- Why did Ghana need an IMF program?
- What are the objectives of Ghana’s Extended Credit Facility arrangement?
- What are the policy priorities?
- What has been the impact of the program thus far? Do we see any signs of success?
- How will the program protect the most vulnerable? Will the program results in cuts in social programs?
- How will the program promote transparency and fight corruption?
- What are the next steps in the debt restructuring process?
Why did Ghana need an IMF program?
In 2022, Ghana faced a severe economic and financial crisis, with a debt burden assessed as unsustainable. Specifically, a combination of pre-existing vulnerabilities and external shocks such as the COVID-19 pandemic and Russia’s war in Ukraine had resulted in acute financing pressures, a depreciating cedi, declining international reserves, slowing economic activity, and high inflation.
Against this backdrop, the Ghanaian authorities put in place a reform program to restore macroeconomic stability and debt sustainability and lay the foundations for stronger and more inclusive growth. Ghana requested IMF financial support, and on May 17, 2023, the IMF Executive Board approved a US$ 3 billion (SDR 2.242 billion) 3 years Extended Credit Facility (ECF) arrangement to support Ghana’s post-COVID economic recovery program.
What are the policy priorities?
To reach their economic program objectives, the Ghanaian authorities have laid out a number of policy priorities:
First, large and frontloaded measures to bring public finances back on a sustainable path. This is being done through mobilizing more domestic revenue and improving the efficiency of public spending. Importantly, the program does – and will continue to – include efforts to protect the vulnerable.
Second, ambitious structural reforms are being implemented to support the fiscal adjustment and enhance resilience to shocks. They focus on tax policy, revenue administration, and public financial management. Reforms also aim at addressing weaknesses in the energy and cocoa sectors.
Third, steps are being taken to bring inflation under control – for example with the Bank of Ghana raising interest rates and eliminating monetary financing of the budget. A flexible exchange rate policy will help rebuild international reserves.
Fourth, measures to preserve financial stability are very central to the program.
Finally, reforms are envisaged to encourage private investment, growth, and job creation.
What has been the impact of the program thus far? Do we see any signs of success?
Ghana’s performance under the program has been compelling, both in terms of meeting the quantitative objectives (for example on budgetary performance), but also in implementing structural reforms to make the economy more resilient, ensure a lasting improvement in public finances, and lay the foundations for stronger and more inclusive growth.
Despite a difficult global economic environment, the authorities’ reforms are bearing fruit, and signs of economic stabilization are emerging.
- Growth has proven more resilient than initially envisaged;
- inflation is declining rapidly;
- the fiscal and external positions have improved;
- Bank of Ghana’s international reserves have been increasing;
- and exchange rate volatility has decreased.
How will the program protect the most vulnerable? Will the program results in cuts in social programs?
Protecting the vulnerable is a core objective of IMF programs and spending on key social programs is protected and monitored through an indicative target.
In 2023, benefits under the existing targeted cash transfer program, the Living Empowerment Against Poverty, were doubled. These benefits are being doubled again in 2024, which will significantly reduce poverty and inequality.
In addition, the budgetary allocation of the Ghana School Feeding Program has been increased to compensate for the cost of inflation and make sure poor children continue to benefit from free meals at school.
In the health sector, the financial resources for the National Health Insurance Scheme are being increased and made available on time to cover medical claims, essential medicines, and vaccines for the most vulnerable.
How will the program promote transparency and fight corruption?
The Ghanaian authorities are committed to strengthening governance, improving transparency, and reducing the risks of corruption under the Fund-supported program. For example, the authorities have requested IMF technical assistance to conduct an in-depth Governance and Corruption Diagnostic Assessment. This exercise is ongoing. It will be used as input into the ongoing efforts to update the National anticorruption Action Plan. One specific area where the authorities have committed to strengthen the existing framework is the asset declaration system for public officials. They endeavored to strengthen it by enacting a new Conduct of Public Officers Act. Furthermore, the Ghana Revenue Authority, with support from IMF technical assistance, is developing a plan with the aim to improve the professional standards of tax administration in Ghana.
What are the next steps in the debt restructuring process?
The authorities are making good progress on their comprehensive debt restructuring.
The domestic debt exchange was completed last year. The Ghanaian authorities have recently reached agreement in principle with their official creditors under the G20’s Common Framework on a debt treatment consistent with the program. The terms of the agreed debt treatment are expected to be formalized in a Memorandum of Understanding between Ghana and its Official Creditor Committee. The authorities are also engaging with their private creditors to seek relief on their external debt.