## Ghana: Three-Year Arrangement Under the Extended Credit Facility—Request for Modification of Performance Criterion

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### Request summary and rationale
- Authorities request modification of the ECF-supported program ceiling for nonconcessional external borrowing to permit contracting a US$49.1 million loan to finance import of fire-fighting equipment.
- Rationale cited:
  - Inadequacy of existing equipment demonstrated by major fires, including destruction of the headquarters of the Ministry of Information and Foreign Affairs in October 2009.
  - Rising risks to property and public safety due to construction of new high-rise developments.
  - Urgency to proceed with a long-standing contract to strengthen the Ghana National Fire Service and to avoid price increases if the contract is not quickly agreed.

### Loan terms and project appraisal
- Loan amount requested: US$49.1 million.
- Financing arrangement: Borrowing from Societe Generale, New York, guaranteed by US Export-Import Bank (US Exim Bank).
- Maturity: 10.5 years.
- Grant element: 10.3 percent.
- Project appraisal: Fund staff were provided with a favorable cost-benefit analysis prepared by the authorities; staff judge the project to deliver a high rate of return.

### Existing ECF performance criterion and proposed modification
- Current ECF ceiling for contracting or guaranteeing new external nonconcessional debt (cumulative from July 1, 2009): $300.0 million for oil and gas sector projects conducted by the GNPC (this provision has not yet been used).
- Proposed modification (table values as attached by authorities):
  - Contracting or guaranteeing of new external nonconcessional external debt (ceiling; millions of U.S. dollars) 2/: 349.1
  - Oil and gas sector projects conducted by the GNPC: 300.0
  - Purchase of fire-fighting equipment: 49.1
- Note on definition: As defined in the June 2009 Technical Memorandum of Understanding (TMU).
- Note on coverage: Includes debt with maturity of more than one year, as well as obligations with maturity of one year or less, excluding normal import-related credit and sales of treasury bills to nonresidents. The maximum ceiling is cumulative from July 1, 2009.

### Recent breach and corrective measures
- Breach described: In November 2009 the government assumed an existing GNPC debt obligation to an oil supplier of US$100 million, thereby violating the program performance criterion on nonconcessional external borrowing.
- Repayment of that debt: Being repaid on commercial terms through end-2010 (12-month period).
- Authorities’ explanation: The November 2009 action was intended as a regularization of pending public debt service and was unintendedly in breach of the ECF continuous performance criterion because it transferred a nonguaranteed GNPC liability to the government.
- Corrective commitments:
  - Government will require that all external public debt proposals be subject to rigorous scrutiny by the Ministry of Finance’s debt management division.
  - Government will request a waiver for the breach in the context of the combined first and second ECF reviews, based on appropriate corrective actions.

### Fund staff assessment and conditions
- Staff support: Staff supports the modification request.
- Rationale for staff support:
  - Project expected to deliver a high rate of return.
  - Limited impact on Ghana’s debt sustainability.
- Conditional actions and follow-up:
  - Staff welcome government intention to strengthen debt management to prevent future breaches.
  - Mission will determine whether new technical assistance is needed on debt management to strengthen monitoring arrangements.
  - Specific steps to strengthen debt management will be discussed during the staff mission to Accra in March 2010 to conduct the combined first and second ECF-supported program reviews.
  - In the context of those reviews, the authorities will request a waiver for the November 2009 breach.

*International Monetary Fund. Ghana: Three-Year Arrangement Under the Extended Credit Facility—Request for Modification of Performance Criterion. March 25, 2010.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11129.pdf_