sector Recovery Program (ESRP) update required more time for consultations; ESRP has now been approved by cabinet and published. - An updated safeguards assessment of the Bank of Ghana was completed in July 2023. - Domestic debt restructuring: - Completed the domestic part of the debt restructuring. - Successfully exchanged about 90 percent of domestic public debt other than T-bills for instruments with the same total face value but lower coupons and longer maturity. - Restructured the BoG’s holdings of non-marketable government debt following IMF technical assistance. ### Macroeconomic Developments and Outlook - Recent developments and indicators: - Activity: extractive sectors slowed in H1 2023 due to lower oil production; non-extractive sectors were more buoyant. The first half of 2023 posted an average growth rate of 3.2 percent. - GDP projection revisions: revising GDP growth projection up to about 2.3 percent for 2023, from the 1.5 percent earlier projected. - Inflation: declined from a peak of 54.1 percent in December 2022 to 26.4 percent in November 2023. - International reserves: started to recover in 2023, reaching US$ 2.1 billion by end-October (1.1 months of prospective imports). - Exchange rate: stabilized since February 2023 after sharp depreciation in 2022. - Current account: turned into surplus in H1 2023 (decline in oil exports more-than-offset by import compression, higher remittances, and income repatriation by mining and oil companies). - Projections and targets: - GDP growth: accelerate to 2.8 percent in 2024 and gradually rise to long-term potential of around 5 percent in subsequent years. - Inflation: projected to reach 27.7 percent by end-2023 and brought down to the BoG’s medium-term target of 8±2 percent by end-2025. - Current account: projected to hover around 2.5 percent of GDP over the medium term in a pre-debt restructuring scenario. - Reserves: rebuild reserve buffers to 3 months of import cover by the end of the program. ### Monetary and Financial Policies - Bank of Ghana actions: - Tightened monetary policy through an increase of the policy rate by a cumulative 1550 basis points since early 2022. - Raised Reserve Requirements (RR) by a cumulative 800 basis points. - Mopping up excess liquidity to ensure full transmission of the monetary policy stance. - Financial stability and arrangements: - Domestic debt exchange was designed and executed to ensure continued stability of Ghana’s financial system. - Cash debt relief from external debt restructuring needs to contribute US$10.5 billion to program financing in 2023-26. ### Fiscal Policy and Revenue Strategy - Fiscal adjustment objectives: - Lower the fiscal primary deficit on a commitment basis from 4.4 percent of GDP in 2022 to 0.5 percent of GDP in 2023. - Program objective: achieve a primary balance of 1.5 percent of GDP by 2025, to be maintained at least until 2028. - Committed to achieving a primary balance surplus of 0.5 percent of GDP in 2024, underpinned by non-oil revenue measures of at least 0.9 percent of GDP. - Revenue and expenditure measures: - 2024 Budget submitted to Parliament consistent with improving the primary balance by another 1 percentage point of GDP in 2024 (prior action). - Main elements of the revenue package include removal of selected VAT exemptions, revision of taxes on gambling, and introduction of green taxes. - Measures to ensure VAT exemption removal yields: register large property developers with GRA by end-2023; make VAT payment proof a prerequisite for initiating property transfer; ensure use of GRA’s online portal for payments; establish real-time data sharing between BoG and GRA on property-related bank transactions. - Tax administration and compliance: ongoing implementation of the E-VAT system. - Primary expenditure: to be kept around the 2023 level in proportion to GDP in 2024 but rebalanced toward growth-supporting spending; 2024 Budget allows for higher capital expenditures due to energy sector and statutory fund reforms. - Contingency arrangements: - Stand ready to deploy contingency measures if macroeconomic environment deteriorates, including bringing forward MTRS measures and reducing MDAs budget allocations during the year; strictly align quarterly spending allotments with cash forecasts and domestic debt market conditions. - Medium-term revenue targets: - Government objective to enact measures to permanently raise the non-oil revenue-to-GDP ratio by at least 0.6 in 2025 and 0.4 percent of GDP in 2026, with a view to achieving a non-oil revenue to GDP ratio of at least 16.5 percent by 2026. - MTRS adopted by cabinet and published (end-September 2023 structural benchmark); designed to include buffers for revenue underperformance or DDEP impacts. ### Social Protection Measures - 2023 achievements: - On track to meet the social spending floor in 2023. - Doubled the Livelihood Empowerment Against Poverty (LEAP) cash transfer program amount. - Increased budget allocation for the Ghana School Feeding Program (GSFP). - 2024 measures: - Budget for highly targeted interventions increased by 0.05 percentage point to 0.53 percent of GDP. - Will again double LEAP benefits in 2024; goal to cover 20 percent of pre-transfer household consumption over the next few years. - Introduced framework for automatic indexation for LEAP benefit to preserve real value (end-September structural benchmark); start implementation in the 2024 Budget. - Reduce payment delays by prioritizing budget disbursement to the program from Ministry of Finance and the Controller and Accountant General. - GSFP: increase benefit by 25 percent for 2024 to move toward provision of 30 percent of children’s daily calorie intake and compensate for high food inflation; improve program efficiency to reduce overheads. - NHIS: increase allocation by at least 40 percent to gradually clear backlog of medical claim arrears and cover accrued medical claims, essential medicines, and vaccines; target return of child vaccination rates to pre-crisis levels. - Capitation grant: increase allocation by 25 percent. ### Public Debt Strategy and Restructuring - Debt sustainability objective: - Aim to restore a moderate risk of debt distress by 2028 (per IMF-WB LIC-DSF), entailing bringing five external and overall debt ratios below their thresholds. - Specific targets: reduce NPV of public debt to GDP to 55 percent; reduce ratio of external debt service to revenues to 18 percent. - External creditor engagement: - Applied for debt treatment under the G20 Common Framework in December 2022; following financing assurances in May 2023, expect to reach agreement with official bilateral creditors and sign an MoU with the Official Creditors Committee (OCC) before IMF Executive Board consideration of the first review. - Engaging commercial creditors in “good faith” negotiations to strike restructuring deals consistent with program parameters. - Expect external debt relief sufficient to reduce LIC-DSF debt ratios below thresholds starting in 2028 in combination with program policies; external debt relief expected to generate sufficient financing over the program period to help close the overall program external financing gap. - Post-restructuring rule: - Will impose a limit on the present value of newly contracted external debt to further support restoring debt sustainability. *Appendix I. Letter of Intent — 1ghaea2024001* ### 16. Debt management in the near term will work to ensure sufficient domestic financing ### 16. Debt management in the near term will work to ensure sufficient domestic financing ### Debt management — near term priorities and roadmap - Immediate priority: ensure sufficient issuance of T-bills to finance the government deficit. - Develop a roadmap for the gradual resumption of bond issuances in the coming years. - Initial domestic bond issuances will be carefully managed to prioritize successful execution, favoring private placements. - Once domestic market access is more firmly established, primary issuance will switch to competitive auctions. - Increase surveillance of debt issuance by SOEs and other public entities. - Strictly limit and monitor collateralized debt issuance. - Strictly limit borrowing on non-concessional terms. - Ensure that debt payments are made on time. - Once external debt restructuring is completed, develop and publish a medium-term debt management strategy and an annual borrowing plan. ### Debt transparency, systems upgrade, and SOE monitoring - The current securities operation infrastructure used by the Debt Management Office (CD-RMS) will be completely upgraded to a modern system by end-2024. - Implementation strategy aims to integrate all state institutions involved in contracting and servicing public debt and to digitalize processes to: - increase the pace of debt service processing; - improve the accuracy of debt recording and accounting by reducing errors and omissions; - improve debt transparency among relevant state institutions. - Expected system benefits: enhanced debt analysis, improved debt service projections and planning, and greater efficiency in public debt management. - Immediate priority: significantly strengthen monitoring of borrowing and contingent liabilities stemming from operations of key SOEs such as COCOBOD, ECG, VRA, GWCL, TOR, GNPC, GNGC, and BOST, as well as any collateralized debt issuance. ### Monetary policy stance and inflation objective - Maintain a sufficiently tight monetary policy until inflation is on a firmly declining path. - Monetary policy objective: bring inflation back to the Bank of Ghana’s medium-term objective of 8 ±2 percent. - Policy decisions will be data-dependent; the BoG stands ready to further increase the policy rate if inflation does not decrease as envisaged under the monetary policy consultation clause. - Commitments: - absorb excess liquidity and ensure policy rate is fully transmitted to the market; - enhance the inflation targeting framework via improvements in the Forecast and Policy Analysis System (FPAS), macroeconomic data collection including BoG inflation expectations survey, analytical capacity, and central-bank monetary policy communication. ### Exchange rate flexibility, reserves, and FX operations - Commit to greater exchange rate flexibility to enhance resilience to shocks and rebuild central bank reserves to at least 3 months of import cover by the end of the program. - Adhere to a gross FX intervention budget consistent with achieving reserve targets; limit monthly gross FX sales to a ceiling and consult IMF staff if higher interventions are needed. - Unwind all swaps and sell-buy back operations that mature in the coming months to reduce expenses linked to costly borrowed reserves. - Follow best practices in purchases of gold from local mines to avoid distortions. - Adopted the latest IMF reserve report template to improve reserve statistics quality. - By end-February 2024, all central-bank FX transactions will be conducted at the prevailing market exchange rate via a new system of FX auctions (designed with IMF technical assistance and aligned with October IMF TA recommendations). - Design and adopt a new FX intervention framework defining conditions and modalities of FX interventions. - Adopt an FX reference rate computation method that addresses risks of Multiple Currency Practices. - Gradually phase out temporary crisis measures that encouraged mining companies to sell repatriated FX to the BoG rather than commercial banks. - Government will engage key exporting companies on options to increase voluntary domiciliation of export proceeds. ### Central bank governance, Gold-for-Oil, and safeguards - Implement recommendations from the recent IMF safeguards assessment. - Prepare, in consultation with IMF Staff, amendments to the Bank of Ghana Act of 2002 (Act 612) to strengthen the bank’s autonomy; the amendments will be approved by Cabinet by May 2024 (new structural benchmark). - To strengthen recovery of BoG net equity, and based on an external efficiency review, BoG will adopt by May 2024 a strategy to streamline its operational costs. - BoG is finalizing legal documentation for the Gold-for-Oil (G4O) program and will conduct a detailed risk analysis covering financial, operational, and legal risks. - The G4O risk assessment and an exit strategy, designed in consultation with Fund staff, will be presented to the BoG Board by June 2024 (new structural benchmark). ### Financial sector stability and recapitalization - Preserve financial sector stability after the domestic debt exchange; BoG stands ready to provide necessary liquidity and other assistance. - Existing BoG liquidity facilities (repo window and Emergency Liquidity Assistance) remain available to banks. - Government has pledged to provide funds of up to 2.6 percent of GDP to strengthen the financial sector and rebuild capital buffers and is seeking support from Development Partners and Multilateral banks. - The Ghana Financial Stability Fund (GFSF) established to provide additional support; World Bank preparing an emergency operation to provide GFSF funding to facilitate capital buffer build-up for qualifying banks. - Government solvency support resources will be channeled through the GFSF; BoG will not provide financing for GFSF operations. - GFSF eligibility rules to avoid adverse selection and incentivize shareholders: - GFSF will provide funds to eligible financial institutions only if their private shareholders also contribute to recapitalization; - World Bank funds will only be used for state-owned banks if the State is also contributing. - Banks submitted timebound plans to rebuild capital buffers under a scenario accounting for reasonable loss estimates due to expected government debt restructuring and NPL increases. - Banks pledge to recapitalize by at least one-third of the capital required annually for each of the three years ending in 2025 to reach a 13 percent Capital Adequacy Ratio (CAR), without regulatory forbearance. - Insolvent banks will have a more front-loaded recapitalization path to ensure all banks have a positive CAR by end-2023. - BoG reviewed, commented, and validated these plans, allowing for BoG approval (end-September 2023 structural benchmark). - BoG will escalate, by March 2024, punitive remedial and/or corrective measures against any bank that has not complied with the one-third recapitalization and the non-negative CAR requirements in 2023 (new structural benchmark). - BoG measures to incentivize early recapitalization: - placed banks with capital shortfalls on strict enhanced supervision with reporting requirements on liquidity and solvency; - suspended payment of dividends for all banks until further notice; - restricted banks with capital shortfalls from excessive risk-taking and certain capital expenditures; - stands ready to deploy other components of the Prompt Corrective Action (PCA) framework if necessary. - Government solvency support design principles: minimize costs and moral hazard, incentivize private capital injections, foster structural reforms for operational efficiency, and allow for an orderly, early government exit. - For state-owned banks, the government will frontload any necessary recapitalizations underpinned by credible viability plans and a level playing field with private banks. ### Regulatory forbearance and legacy financial sector tasks - Regulatory forbearance introduced for the domestic debt exchange will be lifted as soon as possible. - Forbearance on recognition of debt exchange losses in CAR computations will be lifted by one-fourth each year from 2022 through 2025. - A schedule for lifting other temporary forbearances offered to facilitate the DDE, including those lowering minimum CARs, will be implemented. - By March 2024, BoG and MoF will design and begin implementation of a credible, comprehensive, and cost-effective plan to address NIB's challenges (new structural benchmark). - Steps to address risks from distressed SDIs and fund management firms will be taken by end-2024; long-standing undercapitalization of SDIs will be addressed with assessments and corrective-action strategies. - Any government payouts will follow a burden-sharing approach to minimize fiscal costs. - Authorities will design a strategy to ensure state-owned banks adopt sound governance, business models, and risk management to ensure long-term viability and facilitate orderly government exit. - Ongoing 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. - To prevent crowding out of credit to the private sector, consider measures to reduce the nexus between the sovereign and financial institutions. ### Structural fiscal reforms — public financial management, spending controls, and arrears prevention - Prioritize structural fiscal reforms to entrench fiscal discipline, ease budget rigidities, and bolster transparency, drawing on strategies for prevention of arrears’ accumulation, medium-term revenue mobilization, energy sector recovery, and rationalization of statutory funds. Spending controls and cash management - Strengthen cash management and use of allotments to manage expenditure based on available funding. - Develop 3-month cash forecasts as soon as possible, updated on a weekly basis. - Strictly align quarterly allotments with cash forecasts and domestic debt market conditions; tighten use of allotments as a control on GIFMIS rather than the budget (starting in Q1 2024). - Ensure strong coordination between PEMU, CMC, TMC, BD, and CAGD to: - align quarterly allotments with forecast cash availability (forecast revenues, expenses, planned clearance of BTAs, and outstanding claims) and market conditions; - provide regular communication to MDAs explaining cash constraints and, if needed, less-than-budgeted allotments. - MDAs must revise cash plans quarterly to reflect allotments received and remaining requirements. - Cash Plan module will be configured on Oracle Hyperion by December 2023 and deployed to MDAs. Enforcement and arrears prevention - Strengthen enforcement of sanctions under the PFM Act, including penalties for entities committing spending above quarterly allotments (in line with the Arrears’ Clearance and Prevention Strategy, end-June 2023 structural benchmark). - A compliance desk has been established to monitor commitments and arrears accumulation and to track tender advertisements from covered entities to ensure necessary allotments and GHANEPS usage. - Non-compliance will be immediately investigated and referred to the Attorney-General through MoF Legal Directorate for advice or penal actions. - Finance officials will be trained on evidentiary requirements for prosecution under the PFM Act. - Auditor General will publish a report on implementation of recommendations from the 2022 Accounts of Ghana reports by end-September 2024, including progress on implementation of sanctions under Section 92 of the Public Procurement Act. Public investment inventory and publication - Develop and submit to Cabinet a centralized inventory of all ongoing and planned public investment projects by end-March 2024 (new structural benchmark). - Inventory to include for each project: nature and age, start and completion dates and completion rate estimates, source of financing, financing resources spent to date and additional financing required, list of priority planned and ongoing projects with required multi-year budget allocation (annual funding requirement), list of non-priority projects and proposed treatment (suspend temporarily or permanently). - Inventory will be regularly updated and become part of annual budget documents. - Publish the list of priority planned and ongoing projects and required multi-year budget allocation by end-March 2024 and update annually as part of budget documents. GIFMIS, procurement, and system integration - Enable “Blanket Purchase Agreement” functionality in GIFMIS to fully capture multi-year commitments in line with MTEF ceilings; CAGD/MOF to complete integration of GoG business processes on the GIFMIS platform to reflect projects linked to programmes and sub-programmes. - MoF will issue a circular to make use of Blanket Purchase Agreement functionality mandatory for all multi-year contracts by end-September 2024 (new structural benchmark). - Enhance usage of GHANEPS in procurement: currently only 21 percent of entities actively use the system; expect increased usage following training. - Integrate GHANEPS with GIFMIS so that only projects/purchase orders with approved budgets and allotments can obtain procurement approvals; integration completion targeted by end-September 2024. - Integrate all sources of funds into GIFMIS and improve system usage: rollout with full functionalities to over 265 IGF-reliant institutions to be completed by end-2023 (structural benchmark). - Design program with timelines for including all IGF-reliant institutions in GIFMIS and ensure use of available functionalities; periodically review system usage by NHIF, GETFund, Road Fund, District Assemblies Common Fund and other IGF-reliant institutions. - Ensure GIFMIS can produce exhaustive reports of payables/arrears generated by these institutions during the year. Wage negotiations, HRMIS, TSA and system linkages - Align the wage negotiation process with the budget cycle; endeavor to complete wage negotiations in time for finalization of the draft budget. - Integrate HRMIS with GIFMIS and the Payroll system to strengthen control on “ghost names”, promotions, hiring and payroll costs; integration to be completed by end-December 2024. - GIFMIS to be tightly integrated with Hyperion, GHANEPS, and bank clearing systems (SWIFT and GHIPSS) to ensure real time data exchange by end-March 2024. - Automatic bank reconciliation (ABR) functionality for GIFMIS-linked accounts to be rolled out by end-March 2025. - Finalize TSA reforms during the program period by integrating all MDAs and MMDAs accounts in BoG and commercial banks to the TSA by end-December 2024. *Source: 1ghaea2024001 - 16. Debt management in the near term will work to ensure sufficient domestic financing* ### 37. We have announced a cabinet-approved strategy to streamline earmarked funds (end- ### 1ghaea2024001 - 37. We have announced a cabinet-approved strategy to streamline earmarked funds (end- ### Earmarked funds strategy and review - Cabinet-approved strategy announced (end-September 2023 structural benchmark) in line with Section 6(1)(A) and (B) of the Earmarked Funds Capping and Realignment Act, 2017 (Act, 947). - External consultant thoroughly evaluated all the 16 earmarked funds on usefulness, efficiency, value for money and other parameters specified under the scope of the review. - Strategy components: - A decision for each earmarked fund on whether to retain it or have it absorbed within the line ministry. - Recommendations to improve operational efficiency of each earmarked fund. ### Transparency, accountability, and oversight measures for earmarked funds - Enforcement of GIFMIS to enhance oversight of financial transactions in all earmarked funds. - Institute a mechanism to ensure earmarked funds do not engage in collateralization of their receivables; until then, no objection certificates will not be issued to any statutory fund by the governing authority in this regard. - Plan to systematically include all earmarked funds into the treasury single account (TSA). - Ensure all earmarked funds submit audited financial statements under timelines consistent with PFM regulations. - Work toward clearing the audit backlog, ensuring more regular audits, and implementing audit recommendations in line with recently issued Audit Recommendations Implementation and Follow-up Instructions for Public Institutions. ### Legislative, communication, and change management actions - Necessary amendments to existing legislation will be made to implement the strategy. - A communication plan is being designed to systematically disseminate approved changes to all required stakeholders, build momentum and secure key stakeholder buy-in. - Change management activities across all institutions will be connected and aligned with the MoF’s program to ensure consistency in messaging and activities. ### Fiscal framework and institutions - Reform objective: durably strengthen fiscal discipline. - Fiscal rule changes: - Reinforce fiscal rule by adding a debt target with a broad coverage to control extra-budgetary spending. - Simplify framework by focusing on a single operational rule (either on the primary balance or the overall balance). - Further detail circumstances for exceptions and correction mechanisms. - Reform the Fiscal Advisory Council to: - Assess realism of Budget macro-fiscal projections and evaluate ex-post fiscal performance, including the fiscal rule. - Be provided with complete and timely information. - Have strong operational independence. - Commitment to submit to Parliament draft amendments to the Fiscal Responsibility Act (2018) by end-October 2024 (new structural benchmark). - Consultations with internal stakeholders and IMF staff in preparing the reform. ### Fiscal transparency - Publish fiscal strategy document and fiscal risk statements in line with the PFM Regulation and international best practice. ### Revenue administration and tax policy - Introduce policy, administrative and legal reforms outlined in cabinet-approved Medium Term Revenue Strategy (MTRS) (end-September 2023 structural benchmark). - Medium-term revenue goals: broaden the tax base, minimize tax avoidance, and ensure a progressive tax system. - Use MTRS to promote equity and transparency, provide tax certainty and predictability. ### Taxpayer register cleanup and ITAS - Complete the project of cleaning GRA’s taxpayer register and submit the report to the MoF by end-June 2024 (new structural benchmark). - Eliminate duplication of Taxpayer Identification Numbers (TIN). - Identify a separate active taxpayer list from the pool of registered individuals/entities. - Eliminate individuals with no payment or filing obligation from the list of registered PIT taxpayers who are not required by law to be registered as PIT taxpayers. - Completion required before data migration to the newly procured ITAS. - ITAS procurement and operationalization timeline: - Complete ITAS procurement process by end-December 2023. - Put in place governance structure (project steering committee, project manager and project team) and transformation/communication effort. - Full operationalization will not be finalized by end-year due to necessary delays. - Complete data migration from existing portals to ITAS and operationalize major modules (registration, returns filing and payments) for major tax types by end December 2024 (end-December 2023 structural benchmark that will not be met and is proposed to be reset). ### Extractive industries fiscal regime - Finalize new fiscal regime framework for extractive industries in consultation with stakeholders and based on IMF Technical Assistance. - Submit the framework to Cabinet by end Q1-2024 with the view to adopting it in 2024. ### Public spending efficiency and reviews - Review public spending portfolio to identify efficiency gains; supported by a comprehensive public expenditure review with the World Bank expected to be finalized by December 2023. - By end-June 2025, complete a functional review of selected MDAs to guide calibration of public sector wages. - Recalibrate expenditure of MDAs responsible for social spending to shift toward targeted and well-designed interventions. - Conduct comprehensive assessment of public sector wages, including education and health. - Education sector measures: - Review and rationalize the Free Senior High School (SHS) program. - Support tertiary education and take targeted measures to improve foundational learning (e.g., increasing capitation grants) and introduce reforms to improve learning outcomes. - Health sector measures: - Enhance effectiveness of National Health Insurance Scheme (NHIS) by increasing coverage, reducing administrative cost, ensuring timely transfers from the consolidated fund, and reviewing the package of benefits and tariff structure. - LEAP cash transfer program: - Gradually increase the benefit level to 20 percent of pre-transfer consumption of beneficiaries. - Expand coverage of the program to all 2,500,000 extremely poor individuals. - Initiate review of all government flagship programs and publish a rationalization strategy by end-December 2024; decisions based on efficiency, effectiveness, and value for money assessments and alignment with SDG targets for social programs. ### Fiscal reporting and arrears management - Review the PFM Act to set realistic timelines for quarterly submission of budget performance by MDAs (end-June 2024). - Improve timeliness of CAGD Quarterly Financial Statements and switch to reliance on quarterly CADG cash reports for fiscal analysis (end-December 2024). - Starting from the 2025 Budget: - Include a separate budget line for MDAs against each spending item to reflect allocations for arrears clearance. - Annual clearances over the medium term to be determined in accordance with the medium-term budget framework agreed with the Fund. - Budget document to provide rationale for selecting certain sectoral payments over others based on the criterion in the Arrear’s Clearance and Prevention Strategy. - Prepare quarterly, semi-annual, and annual reports on implementation of the arrears’ clearance and prevention strategy over the stipulated timeframe. - Collect periodic data on the stock of payables and the payment including mode of payment per economic classification and by MDA. - Reports to include progress on measures implemented and any new measures introduced. ### Energy sector measures - Additional measures to reduce the energy sector shortfall, improve transparency in ECG collections and payments, and promote competition: - Continue implementing quarterly tariff adjustments to reflect automatic transmission of changes in exchange rate, inflation, and fuel prices to electricity tariffs. - Publish technical notes to explain and justify quarterly tariff decisions within 30 days of the decision announcement. - Prioritize IPP payments under the revised cash waterfall mechanism and ensure a monthly fixed payment to IPPs for energy purchase. - Merge all the sub-accounts of ECG into a single account for collections and disbursements. - Conduct quarterly audits of ECG’s single account and sub-accounts (if any), and publish on the PURC’s website the final report of Jul-Sep 2023 audit by end-February 2024 (new structural benchmark). The report will highlight audit findings for collection of revenues from ECG customers and disbursements to IPPs, SOEs and fuel suppliers under the cash waterfall mechanism. - Publish by PURC monthly data on collections by ECG (with a 2-month lag), and disbursements to IPPs and SOEs under the CWM after verifications from individual entities. - Submit to Parliament a Legislative Instrument mandating distribution licensees to procure new power generation or enter into new power purchase agreements (PPAs) only through competitive tendering (end-December 2023). - Conclude agreements with IPPs on fixed monthly payment by end-November 2023. - Develop and operationalize a framework in consultation with Fund staff to guide granting of energy sector subsidies by January 2024; framework to cover mechanism to insulate vulnerable population fully or partially from large tariff increases. ### GNPC loan refinancing - Negotiating a facility to refinance a GNPC loan and guarantee, ensuring design is consistent with program performance criteria. - Working to avoid collateralization and ensure any payment made to IPPs in this context would be financed through the budget rather than this facility. ### Measures to improve Cocobod’s viability - Publish a cabinet-approved turnaround strategy for Cocobod. - Amend Cocobod Act (1984) to adopt a framework for setting producer purchase prices that: - Ensure sufficient revenues for farmers and guarantee a revenue stream sufficient to recover Cocobod’s operational and financial costs. - Framework to be finalized in consultation with the Fund and Bank staff and require provision of complete cashflow projections of the Board for the medium term. - Commitment on producer purchase prices: - Minimum and maximum producer purchase prices for the 2024 and 2025 seasons would be set at [60-70] percent of the FOB international price (inclusive of LID). - This range will be reviewed every two years. - Initiate a functional review of all departments and subsidiaries by an external consultant to identify scope for cost cutting and implement identified cost rationalization measures. - Rationalize quasi fiscal spending on cocoa roads, fertilizer, and pesticides programs: - Reviewed existing contracts for cocoa roads and rationalized based on completion status, performance and termination costs; may pursue additional rationalization if financing becomes challenging. - Amend Ghana Cocobod Act to prevent the Board from engaging in any activity related to construction and repair/maintenance of roads. - Strengthen MoF financial oversight by establishing a cocoa desk at the MoF; funding plans to be reviewed regularly with associated contingency planning. - Cocobod will refrain from mobilizing any non-concessional funding and/or any collateralized funding—except for its annual syndicated loan. ### Governance and anticorruption - Immediate priority: fully implement recommendations from the Auditor General’s report on the audit of Covid-19 spending. - MoF prepared an initial report on implementation status and shared with the Auditor General’s (AG) office and Fund staff. - AG office is verifying reported progress with individual ministries and preparing its independent implementation report; verified reports will be made public (by end-December 2023). - Issued Audit Recommendations Implementation and Follow up Instructions for Public Institutions (June 2023). - Issued Emergency Expenditure Management Guidelines for Public Institutions in June 2023 with World Bank support to balance expedited decision-making in emergencies with compliance to PFM laws. - Strengthen procurement transparency by facilitating access to beneficial ownership information of companies awarded public procurement contracts. ### Governance and corruption diagnostics and anticorruption actions - Requested IMF technical assistance for a Governance and Corruption Diagnostic Assessment covering anti-corruption, rule of law (property rights and contract enforcement), fiscal governance, public financial management, revenue administration, AML/CFT and financial sector regulation; assessment ongoing and committed to publishing the Diagnostic Assessment report when finalized. - Undertake in 2024, with UNODC support, an evaluation of the ten-year National Anticorruption Action Plan (NACAP) that started in 2014; evaluation and IMF Diagnostic Assessment will inform update of NACAP to be finalized in early 2025. - Draft new Conduct of Public Officers Act prepared to address weaknesses in the asset declaration system; draft Act will be approved by Cabinet by May 2024. ### AML/CFT framework improvements - Continue progress following Ghana’s exit from the FATF grey list. - Financial Intelligence Center (FIC) to continue engagement, sensitization, training and capacity building for reporting entities on AML/CFT areas including Customer Due Diligence (CDD), risk assessment, current trends and typologies, and collaboration with financial sector supervisors for enforcement of targeted financial sanctions. - Strengthen Transparency of Beneficial Ownership (BO) of legal entities, including implementing recent updates from March 2022 to FATF’s R.24. - Ensure legal entities predating the Companies Act, 2019 (Act 992) declare their BO pursuant to relevant provisions of Act 992. - Provide and facilitate access to the BO register to all accountable institutions and competent authorities; registry to request companies for their BO to strengthen CDD/BO. - Finalize a Bill on Non-Profit Organization to limit AML/CFT risk of this sector. _Source: 1ghaea2024001 - 37_ ### 60. We are developing a set of coherent and focused policies to boost growth. The policies ### 1ghaea2024001 - 60. We are developing a set of coherent and focused policies to boost growth. The policies ### Improving the business environment - Deepen the cross-cutting Business Regulatory Reform (BRR) program to simplify business regulations. - By end-December 2024, the process of new business registration through the Company Registration system will be fully digitalized. - By end-December 2024, fully operationalize the construction permitting portal to further streamline the construction permitting process. - Seek to address identified corruption issues in key government-to-business relations. - By end-2024, with the support of the World Bank, approve and implement the Regulations of the Private Public Partnership Act and of the Corporate Insolvency and Restructuring Act. ### Attracting FDI - Amendments to the Ghana Investment Promotion Centre Act to substantially reduce minimum foreign capital requirements, approved by Cabinet in November 2023, will be submitted to Parliament by March 2024. - By end-2024: - Roll out an e-visa system for all visitors with an online portal for application, payment, and approval. - Introduce an investors grievance mechanism to address concerns and challenges encountered by investors in the conduct of their business related to the government. - Review local content requirement laws to ensure they don’t deter foreign investors and consider replacing LCRs with provisions on Responsible Business Conduct (RBC). - By end-2025, with the support of the World Bank, enact a new Investment Law to make the legal framework for investors more binding, robust and predictable. ### Export competitiveness and integration into global value chains - Reduce trade barriers and implement the African Continental Free Trade Area to improve integration into global value chains. - Ensure compliance with ECOWAS Common External Tariff (CET) obligations regarding exemption of duties for goods traded under the ECOWAS Trade Liberalization Scheme (ETLS). - Ensure smooth transposition/migration of Ghana’s Tarif Book from HS 2017 to HS 2022 to avoid unwarranted rejection at the border by customs authority of approved and eligible enterprises. - By end-June 2024, build full capacity to enable Ghanaian businesses and other economic operators to leverage the implementation of AfCFTA Agreement, including: - Strengthening national institutional and implementation structures and committee. - Equipping the National Coordinating Office (NCO). - Recruitment of qualified technical staff. - Installing a robust database as information repository for access to trade information. - Accelerate efforts to facilitate trade through: - Modernization of the Tema Port seeking to reduce clearance times, revise the transshipment regime, invest in infrastructure that facilitate shipping through containers, and simplify and harmonize import and export procedures. - Establishment of special economic zones to facilitate exports. - By end-2024, update the 2005 Trade Policy to include trade in services, digital trade and climate change – Trade and Sustainability Development (TSD). - Crystalize reforms into a five-year Trade Sector Support Programme to guide implementation actions and the delivery of results. ### Upskilling the workforce - Strengthen the education system to improve learning outcomes through improved learning materials and programs, expanding teacher content knowledge, training and evaluation. - Make the Free Senior High School program more efficient. - Strengthen existing vocational training programs by systematically collaborating with the private sector to identify critical skills gaps and by strengthening digital, STEM and job-related skills training. ### Promoting entrepreneurship - Implement the YouStart Programme (creating about a million jobs in three years) with the Banking Sector and Faith Based Organizations (FBOs) to enable the Youth to harness local opportunities. ### Streamlining sectoral and industrial policies - Assess different sectoral policy initiatives to make support to specific industries or businesses more efficient. - Reorient the Planting for Food and Jobs program to rationalize fertilizers subsidies, improve land access and strengthen support for land development. - Further develop Economic Enclave Projects for medium to large scale agricultural production and agro-processing activities. - By the end of the first quarter 2024, Cabinet will approve a new Special Economic Zones Policy, and a new Special Economic Zones Act will be adopted, along with related regulations. - Address sustainable long-term financing of the “one-district, one-factory” program to boost value-addition, trade and private sector investment and to limit exposure of banks to further NPL increase related to some manufacturing projects provided short-term funds for long-term capital investment. - Actively support Strategic Industries including: - Auto Assembly and Auto Components Manufacturing - Textiles and Garments Manufacturing - Pharmaceutical Manufacturing to accelerate growth-oriented investment expansion and development of local supply chains. ### Improving access to finance - Improve private sector access to finance by: - Applying a sound supervision framework to financial institutions. - Restoring capital buffers in institutions affected by the debt restructuring. - Ensuring a stable inflation environment that allows lower interest rates. - Maintaining strict fiscal discipline to limit the crowding out of private sector financing. - With support from the World Bank, the European Investment Bank and KfW, accelerate implementation of the new development bank, Development Bank Ghana, to provide wholesale long-term funding to financial institutions to on-lend to creditworthy enterprises in agribusiness, manufacturing, and high value services. - Implement new credit reporting regulations to improve credit infrastructure by: - Expanding the sources of data used by credit bureaus. - Leveraging the new biometric ID system. - Enhancing data submissions rules, quality requirements, and data protection. ### Encouraging digitalization - Expand broadband mobile coverage by improving enabling policies such as active infrastructure sharing and applying tech-neutrality in spectrum bands. - Improve basic digital skills in school and fill the gap of advanced digital skills through tertiary education, bootcamps and technical and vocational training. - Expedite implementation of government digital initiatives such as the National ID, digital address systems, land records digitization, Ghana.Gov and consolidate them into a single stop shop for users. ### Statistical issues - Improve the quality and timeliness of official balance of payments statistics with IMF technical assistance. - The BoG has benefited extensively from IMF technical assistance to improve balance of payments and International Investment Position (IIP) statistics. - Address remaining challenges in timeliness, frequency and quality of data sources. - 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 - Program will be monitored on a semi-annual basis through: - Quantitative performance criteria. - Continuous performance criteria related to Article VIII. - A monetary policy consultation clause. - Indicative targets. - Structural benchmarks. - Phasing of access under the arrangement and the review schedule are set out in Table 1 of the memorandum. - A Memorandum of Understanding between the government and the BoG sets responsibilities for servicing financial obligations to the Fund. - Quantitative performance criteria and indicative targets through end-2024 are set out in Table 2; structural benchmarks are described in Table 3. ### Communication - Several rounds of intensive engagements have been held with the media and diverse stakeholders including Cabinet, Parliament, the Association of Ghana Industries, Trade Unions, Faith Based Organizations, Academics and CSO’s, Chief Directors of MMDAs, and Ministry of Finance staff. - Government representatives and spokespersons have explained on radio and TV the parameters of Ghana’s Economic Growth Programme and the need for Ghanaians to rally in support. - Develop and implement a robust communications strategy to engage Ghanaians and all stakeholders to build public awareness and broad support for the policies underpinning the Fund-supported program. - Build confidence in the financial sector through candid engagement to help achieve medium-term financing goals. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 1. This Technical Memorandum of Understanding (TMU) sets out the understandings regarding ### 1ghaea2024001 - 1. This Technical Memorandum of Understanding (TMU) sets out the understandings regarding ### Scope and Purpose - Sets out the understandings regarding definitions of the performance criteria (PCs), indicative targets (ITs), and consultation clauses to be applied under the Extended Credit Facility, as specified in the authorities’ Letter of Intent (LoI) and Memorandum of Economic and Financial Policies (MEFP) of May 1 and their attached tables. - Describes methods for assessing program performance and information requirements for monitoring targets. ### Exchange rates and gold price - The exchange rates for the purpose of the program are specified in the Table below (table not reproduced here). - The gold price for the purpose of the program is US$ 1,826.92 per ounce (as per Bloomberg data as of February 2023). ### I. QUANTITATIVE PERFORMANCE CRITERIA — Overview - Four standard continuous performance criteria to be monitored continuously: - no imposition or intensification of restrictions on the making of payments and transfers for current international transactions; - no introduction of modification of multiple currency practices; - no conclusion of bilateral payments agreements that are inconsistent with Article VIII of the IMF Articles of Arrangement; - no imposition or intensification of import restrictions for balance of payments reasons. ### A. Net International Reserves (NIR) of the Bank of Ghana, Floor (Millions Of U.S. Dollars) - Definition (program monitoring): - NIR = reserve assets minus short-term foreign-currency liabilities and liabilities to the Fund. - All values not in U.S. dollars to be converted using program exchange rates and gold price in paragraph 2. - Reserve assets (RA) include: Bank of Ghana holdings of monetary gold, SDRs, foreign currency cash, foreign currency securities, deposit abroad, and the country’s reserve position at the Fund. - Excluded from RA: assets that are pledged, collateralized, or otherwise encumbered; claims on residents; precious metals other than gold; assets in nonconvertible currencies; illiquid assets. - Encumbered assets include Ghana Petroleum Heritage and Stabilization Fund and Bank of Ghana deposits with Ghana International Bank London. - Short-term foreign-currency liabilities include: Bank of Ghana contractual foreign-currency obligations to residents and nonresidents scheduled to come due during the 12 months ahead (Deposits of International Institutions, Liabilities to International Commercial Banks, FX Swaps with non-resident and resident banks, foreign currency deposits held at the BoG). - Liabilities with an asset counterpart that is encumbered are excluded from short-term foreign-currency liabilities. - Liabilities to the Fund include all outstanding use of IMF credit, including IMF budget support for the MoF; exclude SDR allocations. - Adjustors: - NIR floors adjusted upward for any excess of budget grants, loans, and foreign exchange received in the context of the sales of 5G spectrum licenses, relative to the program baseline, except where used to repay outstanding domestic arrears more rapidly than programmed. - NIR floors adjusted downward for any shortfall in budget grants and loans relative to the program baseline. - Note: This definition differs from the one reported in the Balance of Payments and Monetary Survey (residency basis). ### B. Bank of Ghana Claims on the Central Government and Public Entities, Cumulative Ceiling (Billions Of Cedis) - Definition: - Outstanding gross credit to central government (see paragraph 3 for definition) and specified public entities (list of named entities included) by the Bank of Ghana is defined as the change in total amount measured from the start of the program and net of stock adjustment from debt operations, of: - all BoG loans and advances to central government and public entities; - all central government and public entities overdrafts; - the face value for all outstanding Government of Ghana treasury bills, notes and bonds purchased by BoG in the primary and secondary market. - Includes all called guarantees given by BoG for operations between central government/public entities and a third party. - Excludes: (i) BoG holdings of Government of Ghana T-bills as collateral from commercial banks; (ii) BoG reversible market transactions involving Government of Ghana securities; (iii) BoG loans to central government from on-lending IMF resources through the SDR allocations and PRGT loans. - Ghana: Expected Budget Grants and Loans in 2023 (as presented) - inmnUSD - Q4-2023Q1-2024 Q2-2024 Q3-2024 Q4-2024 - Grants - AfDB5900044 - Loans - WB330150354350 - Development Policy Operations300003000 - Financial Sector Support Project015001000 - Social Protection Project30035350 ### C. Present Value (PV) of Newly Contracted or Guaranteed External Debt by the Central Government and Public Entities, Cumulative Ceiling (Millions of U.S. Dollars) - Definition: - External debt defined on a residency basis; “debt” per paragraph 8(a) of 2014 Guidelines on Public Debt Conditionality. - Debt understood as a current liability created under contractual arrangement requiring future payments in assets or services. - Forms of debt include: (i) loans (including repurchase agreements and official swap arrangements); (ii) suppliers’ credits; (iii) leases (PV at inception of lease of lease payments, excluding operation/repair/maintenance payments). - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. - Coverage and exclusions: - Ceiling applies to cumulative PV of new external debt contracted or guaranteed by central government and listed public entities (explicit list in ¶9), including commitments for which value has not yet been received and private debt with official guarantees. - Contracting of credit lines and multi-disbursement facilities considered contracting of debt when conditions for entry into effect met. - Exclusions from ceiling: - (i) loans and bonds stemming from restructuring/rescheduling/refinancing of external debt; - (ii) renewal of existing suppliers’ credit; - (iii) rollover of a credit line; - (iv) short-term debt including suppliers’ credit and credit lines with maturity < 6 months for public entities mentioned in ¶8; - (v) debt contracted from the IMF, World Bank and AfDB; - (vi) Government of Ghana securities issued in domestic currency, placed in domestic markets, and held by non-residents. - ‘Guaranteed debt’ defined as explicit promise by central government/public entities to pay or service a third-party obligation. - PV calculation and concessionality: - PV of debt at signing calculated by discounting future debt-service payments using 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. - Grant element = (PV debt difference from nominal value) expressed as percentage of nominal value; if grant element ≤ 0, PV set equal to nominal value. - Variable-rate loans: - For variable interest rate loans of benchmark plus fixed spread, PV calculated using program reference rate plus fixed spread. - Program reference rate for three-month U.S. SOFR is 2.97 percent and will remain fixed for the program duration. - Spread of three-month JPY TIBOR over three-month USD SOFR is -300 basis points. - Spread of three-month U.K. SONIA over three-month USD SOFR is equal to 50 basis points. - For currencies other than Euro, JPY, and GBP, the spread over three-month USD SOFR is 0 basis points. - Where variable rate linked to a benchmark other than three-month USD SOFR, a spread reflecting the difference between the benchmark and three-month USD SOFR (rounded to the nearest 50 bps) will be added. - TMU may be updated to reflect benchmark replacements (e.g., TONAR) as operationally feasible. - Reporting requirements: - MOF to immediately report to IMF staff details of any new external loans before contracting or guarantees before issuance by central government and public entities in ¶8. - MOF to provide monthly, within 30 days from month end, detailed data on all new concessional and non-concessional external debt contracted or guaranteed by specified entities, including: - (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: - PV of newly contracted or guaranteed external debt adjusted upward for excesses in contracted concessional project loans relative to baseline. - Ghana: Expected PV of Contracted Project Loans (as presented) - (in mn USD) - September-2023December-2023March-2024June-2024September-2024December-2024 - Baseline PV of contracted concessional loans (cumulative from begining of the year) - 1/ 0.00.0 0.00.0 0.00.0 - 1/ Excluding World Bank and African Development Bank project loans as per the debt PC definition. ### D. Primary Fiscal Balance of the Central Government, Commitment Basis, Cumulative Floor (Millions Of Cedis) - Definition: - Primary balance is cumulative from fiscal year start and measured as 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 payables of statutory/earmarked funds (SFs) defined as outstanding payments from the consolidated funds to the SFs. - Starting in 2024, for Road Fund, NHIF, GETFund and DACF (SFs using GIFMIS), payables computed as any outstanding payments of these funds to their suppliers, contractors, service providers, and other counterparts. - For remaining SFs, payables represent outstanding payments from the consolidated fund to these SFs. - A positive net change in stock of payables means more payables are built up than cleared (primary balance on cash basis adjusted downward to obtain primary balance on commitment basis). - Components: - Primary balance on cash basis = sum of net financial transactions of central government comprising: - net foreign borrowing (paragraph 20 definition), - net domestic financing (paragraph 21 definition), - receipts from net divestitures and net drawing out of oil funds, - minus domestic and external interest payments. - Excludes financing for financial sector recapitalization. - Net foreign financing = sum of project and program loans by official creditors and commercial external borrowing, minus amortization due. - Net domestic financing = change in government deposits + domestic debt issuance proceeds - domestic debt amortization due. - Adjustors: - Primary balance floor for September 2023–December 2024 adjusted for excesses/shortfalls in disbursed concessional project loans relative to program assumptions. - Primary balance floor adjusted downward (upward) by full amount of any excess (shortfall) in concessional project loans relative to baseline. - Primary balance floor adjusted upward by full amount of non-tax revenue proceeds from sale of 5G Spectrum licenses. - Ghana: Expected Concessional Project Loans Disbursement (as presented) - in mn USD Sep-23Dec-23Mar-24Jun-24Sep-24Dec-24 - Baseline concessional project loan disbursement204.3272.482.6165.1254.9359.0 - (cumulative from the beginning of the year) ### E. Non-Accumulation of External Debt Payments Arrears by the Central Government and the Bank of Ghana, Continuous Ceiling (Millions Of U.S. Dollars) - Definition: - External payment arrears accrue when payments (interest or amortization) on debts of the government to non-residents are not made within contractual terms, taking into account applicable grace periods. - Excludes arrears relating to debt subject to renegotiation (dispute or ongoing renegotiation) or rescheduling. - This performance criterion monitored continuously. ### F. Newly Contracted Collateralized Debt by the Central Government and the Public Entities, Cumulative Zero Ceiling - Definition: - Collateralized debt = any contracted or guaranteed debt that gives creditor rights over an asset or revenue stream that would allow creditor, if borrower defaults, to rely on asset or revenue stream to secure repayment. - Coverage: - Applies to debt contracted or guaranteed by central government and public entities listed in ¶26 (explicit list provided in source). - Ceiling is cumulative zero. ### II. MONETARY POLICY CONSULTATION CLAUSE - (Section heading appears; text of clause not included in the supplied excerpt.) *Source: 1ghaea2024001 - This Technical Memorandum of Understanding (TMU) sets out the understandings regarding (IMF PDF chapter).* ### 27. The consultation bands around the projected 12-month rate of inflation in consumer prices ### 27. The consultation bands around the projected 12-month rate of inflation in consumer prices ### Consultation triggers and procedures - The consultation bands are specified in the Performance Criteria table in the MEFP and apply to the projected 12-month rate of inflation in consumer prices (as measured by the headline consumer price index (CPI) published by the Ghana Statistical Service). - If the observed 12-month rate of CPI inflation falls outside the lower or upper outer bands specified in the PC table for the relevant test dates: - The authorities will complete a consultation with the IMF Executive Board focusing on: - (i) the stance of monetary policy and whether the Fund-supported program remains on track; - (ii) the reasons for deviations from the program targets, taking into account compensating factors; and - (iii) proposed remedial actions if deemed necessary. - Access to Fund resources would be interrupted until the consultation takes place and the relevant program review is completed. - If the observed 12-month rate of CPI inflation falls outside the inner bands specified for the end of each quarter in the Performance Criteria table, the authorities will conduct discussions with Fund staff. ### Central bank Foreign Exchange Intervention (FXI) - FXI is defined as the 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. ### III. Indicative targets — Key definitions and rules A. Non-Oil Public Revenue, Cumulative Floor (Millions Of Cedis) - Definition: - The central government’s total non-oil revenue includes: - total tax revenue—all revenue collected by the GRA, whether they result from past, current, or future obligations such as Direct Taxes (taxes on income and property), Indirect Taxes (excises, VAT, National Health Insurance Levy (NHIL), GETFund Levy, Covid-19 Health Levy, E-Levy, and Communication Service Tax (CST)), and Trade Taxes; - and total non-tax revenue—including IGFs retention, Fees and Charges, Dividend/interest and profits from oil and others, Surface rental from oil/PHF interest, property rate collection and yield from capping policy. - 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. - Adjustors: - 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. B. Social Spending, Cumulative Floor (Millions of Cedis) - Definition: - The expenditure floor on poverty-reducing social programs of the central government will include: - the disbursement of the National Health Insurance Fund used to pay for medical claims, essential medicine, and vaccines; - and the budget release from the central government to the respective line ministries for the purpose of the Ghana School Feeding Program, the Livelihood Empowerment Against Poverty Program, and the Capitation Grant. - The measured expenditure on the above social programs will exclude all donor-supported expenditure. C. Net Change in the Stock of Payables of the Central Government and of Payables to IPPs, Ceiling (Millions of Cedis) - Definition: - Stock of payables is the sum of two components: 1. The stock of payables of the central government reported by CAGD at the end of each quarter. CAGD payables report will cover the stock of payables of all MDAs—including MDA’s unreleased claims—and the consolidated stock of payables of all statutory funds and of selected IGFs (National Pension and Regulatory Authority, National Petroleum Authority, National Communication Authority, Gaming Commission, Securities and Exchange Commission). 2. The stock of energy sector payables. - For the purpose of program monitoring in 2023, the energy sector payables comprise energy-sector-related outstanding payments of the ECG and GNPC (including those to be paid by the MoF) to Independent Power Producers (IPPs) and fuel suppliers. - For the purpose of program monitoring in 2024, the energy sector payables comprise energy-sector-related outstanding payments of the ECG and GNPC (including those to be paid by the MoF) to power generators (both IPPs and State Owned Enterprises) and fuel suppliers. - Payables denominated in US$ will be assessed at the program exchange rate. D. Provision of Data to the Fund - 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) that is (are) relevant for assessing performance against program objectives but is (are) not specifically defined in this memorandum, the authorities will consult with Fund staff. *Source: 1ghaea2024001 - 27. The consultation bands around the projected 12-month rate of inflation in consumer prices.* ### 35. The authorities will share any prospective debt agreements relevant for the programme ### 35. The authorities will share any prospective debt agreements relevant for the programme ### Reporting and data provision requirements - The authorities will share any prospective debt agreements relevant for the programme monitoring with Fund staff before they are submitted to cabinet and before they are contracted. - Table 1. Ghana: Data to be Reported to the IMF (selected items and periodicity) - 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. - The stock and quarterly flows of buildup/clearance of GIFMIS payables (“outstanding payments”): Quarterly, within six weeks of the end of each quarter. - The 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. - The stock and quarterly flows of buildup/clearance of unreleased claims as defined in para 28: Quarterly, within six weeks of the end of each quarter. - The 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: 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 the aggregate and at the institution level: Monthly, within four weeks from the end of each month. - Financial market 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; 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: Monthly, within a week of the end of each week. - Daily computations for the BoG local-currency interbank market rate and BoG reference exchange rate (including transactions used to derive them): Weekly, within a week of the end of each week. - Daily BoG FX sales, including direct sales to government and government entities; provide amount and exchange rate 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: Weekly, within a week of the end of each week. - Bi-weekly FX auction results (submitted bids and accepted bids, amounts and rates, 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 data (to be provided by the 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 form the end of each quarter. - Balance of payments data (to be provided by the BoG) - Monthly oil, gas, and gold productions at the 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 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 (to be provided by 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, and 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: Monthly, within four weeks from the end of each month. - Other public sector reporting - Disbursements of grants and loans by creditor: Quarterly, within four weeks of the end of each quarter. - National accounts by sector of production, in nominal and real terms: Annual, within three months of the end of each year (switching to quarterly when they become available). - Quarterly financial statements of main state-owned enterprises (listed entities): Quarterly, within three months of end of quarter. - Annual financial statements of main state-owned enterprises (listed entities): 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 breakdowns and indicative maximum price in bi-weekly review: Bi-weekly, within two days of the completion of the pricing review. - Electricity grid losses and bills’ recoveries (transmission and distribution losses; recoveries for ECG and Nedco): Monthly, within six weeks from the end of each month. ### Debt sustainability findings and risks - Risk assessments and status - 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. - High-level DSA conclusions - Given ongoing debt restructuring and large and protracted breaches to the DSA thresholds, Ghana remains in debt distress and the debt sustainability analysis shows that debt is unsustainable, unchanged from the DSA published in May 2023. - Under the baseline (which accounts for the outcome of the domestic debt restructuring and does not incorporate the impact of contemplated external debt relief): - The present value (PV) of external debt-to-GDP breaches its threshold until 2030. - The external debt service-to-revenues exceeds its thresholds throughout the full-time horizon of the DSA. - The external debt service-to-exports breaches its thresholds in 2025 for one year and breaches again in 2029 to remain above it throughout the full remaining horizon. - The PV of external debt-to-exports ratio remains below its threshold under the baseline throughout the full-time horizon of the DSA, while breaching the threshold in 2025 and onwards under the exports shock scenario—the most extreme shock for this indicator. - The PV of public debt-to-GDP (reflecting outcome of the domestic debt restructuring) breaches its 55 percent benchmark throughout the full-DSA horizon. - Stress tests - A combined contingent liability shock would put overall public debt well above the current unsustainable trajectory throughout the full DSA horizon. - Debt ratios are sensitive to commodity prices, exports and exchange rate shocks. - Background drivers and events - External shocks and domestic vulnerabilities - COVID-19 pandemic, tightening in global financial conditions, and the war in Ukraine contributed to deterioration in fiscal and external positions. - Ghana lost international market access in late 2021; experienced large losses in international reserves, sharp exchange rate depreciation, and soaring inflation; Eurobond spreads increased to distressed levels; domestic financing conditions became extremely constrained. - Debt restructuring and program engagement - Authorities requested IMF support in July 2022, hired financial and legal advisors, and in December 2022 launched a debt restructuring covering domestic and external commercial and official bilateral debt and announced a standstill on external debt service to all but multilateral creditors. - Domestic debt restructuring was completed over summer 2023. - Authorities expect rapid agreement with the Official Creditor Committee under the G20’s Common Framework on terms of a debt treatment consistent with financing assurances obtained in May 2023; discussions with external commercial creditors are advancing. - Public debt composition, stocks, and key figures (as reported) - Text: "Public debt has increased dramatically over 2019-22"—public debt rose from 63 percent of GDP in 2019 to 93.3 percent of GDP at end-2022. - Table highlights (as reported) - Total (Present Value, in US$ mn) 66,478; Percent total debt 100.0; Percent GDP 93.3; (In US$ mn) 68,041; Percent total debt 100.0. - External (Present Value) 30,838; Percent total debt 46.4; Percent GDP 43.3; (In US$ mn) 32,401; Percent total debt 47.6. - Multilateral creditors (Present Value) 8,100; Percent total debt 12.2; Percent GDP 11.4; (In US$ mn) 5,574; Percent total debt 8.2. - IMF (Present Value) 1,710; Percent total debt 2.6; Percent GDP 2.4; (In US$ mn) 1,379; Percent total debt 2.0. - World Bank (Present Value) 4,750; Percent total debt 7.1; Percent GDP 6.7; (In US$ mn) 3,132; Percent total debt 4.6. - Bilateral Creditors (Present Value) 5,186; Percent total debt 7.8; Percent GDP 7.3; (In US$ mn) 4,713; Percent total debt 6.9. - Bonds (Present Value) 13,104; Percent total debt 19.7; Percent GDP 18.4; (In US$ mn) 16,490; Percent total debt 24.2. - Commercial creditors (Present Value) 4,447; Percent total debt 6.7; Percent GDP 6.2; (In US$ mn) 5,623; Percent total debt 8.3. - Domestic (Present Value) 35,641; Percent total debt 53.6; Percent GDP 50.0; (In US$ mn) 35,641; Percent total debt 52.4. - Short-term bills (Present Value) 5,009; Percent total debt 7.5; Percent GDP 7.0; (In US$ mn) 5,009; Percent total debt 7.4. - Medium-to-long term bonds (Present Value) 18,392; Percent total debt 27.7; Percent GDP 25.8; (In US$ mn) 18,392; Percent total debt 27.0. - Arrears (Present Value) 5,744; Percent total debt 8.6; Percent GDP 8.1; (In US$ mn) 5,744; Percent total debt 8.4. - Other (Overdraft and SDRs on-lent) (Present Value) 6,258; Percent total debt 9.4; Percent GDP 8.8; (In US$ mn) 6,258; Percent total debt 9.2. - Collateralized debt (Present Value) 619; Percent total debt 0.9; Percent GDP 0.9. - Contingent liabilities (Present Value) 308; Percent total debt 0.5; Percent GDP 0.4. - Cocobod debt (Present Value) 1,430; Percent total debt 2.2; Percent GDP 2.0. - Nominal GDP (in GHS mn) 610,222. - Additional reported numeric items - Outstanding 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 (2.3 percent of GDP; 5.3 percent of public external debt). - Domestic arrears at end-2022 amount to 8.1 percent of GDP—of which 2.3 percent of GDP constitute unpaid bills to independent power producers (IPPs). - The fiscal cost of the financial sector recapitalization is estimated to have reached 7.1 percent of GDP over 2017-21. - Additional recapitalization costs included in the DSA baseline: 2.6 percent of GDP (from domestic debt restructuring). - Government budgetary transfers to cover energy sector shortfalls averaged 1.7 percent of GDP between 2019 and 2021. - Accumulated arrears to IPPs of 2.3 percent of GDP at end-2022. - Tailored stress test assumptions and contingent liability modeling - The tailored stress test adds to PPG debt: - 2 percent of GDP in non-guaranteed SOE debt. - 5 percent of GDP stemming from further financial sector costs. - 2.4 percent of GDP, the equivalent to 35 percent of the outstanding PPP arrangements. - Total of these tailored stress items (2 + 3 + 4 + 5 in Text Table 1) equals 9.4 percent of GDP (default/contingent liability tail). - Policy implications and program conditions (as highlighted) - Pending completion of the external debt restructuring and implementation of a credible reform plan, underpinned by a feasible and growth-friendly fiscal adjustment, Ghana’s public debt remains unsustainable. - Strong ownership of the IMF-supported program and commitment to reforms by the authorities are key. *1ghaea2024001 - 35. The authorities will share any prospective debt agreements relevant for the programme* ### 2022. Domestic debt reached 50 percent of ### 1ghaea2024001 - 2022. Domestic debt reached 50 percent of ### Debt stock, composition, and debt-service pressures - Domestic debt reached 50 percent of GDP in 2022, of which 16 percent of GDP was held by the Bank of Ghana. - Public external debt stood at 43.3 percent of GDP. - Debt service-to-revenue ratio: - Reached an all-time high of 127 percent in 2020. - Declined to 117.5 percent in 2022 reflecting higher government revenues and higher inflation. - External debt service composition in 2022: - Debt-service to private external creditors: 69 percent. - Debt-service to bilateral creditors: 20 percent. - Gross financing needs (GFN) reached 19.5 percent of GDP in 2022 (benchmark: 14 percent). - Domestic debt dynamics and costs: - Domestic debt increased from 24 percent of GDP in 2019 to 50 percent of GDP at end-2022. - 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 7.6 years in 2022. - Domestic debt service accounted for 81.7 percent of the public debt service burden in 2022. - Financing behavior: - T-bills excluded from domestic debt restructuring perimeter. - Virtual elimination of monetary financing since IMF-supported program approval in May 2023. - Government relied mainly on short-term papers to finance its deficit, at increasing nominal interest rates (though still negative in real terms). ### Macroeconomic environment, growth, inflation, and reserves - Growth and inflation: - Real GDP growth slowed from 5.1 percent in 2021 to 3.1 percent in 2022. - Headline inflation reached 54 percent in December 2022; declined to 26 percent in November 2023. - Gross international reserves: - Declined by about $6.5 billion since end-2021 to $1.4 billion at end-2022 (0.7 months of prospective imports). - Increased to $2.5 billion (1.1 month of prospective imports) at end-October 2023. - Projections under the Fund-supported program baseline: - Non-extractive growth projected at 2.5 percent in 2023; strengthen to long-term potential starting from 2027. - Growth in extractive activities expected to stabilize around 5.3 percent on average in the next five years. - Overall real GDP growth expected to slow to 2.3 percent in 2023 and recover to 5 percent in 2027. - Inflation projected to fall to the central bank’s target range of 6-10 percent by 2025. - Current account deficit projected to stabilize at around 2-2.5 percent of GDP over the medium term. - Official reserves projected to gradually rise to 3 months of prospective imports (US$7.7 billion) by 2026. ### Fiscal adjustment, revenues, and expenditures - Fiscal anchor and targets: - Central government primary balance on a commitment basis would improve by 5.9 percent of GDP between 2022 and 2026, to reach a surplus of 1.5 percent of GDP in 2025. - Program targets a primary balance of -0.5 percent of GDP in 2023 (some 3.8 percentage points adjustment compared to 2022). - Revenue and expenditure objectives: - Authorities’ objective: raise government revenue-to-GDP ratio to over 18 percent by end of program from 15.8 percent in 2022. - 2024 Draft Budget target: primary surplus of 0.5 percent of GDP—an improvement of about 1 percentage point in 2024. - 2024 revenue measures: permanently improve non-oil revenue-to-GDP ratio by 0.9 percent of GDP via streamlining VAT exemptions, strengthening excise taxes, improving extractive industry tax regime, and tax compliance/revenue administration reforms. - Primary expenditure in percent of GDP remains broadly unchanged in 2024 but reallocated to support development and social protection. - Expenditure containment and reforms: - Streamline expenditure while preserving growth-enhancing public investment and expanding social safety nets. - Eliminate extra-budgetary spending and arrears buildup. - Reduce large energy subsidies through tariff adjustments and cost reduction measures. - Arrears’ Clearance and Prevention Strategy prepared as part of structural benchmarks. ### Domestic debt restructuring (Box 1) - Restructuring perimeter and outcomes: - All domestic debt except T-bills included in restructuring perimeter. - Exchanges completed for medium-term local currency debt (government T-bonds and debt issued by ESLA and Daakye), government bonds in USD, Cocobills issued by Cocobod, and non-marketable debt held by the Bank of Ghana. - Domestic debt restructuring expected to generate about US$ 8 billion of debt service savings over 2023-26. - Restructuring expected to lower PV of overall public debt-to-GDP by 9 percentage points in 2028. - Terms and participation highlights: - Medium-term marketable debt in GHS: - Holders other than individuals and pension funds: approximately 90 percent participation; exchanged into bullet bonds maturing in 2027-38 with coupons up to 10 percent (part of coupons capitalized in 2023 and 2024). - Individuals: 62 percent participation; holders below 60 could exchange into amortizing bonds maturing 2027-28 with cash coupon of 10 percent; holders over 60 offered cash coupon of 15 percent. - Pension funds: 95 percent participation; old debt exchanged into 2027 and 2028 bonds at a 115 percent exchange ratio; additional strip coupons of 10 percent of same maturities provided. - Government bonds in USD: 92 percent participation; exchanged into bullet bonds maturing in 2027 and 2028 with 2.75 and 3.25 percent coupons. - Cocobills: 97 percent participation; exchanged into bullet bonds maturing between 2024 and 2028 with a 13 percent coupon. - Non-marketable debt held by the Bank of Ghana: exchanged into 2038 bond at a 50 percent exchange ratio; USD 1 billion loan related to SDR allocation was not treated. - Market implications: - Domestic interest rates expected to decline over time as inflation returns to target by end-2025, with real interest rate in positive territory. ### Financing assumptions, external support, and residual financing gap - Baseline financing assumptions: - Government will not regain external market access until 2027. - External disbursements 2023-26 limited to World Bank, IMF, AfDB and other bilateral development partners. - Specific assumed disbursements 2023-26: - World Bank: US$3 billion (US$1.45 billion project loans, US$1.15 billion budget support, US$400 million other projects). - AfDB: US$338 million (US$235 million project loans and grants; US$104 million for budget support in 2023-24). - IMF: new exceptional financing of US$3 billion in 2023-26. - Other bilateral development partners: US$500 million. - Residual financing: - After accounting for completed domestic debt restructuring, residual financing gap assumed to be filled through accumulation of further external arrears (simulated issuance of stylized “arrears bonds” at 5 percent interest rate and 10-year maturity). - Domestic financing behavior in 2023-24: - Domestic financing needs in 2023 and 2024 assumed to be met through issuance of T-bills. - Starting in 2025, increasing share of domestic financing projected to be met through issuance of longer-term Cedi debt as T-bond market functionality is restored. ### Projections realism, historical forecast errors, and risks - Historical projection biases: - Staffs’ projections have tended to overestimate fiscal adjustment and thus underestimate overall and external debt growth. - Compared to the five-year projection in the 2018 DSA, total public debt exceeded estimates by 33.4 percentage points of GDP on average. - The average five-year gap between actual and projected overall debt growth amounts to 8.5 percentage points of GDP in 2022. - External debt exceeded 2018-DSA 5-year projections by 12 percentage points of GDP. - DSA targets under LIC-DSF: - Target reductions by 2028: PV of total debt-to-GDP to 55 percent; external debt service-to-revenue ratio to 18 percent. - Implementation risks and realism: - Baseline assumes completed domestic debt restructuring and no modeling of external debt relief. - Baseline assumes a large and frontloaded, yet feasible, fiscal adjustment by central government and accounts for Cocobod’s net income used for debt service. - Financing assumptions are conservative and rely on substantial concessional and exceptional support from multilaterals and development partners. *Source: IMF staff calculations and Ghanaian authorities, as presented in the provided content.* ### 1.5 percent of GDP by 2025 on a commitment basis—expected to be maintained over the medium term. ### 1ghaea2024001 - 1.5 percent of GDP by 2025 on a commitment basis—expected to be maintained over the medium term. ### Fiscal adjustment and implementation - Fiscal consolidation target: 1.5 percent of GDP by 2025 on a commitment basis—expected to be maintained over the medium term. - Assessment of realism: consolidation falls within the top quartile for peers’ consolidation distribution but remains much lower than the top of the distribution, supporting the consolidation plan’s realism. - Evidence of commitment and measures implemented: - Met the performance criteria on the targeted primary balance for June 2023. - Revenue measures: VAT rate increase; elimination of discounts at customs; increase in an existing levy. - Expenditure measures: public sector wage bill growth kept well below inflation; reduction of capital expenditures; lower cap on transfers to statutory funds; upfront energy tariff adjustment. - Reforms to strengthen expenditure commitment controls. ### Downside risks to the baseline - Key contingencies for baseline projections: - Successful program implementation. - Further progress in the execution of the external debt restructuring. - Adequate financing from development partners. - Identified risk factors that could weaken the macro-financial situation: - Delays in implementing needed adjustment and reforms. - Delays in obtaining external debt relief. - Weak interagency coordination. - Lower agricultural and commodity production. - Deterioration in global conditions. - Domestic vulnerabilities: - Domestic debt restructuring risks to domestic financial sector stability. - Continued uncertainty regarding the exchange rate path. - Large domestic financing needs. - Still high inflation despite monetary policy tightening. - Political risk: - Policy slippages and reversals that could be exacerbated by the upcoming 2024 elections. - Other fiscal risks: - Need for higher support to Cocobod. - Larger-than-expected financial sector support due to the domestic debt exchange program. - Mitigant: strong political support for the program constitutes an important mitigating factor. ### Debt-carrying capacity and stress-test design - Debt-carrying capacity assessment: - CI Score: 2.75. - Classification: “medium” (unchanged from the last DSA). - CI remains between cut-off values for weak and strong debt-carrying capacity, 2.69 and 3.05, respectively. - CI is the weighted average of the 10-year average of the World Bank’s CPIA score and macro-economic variables from the April 2023 WEO vintage. - Stress-test methodology and key scenarios: - Standard shocks: GDP growth, primary balance, exports and FDI calibrated at 1 standard deviation in 2024 from historical averages. - Exchange rate shock: one-time 30 percent depreciation in 2025. - Combined shock: all above at half magnitude. - Tailored tests: - Commodity price test: one standard deviation drop in both fuel and non-fuel commodity export prices (commodities represent over 70 percent of exports). - Contingent liabilities stock test. - Market financing shock: 400 bps increase in the cost of borrowing for 3 years; shortening of average maturities on external debt by 2 years; 15 percent exchange rate depreciation. - Contingent liability shock design: - Minimum starting value of 5 percent of GDP. - Tailored components: financial market contingent liabilities (5 percent of GDP), PPPs (2.4 percent of GDP), other SOEs debt not captured by debt coverage (2 percent of GDP). - Default assumptions for additional borrowing under stress tests: additional needs covered by PPG external MLT debt in the external DSA. ### External DSA assessment and indicators - Under the baseline, three external debt burden indicators breach thresholds; one does so over the full horizon and by large margins. - Specific breaches and behavior: - Debt service-to-revenue ratio: exceeds 18 percent threshold by large margins throughout the entire forecast horizon. - PV of PPG external debt-to-GDP: remains above 40 percent threshold under the baseline until 2030. - Debt service-to-exports ratio: breaches 15 percent threshold briefly in 2025 and again in 2029, remaining above it throughout the projection horizon. - PV of external debt-to-exports ratio: does not breach 180 percent threshold under the baseline, but breaches in 2025 and onwards under an exports shock. - Most extreme shocks by indicator: - PV of PPG external debt-to-GDP: one-off 30-percent nominal depreciation of the cedi. - Debt service-to-revenue: commodity price shock. - Debt service-to-exports: exports shock. ### Public DSA assessment and market financing risks - Public debt outlook: - Under the baseline, PV of total PPG debt-to-GDP continues breaching its 55 percent benchmark throughout the medium and long terms despite completion of domestic debt restructuring. - Public debt declines gradually but remains above 55 percent throughout the full horizon. - Shocks with largest impacts: - Combined contingent liability shock: most severe impact on public debt-to-GDP indicator. - Adverse primary balance shock: second most severe. - Commodity price shock: most severe for other public debt indicators. - Market financing risks: - Assessed as “high” with loss of market access, signaling further liquidity pressures amid worsening market sentiment. - Gross financing needs (GFN): 19.5 percent of GDP in 2022 (above 14 percent benchmark); expected to decline gradually towards 13.5 percent of GDP in 2028. - Eurobond spreads: surged since mid-2021 to surpass 3400 bps at early 2023 (well above the 570-bps benchmark); surge reflects rollover and liquidity risks materializing. ### Sustainability assessment and required actions - Overall assessment: Ghana’s external and overall public debt are assessed to be in distress and debt to be unsustainable. - Evidence and recent history: - Country lost international market access in 2021 amid sharp deterioration in market sentiment and surge in market spreads. - Sovereign bond spread accelerated from 660 bps in mid-2021 to exceed 3400 bps at early 2023, with several consecutive downgrades. - Authorities requested IMF financial support in July 2022. - Domestic debt restructuring completed in September 2023. - External: authorities expect to reach agreement soon with the OCC on terms under the G20’s Common Framework, 2023, and continue working with commercial creditors on comparable terms. - Necessary conditions to restore sustainability: - Finalizing the public debt restructuring. - Successfully implementing the reform agenda under the IMF-supported program. - Baseline assumes strong program ownership and full commitment to the Fund-supported program to restore debt sustainability and bring the debt risk rating to “moderate” in the medium term. - Targets implied by the program: reduce PV of total debt-to-GDP and external debt service-to-revenue ratios to 55 and 18 percent, respectively, by 2028. - Policy mix emphasized: - 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 stronger growth. ### Debt data, transparency, and SOE risks - Need for enhanced debt data and transparency to better identify PPG debt and contingent liabilities for more accurate assessment of debt vulnerabilities. - Historical drivers of debt accumulation: materialization of contingent liabilities, off-budget operations, and domestic arrears, along with rapid cedi depreciation. - SOE-related risks: - 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 engaging in quasi-fiscal activities—to allow a more accurate assessment of fiscal risks and enhance debt coverage. ### Authorities’ views - Authorities generally shared staff’s assessment of debt sustainability. - Authorities reiterated commitment to: - Continue strong implementation of the IMF-supported program. - Expedite restructuring of external debt to restore debt sustainability. - Acknowledged the importance of successful implementation of the reform agenda underpinned by the IMF-supported program to restore economic stability as a critical pillar for restoring debt sustainability. *Source: IMF staff assessment as presented in the provided content.* ### 1990. The size of 3-year adjustm ent from program inception is found on the horizontal axis; the ### 1ghaea2024001 - 1990. The size of 3-year adjustm ent from program inception is found on the horizontal axis; the ### Fiscal adjustment and possible growth paths - 3-Year PB adjustment (Percentage points of GDP) distribution and projected adjustments are illustrated; a 3-year primary balance (PB) adjustment greater than 2.5 percentage points of GDP lies in the “approx. top quartile.” - Baseline and multiplier scenarios shown with multipliers = 0.2, 0.4, 0.6, 0.8 for projected paths (years illustrated: 2017–2024 and 2019–2028 in charts). ### Market-financing risk indicators (Figure 5 highlights) - 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). - GFN benchmark breach indicator: “Yes” for potential heightened liquidity needs. - EMBI spreads correspond to the latest available data (values shown in chart legends but not restated in text). ### External Debt Sustainability Framework — baseline scenario (Table 1 selected figures, In percent of GDP unless otherwise indicated) - External debt (nominal) 2022: 48.6; 2023: 54.4; 2024: 55.6; 2025: 55.0; 2026: 54.4; 2027: 52.8; 2028: 51.2; 2033: 45.3; 2043: 41.9. - of which: public and publicly guaranteed (PPG) 2022: 43.3; 2023: 49.1; 2024: 49.9; 2025: 49.1; 2026: 48.6; 2027: 47.1; 2028: 45.6; 2033: 40.2; 2043: 37.6. - Change in external debt (2023): 5.8; (2024): 1.2; (2025): -0.6. - Identified net debt-creating flows (2022): 2.8; (2023): -0.9; (2024): -2.2; (2025): -3.2; (2026): -3.1. - Endogenous debt dynamics (2022): 5.0; (2023): 1.3; (2024): 0.9; (2025): 0.1; (2026): -0.1. - Residual (2022): -2.4; (2023): 6.7; (2024): 3.3; (2025): 2.6; (2026): 2.5. - Sustainability indicators: - PV of PPG external debt-to-GDP ratio: 2022: 43.6; 2023: 43.7; 2024: 45.8; 2025: 46.4; 2026: 45.5. - PV of PPG external debt-to-exports ratio: 2022: 122.5; 2023: 135.8; 2024: 133.0; 2025: 129.8; 2026: 129.0. - PPG debt service-to-exports ratio: 2022: 12.2; 2023: 13.6; 2024: 13.0; 2025: 17.5; 2026: 15.0. - PPG debt service-to-revenue ratio: 2022: 27.7; 2023: 28.1; 2024: 26.8; 2025: 35.8; 2026: 29.0. - Gross external financing need (Million of U.S. dollars): 2022: 2521.7; 2023: 2676.7; 2024: 2151.6; 2025: 3453.7; 2026: 3185.9. - Key macro assumptions: - Real GDP growth (in percent): 2022: 3.1; 2023: 2.3; 2024: 2.8; 2025: 4.4; 2026: 4.9; 2027: 5.0; 2028: 5.0; 2033: 5.0; 2043: 4.5. - GDP deflator in US dollar terms (change in percent): 2022: -12.0; 2023: 3.3; 2024: -4.0; 2025: -3.2; 2026: 1.6. - Effective interest rate (percent) 4/: 2022: 4.2; 2023: 5.1; 2024: 4.5; 2025: 4.6; 2026: 4.7. - Net FDI (negative = inflow): 2022: -2.0; 2023: -1.5; 2024: -2.5; 2025: -3.0; 2026: -3.0. - Government revenues (excluding grants, in percent of GDP): 2022: 15.7; 2023: 15.6; 2024: 16.6; 2025: 17.4; 2026: 18.3. - Nominal GDP (Million of US dollars) 2022: 72,243; 2023: 76,277; 2024: 75,244; 2025: 76,019; 2026: 81,084; 2027: 86,456; 2028: 92,244; 2033: 128,749; 2043: 250,449. - Memorandum items: - PV of external debt (percent): 2022: 49.0; 2023: 49.1; 2024: 51.5; 2025: 52.3; 2026: 51.4. - In percent of exports: 2022: 137.5; 2023: 152.3; 2024: 149.5; 2025: 146.3; 2026: 145.5. - Total external debt service-to-exports ratio: 2022: 16.0; 2023: 17.8; 2024: 17.3; 2025: 22.0; 2026: 19.7. - PV of PPG external debt (in Million of US dollars): 2022: 31,532.4; 2023: 33,360.1; 2024: 34,473.6; 2025: 35,286.7; 2026: 36,929.8. ### Public Sector Debt Sustainability Framework — baseline scenario (Table 2 selected figures, In percent of GDP) - Public sector debt 1/ 2022: 93.3; 2023: 86.1; 2024: 83.6; 2025: 80.9; 2026: 77.9; 2027: 74.9; 2028: 72.0; 2033: 62.3; 2043: 48.8. - of which: external debt 2022: 43.3; 2023: 49.1; 2024: 49.9; 2025: 49.1; 2026: 48.6. - Change in public sector debt: 2022: 6.4; 2023: -7.2; 2024: -2.5; 2025: -2.7; 2026: -3.0. - Identified debt-creating flows: 2022: -0.9; 2023: -14.8; 2024: -3.1; 2025: -2.5; 2026: -2.5. - Primary deficit: 2022: 0.9; 2023: 0.4; 2024: 0.3; 2025: -0.8; 2026: -0.9. - Revenue and grants: 2022: 15.8; 2023: 15.9; 2024: 16.9; 2025: 17.7; 2026: 18.5. - Primary (noninterest) expenditure: 2022: 16.8; 2023: 16.2; 2024: 17.3; 2025: 16.8; 2026: 17.6. - Automatic debt dynamics: 2022: -1.8; 2023: -12.6; 2024: -4.0; 2025: -2.0; 2026: -1.6. - Contribution from interest rate/growth differential: 2022: -8.9; 2023: -12.6; 2024: -4.0; 2025: -2.0; 2026: -1.6. - of which: contribution from average real interest rate: 2022: -6.3; 2023: -10.6; 2024: -1.7; 2025: 1.5; 2026: 2.2. - of which: contribution from real GDP growth: 2022: -2.6; 2023: -2.1; 2024: -2.3; 2025: -3.5; 2026: -3.8. - Residual: 2022: 7.3; 2023: 7.6; 2024: 0.6; 2025: -0.2; 2026: -0.5. - Sustainability indicators: - PV of public debt-to-GDP ratio 2/: 2022: 94.2; 2023: 86.0; 2024: 82.8; 2025: 79.5; 2026: 76.3. - PV of public debt-to-revenue and grants ratio: 2022: 594.9; 2023: 542.6; 2024: 488.8; 2025: 450.2; 2026: 412.8. - Debt service-to-revenue and grants ratio 3/: 2022: 117.5; 2023: 88.2; 2024: 74.2; 2025: 100.7; 2026: 93.5. - Gross financing need 4/: 2022: 19.5; 2023: 14.1; 2024: 12.5; 2025: 16.2; 2026: 15.5. - Key macro and fiscal assumptions: - Real GDP growth (in percent): same profile as external DSA (2022: 3.1; 2023: 2.3; 2024: 2.8; 2025: 4.4; 2026: 4.9). - Average nominal interest rate on external debt (in percent): 2022: 4.3; 2023: 5.2; 2024: 4.9; 2025: 4.8; 2026: 4.7. - Average real interest rate on domestic debt (in percent): 2022: -11.6; 2023: -24.1; 2024: -8.9; 2025: 0.5; 2026: 3.1. - Inflation rate (GDP deflator, in percent): 2022: 28.2; 2023: 36.3; 2024: 20.2; 2025: 10.9; 2026: 7.5. - Growth of real primary spending (deflated by GDP deflator, in percent): 2022: 1.1; 2023: -1.0; 2024: 9.3; 2025: 1.7; 2026: 9.8. - Primary deficit that stabilizes the debt-to-GDP ratio 5/: 2022: -5.5; 2023: 7.6; 2024: 2.8; 2025: 1.9; 2026: 2.1. ### Sensitivity analysis (Tables 3 and 4 — selected highlights) - Table 3 (PPG external debt indicators, 2023–33): - PV of debt-to-exports ratio baseline path (2023–2033, select values): 2023: 136; 2024: 133; 2025: 130; 2026: 129; 2027: 128; 2033: 121. - Threshold for PV of debt-to-exports: 180 (row labeled Threshold). - Several scenario and tailored tests reported; bold values indicate breaches of thresholds in tables (not restated as bold here). - Table 4 (Public debt sensitivity, 2023–33): - PV of Debt-to-GDP Ratio baseline series (2023–2033, select): 2023: 86; 2024: 83; 2025: 80; 2026: 76; 2027: 73; 2028: 70; 2033: 62. - Total public debt benchmark: 55 (row labeled TOTAL public debt benchmark). - PV of Debt-to-Revenue Ratio baseline series (select): 2023: 543; 2024: 489; 2025: 450; 2026: 413; 2027: 400; 2028: 386; 2033: 338. - Debt Service-to-Revenue Ratio baseline series (select): 2023: 88; 2024: 74; 2025: 101; 2026: 94; 2027: 84; 2028: 83; 2033: 79. - Scenario tests include A1 (historical averages), B1–B6 (bound tests such as Real GDP growth, Primary balance, Exports, Other flows, Depreciation, Combination), and tailored tests C1–C4 (including combined contingent liabilities, commodity price, market financing). ### Fund relations, safeguards, and administrative data (selected items) - Staff report title: STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION, FIRST REVIEW UNDER THE ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY, REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW—INFORMATIONAL ANNEX; Prepared by African Department (In Consultation with Other Departments); December 18, 2023. - Membership Status: Joined: September 20, 1957, Article VIII. - Quota (SDR Million %Quota): Quota 738.00 100.00; IMF's Holdings of Currency (Holdings Rate) 645.61 87.48; Reserve Tranche Position 92.46 12.53. - SDR Department: Net cumulative allocation 1,061.21 100.00; Holdings 18.65 1.76. - Latest financial commitment (ECF): Date of arrangement May 17, 2023; Date of expiration May 16, 2026; Amount Approved 2,241.00 (SDR Million); Amount Drawn 451.40 (SDR Million). - Overdue obligations and projected payments to Fund (SDR Million, forthcoming): Principal 2023: 29.89; 2024: 119.56; 2025: 198.34; 2026: 238.93; 2027: 214.02. Charges/Interest 2023: 10.69; 2024: 43.08; 2025: 43.04; 2026: 43.06; 2027: 43.06. Total 2023: 40.58; 2024: 162.64; 2025: 241.38; 2026: 281.99; 2027: 257.08. - Implementation of HIPC Initiative (Enhanced Framework): - Decision point date Feb 2002; Assistance committed by all creditors (US$ Million) 1/: 2,186.00; Of which IMF assistance (US$ million) 112.10 (SDR equivalent in millions) 90.05; Completion point date Jul 2004. - Disbursement of IMF assistance (SDR Million): Assistance disbursed to the member 90.05; Interim assistance 25.06; Completion point balance 64.99; Additional disbursement of interest income 4.25; Total disbursements 94.30. - Implementation of MDRI: - MDRI-eligible debt (SDR Million) 1/: 265.39; Financed by MDRI Trust 220.04; Remaining HIPC resources 45.35. - Safeguard assessments of the Bank of Ghana (BoG) conducted between 2009 and 2023: - 2023 assessment noted BoG Board reconstituted after a political transition hiatus in 2021. - Elevated risks due to significant monetary financing since 2020 and BoG participation in Gold-for-Oil (G4O) program. - Interim measure: BoG established a Memorandum of Understanding to eliminate monetary financing under the IMF program; sustainable autonomy safeguards remain needed in law. - Exchange rate arrangement: - Accepted obligations under Article VIII on February 2, 1994. - De jure arrangement: “floating”; de facto: “other managed”. - Ghana maintains one exchange restriction and multiple currency practices (MCPs) subject to Fund approval. - On October 18, 2023, the average exchange rate in the interbank market was GHc 11.36 per U.S. dollar. *Sources: Country authorities; and staff estimates and projections. (Figures and tables excerpted from the provided content unit.)* ### 2021. The staff report (Country Report No. 21/165) was discussed by the Executive Board on July ### GHANA: STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION, FIRST REVIEW UNDER THE ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY, REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA, AND FINANCING ASSURANCES REVIEW—SUPPLEMENTARY INFORMATION, AND MONETARY POLICY CONSULTATION ### FSAP Participation and Historical Notes - Ghana participated in the FSAP in 2011; a Financial System Stability Assessment (FSSA) was issued to the Executive Board in 2011. An FSAP update was presented to the Board in May 2011. - The staff report (Country Report No. 21/165) was discussed by the Executive Board on July 19, 2021 and is posted on the IMF website. ### Statistical Issues — Assessment of Data Adequacy for Surveillance (As of October 18, 2023) - General: - Data provision is broadly adequate for surveillance, though some shortcomings remain in the quality and timeliness of certain data. - Timelier provision of critical high-frequency data is warranted to monitor vulnerabilities. - Notable deficiencies in dissemination to the public, particularly fiscal data released with delays. - National Accounts: - GSS compiles annual and quarterly GDP by production and expenditure approaches at current and constant prices (base year 2013). - Next GDP rebase exercise planned; new base year expected to be the year 2023. - Economic census postponed to the fourth quarter of 2023; industrial business economic survey (IBES) to follow later in 2024. - Quarterly GDP by expenditure approach results were published in June 2023. - GSS staffing: current manpower of 274 relative to approved establishment of 370 personnel. - Only 5 staff produce annual and quarterly GDP and work with AHIES results and other activities. - Recommendation: GSS should strengthen the national accounts unit with additional staff. - Price Statistics: - CPI concepts and methods largely follow Consumer Price Index Manual: Concepts and Methods (2020); significant methodological improvements made with the 2018 update. - A detailed CPI methodology note has been drafted and published. - Recommendations: replace varieties permanently missing; replace outlets that close or refuse immediately; implement quality adjustment methods. - PPI updated and released in October 2022; coverage expanded and ISIC Rev. 4 implemented. - Data collection for the first Household Income and Expenditure Survey (HIES) began in January 2022; these data will be used to update CPI weights. - Labor Statistics: - Quarterly data collection rolled out since the beginning of 2022. - Maiden national labour and multi-factor productivity statistics to be released December 2023 (compiled with ILO under the Productivity Ecosystem for Decent Work Project). - Ministry received technical assistance from UNDP and ILO in design and compilation. - Government Finance Statistics (GFS): - Quality and timeliness need improvement; monthly government accounts published with significant delays. - IMF TA recommended measures to eliminate coverage discrepancies and the mix of cash and accrual data. - Expanding GFS coverage to general government depends on expanding GIFMIS institutional coverage to include all statutory funds and IGF-reliant institutions. - Structural benchmark: onboarding of 265 IGF-reliant institutions on GIFMIS. - Public sector debt statistics coverage expanded to include the most significant state-owned enterprises. - Recommendation: finalize delineation of public sector and extend fiscal and debt data coverage to general government. - Monetary and Financial Statistics: - Progress implementing 2017 and 2020 MFS TA recommendations: improved account classification, reporting of commercial bank restructuring, elimination of some negative balances, minimized discrepancies in interbank positions, inclusion of balance sheets of banks with revoked licenses in ODCs until assets/liabilities assumed. - Remaining work: include remaining ODCs in MFS compilation; address unexplained breaks, out-of-trend values, and some negative balances. - Bank of Ghana reports 12 core FSIs and 5 of 12 additional FSIs for deposit takers quarterly within a lag of one quarter. - Bank of Ghana reports key Financial Access Survey series including mobile and internet banking and mobile money; reports commercial bank branches per 100,000 adults and ATMs per 100,000 adults. - External Sector Statistics: - Balance of Payments Office (BPO) of the Research Department of the BOG responsible for BOP and IIP compilation and dissemination. - Ghana participated in external sector module of EDDI and has used technical assistance for Foreign Assets and Liabilities Survey (FALS). - Challenges remain in collection and dissemination of private sector flows and timeliness. - Next steps: work with STA on development of a quarterly survey of cross-border flows; strengthen data sources and ITRS reporting to serve as a broad indicator and a data source where direct reporting is not feasible. - External and Domestic Debt Statistics: - External debt recording and payment responsibility divided among MOF (TDMD), CAGD, and BOG as payment agent. - Recommendation: clearly identify government subsectors reported and prepare a clear classification of financing, outstanding debt, and guarantees issued. - TDMD requires TA in collection and dissemination of SOEs, Statutory Funds and MMDAs debt to enhance timeliness and coverage. - Trade Statistics: - Maiden standalone trade statistics released in August 2023 reflecting 2022, based on CEPS administrative data. - Institutionalized for quarterly release starting November 2023 (trade statistics for first two quarters of 2023 to be released). - Recommendations: improve CEPS data collection procedures and trade volume data (customs invoices); produce export unit values for major export commodities such as gold and cocoa. - Note: a high coverage of the country’s export bundle can be obtained from three major exports—cocoa, gold, and oil. ### Data Standards and Quality - Ghana started participating in the GDDS in 2005 and launched its NSDP under e-GDDS in November 2018. - Ghana disseminates 14 of the 15 encouraged data categories under the GDDS. - Recommendation: continue e-GDDS implementation, improve timeliness of already published categories on NSDP. - Ghana received a mission to produce a Data module of the Reports on Observance of Standards and Codes (data ROSC) in July 2004. ### Table of Common Indicators Required for Surveillance (As of September 30, 2023) — Key Dates and Frequencies (selected) - Exchange rates: Date of latest observation Jun 2023; Date received Jul 2023; Frequency D/W/M/Q/A: M M M - International reserve assets and reserve liabilities of monetary authorities: Date of latest observation Jun 2 Sep 2023; Frequency M M M - Reserve/base money: Jun 2023; Sep 2023; M M M - Broad money: Jun 2023; Aug 2023; M M M - Central bank balance sheet: Jun 2023; Sep 2023; M M M - Consolidated balance sheet of the banking system: Jun 2023; Sep 2023; M M M - Interest rates: Jul 2023; Sep 2023; M M M - Consumer price index: July 2023; Aug 2023; M M M - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Mar 2021; Apr 2021; M M I - Stocks of central government and central government-guaranteed debt: Dec 2020; Apr 2021; M Q A - External current account balance: Dec 2022; Aug 2023; Q Q Q - Exports and imports of goods and services: Dec 2022; Aug 2023; Q Q Q - GDP/GNP: 2023, Q1; Aug 2023; Q Q Q - Gross external debt: March 2023; April 30, 2023; M M M - International investment position: 2022; Aug 2023; A A A ### Financing Assurances, Recent Developments, and Staff Assessment (Supplement, January 12, 2024) - Financing Assurances: - Staff’s assessment: sufficient assurances regarding the debt restructuring needed to restore debt sustainability and generate financing consistent with program parameters. - Ghana reached on January 12, 2024 an agreement in principle with the Official Creditor Committee (OCC) under the G20 Common Framework on a debt treatment consistent with program parameters and restoring debt sustainability over the medium term. - The agreement is in line with financing assurances provided in May 2023 and subject to finalization of internal procedures by some OCC members. - OCC includes representatives of Paris Club creditors; arrears to other official bilateral creditors can be deemed away under the Lending into Official Arrears (LIOA) Policy. - Alternative restructuring scenario: based on agreed OCC treatment, Ghana would remain in debt distress due to arrears to private creditors. However, given authorities’ continuing good faith negotiations with private creditors and respect for comparability of treatment, Ghana’s debt would be assessed as sustainable on a forward-looking basis. - Recent Economic Developments: - Year-on-year real GDP growth declined to 2 percent in Q3 2023 (from 3.3 percent in Q2 2023), mainly reflecting a deeper contraction of industrial output and a slowdown in services. - Staff estimated growth of 2.3 percent in 2023. - The 2024 budget and associated tax bills presented as a prior action were enacted in late December 2023. - Staff Assessment and Recommendation: - With further progress on debt restructuring and completion of the monetary policy consultation, the thrust of the staff appraisal in the staff report remains appropriate. - Staff assesses that financing assurances are in place and recommends completion of the first review under the Extended Credit Facility. ### Monetary Policy Consultation and Inflation Developments (MPCC) - MPCC Trigger: - The program’s MPCC was triggered for end-December 2023 due to a more favorable outturn: inflation at end-2023 was 23.2 percent, below the 25.4 percent lower bound of the outer band of the MPCC (outer band defined as 25.4 - 33.4 percent). - Attachment I (Bank of Ghana note, Accra, January 12, 2024) explains the reasons and policy response. - Factors Explaining Inflation Below Consultation Band: - Stronger than expected exchange rate: actual end-year exchange rate was GHC 11.9 compared to GHC15.5 expected at the start of the programme. - Stable crude oil prices leading to stable fuel prices and favorable impact on transportation costs. - Favourable climatic conditions improving food supply; food inflation fell significantly due to a strong harvest and easing of supply chain bottlenecks. - Policy Responses: - From March 2022 to June 2023, the MPC increased the policy rate cumulatively by 1,550 basis points to 30 percent. - Additional measures: stepped-up sterilization efforts, increases in the cash reserve ratio, elimination of monetary financing of the government deficit. - Together with ambitious fiscal adjustment, these policies helped dampen aggregate demand pressures, tame pressures on the exchange rate, and reduce inflation. - Outlook and Authorities’ Position: - Staff and authorities agree Bank of Ghana’s policy stance has been appropriate and expect overall inflation to continue to decline in the coming months, consistent with gradual return to target. - Bank of Ghana committed to monitor price developments closely and adjust policy as needed to ensure inflation is brought back to the 6-10 percent target range by the end of the program. *Source: IMF staff supplement to the Staff Report circulated to the Executive Board on December 19, 2023; Supplement dated January 12, 2024.* ### 4. In the near-term, BoG forecasts suggest that the disinflation process will continue in ### 1ghaea2024001 - 4. In the near-term, BoG forecasts suggest that the disinflation process will continue in ### Near-term inflation outlook and monetary stance - Given current momentum and a continued tight policy stance, inflation is expected to continue to decline in 2024. - Revenue measures in the 2024 budget (removal of selected VAT exemptions, alignment of custom tariffs with the VAT Act, and introduction of green taxes) could marginally slow the disinflation pace. - BoG expects overall inflation to continue to decline in the coming months, but with smaller monthly increments, allowing for headline year-on-year to gradually return in its target band. - The BoG will continue to monitor the impact of policy measures and developments in the global and domestic economy and stands ready to take measures as necessary to bring inflation back to the 6-10 percent target range by the end of the program. ### Recent inflation dynamics and targets - Inflation peaked at 54.1 percent in December 2022. - Inflation decelerated to 23.2 percent in December 2023, below the lower outer band of the MPCC (25.4 percent). - The BoG aims to steer inflation toward the 8±2 percent target as envisioned under the MPCC. - The BoG will eschew monetary financing of the budget and intensify efforts to improve the monetary policy framework and transmission mechanism with IMF TA support. ### Growth, external position, and reserves - Real GDP growth averaged 2.8 percent (year-on-year) in the first three quarters of 2023. - Staff revised growth projection for 2023 to 2.3 percent (from initial 1.5 percent). - Economic growth is expected to further pick up in 2024 and average around 5 percent in subsequent years as stability is restored and reforms boost investment and productivity. - The current account recorded a surplus of US$1,047.7 million (1.4 percent of GDP) by end-September 2023, versus a deficit of US$1,835.1 million (-2.5 percent of GDP) in 2022. - Gross reserves stood at US$2.5 billion by end-October 2023 (equivalent to 1.1 month of import cover). ### Fiscal policy, revenue mobilization, and social protection - Authorities commit to an ambitious and frontloaded fiscal adjustment, underpinned by strong revenue mobilization to restore fiscal and debt sustainability. - Key measures: - Accelerate implementation of the Medium-Term Revenue Strategy (MTRS) to widen the tax base and improve compliance. - Frontload the revenue package in the approved 2024 Budget to boost non-oil revenue. - Accelerate onboarding of remaining large taxpayers on the E-VAT platform and complete tax registry clean-up by end-June 2024. - Expenditure priorities: - Prioritize growth-enhancing capital projects. - Implement quarterly tariff adjustments to mitigate energy sector fiscal risks. - Strengthen public financial management to enhance fiscal oversight and avert arrears accumulation. - Social protection: - Increase budgetary allocations for highly targeted social intervention programs for 2024. - Implement automatic indexation framework to maintain the real value of social benefits. ### Debt management and sovereign borrowing limits - Authorities will: - Continue to impose hard limits on newly contracted non-concessional external debt and prioritize concessional financing for projects. - Strengthen governance and viability of SOEs—particularly Cocobod and those in the financial and energy sectors—to mitigate contingent liability risks. - Modernize securities operations infrastructure used by the Debt Management Office to improve debt analysis. - Develop a medium-term debt management strategy immediately after completing external debt restructuring. - Swiftly complete agreements with all external official creditors and advance good-faith negotiations with external commercial creditors for a collective agreement on comparable terms. ### Financial sector policies and stability measures - The authorities view the current monetary policy stance as appropriate and expect disinflation to continue in 2024. - Financial sector priorities: - Ensure timely implementation of banks’ recapitalization plans. - Strengthen supervision and oversight of banks with capital shortfalls. - Operationalize the Ghana Financial Sector Fund (GFSF) with World Bank financing support; operational framework prepared. - Complete legacy tasks from the 2017-19 financial sector clean-up. - Strengthen the AML/CFT framework to maintain alignment with FATF international standards. - Exchange rate policy: - Commit to greater exchange rate flexibility to facilitate reserve accumulation and build resilience to external shocks. - Intensify efforts to unify the FX market and limit FX market interventions to episodes of excessive market volatility. ### Governance, structural reforms, and climate resilience - Authorities commit to macrocritical structural reforms and implementation of the Cabinet-approved Growth Strategy (August 2023) to foster private sector development and inclusive medium-term growth. - Governance and anti-corruption measures: - Strengthen governance and anti-corruption frameworks to enhance accountability and integrity. - Fully implement recommendations of the audit report of Covid-19 spending. - Publish the ongoing IMF Governance and Corruption Diagnostic Assessment when finalized. - Prepare and seek Cabinet approval of a draft New Conduct of Public Officers Act to address defects in the asset declaration system by May 2024. - Climate resilience: - Accelerate and scale up adaptation actions and integrate adaptation into Ghana’s National Adaptation Planning (NAP). - Prepare Ghana’s first adaptation communication from the NAP process and identify priority areas for immediate action. - Leverage climate financing for green growth. ### Program performance and implementation status - The ECF-supported program is on track; all end-June 2023 quantitative performance criteria and continuous performance criteria were met. - Inflation over-performed the Monetary Policy Consultation Clause (MPCC) for end-December 2023. - All but one end-June 2023 Indicative Targets (ITs) were met; the IT of zero net accumulation of arrears was missed due to increased energy sector payables amid low recoveries, tight financing conditions, and ongoing renegotiations with independent power producers. - Structural benchmarks: end-June and end-September 2023 SBs were met except the publication of an updated energy sector recovery program, which was met with a delay. *Source: Ghanaian authorities; and IMF staff estimates and projections.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1ghaea2024001.pdf_