IMF deal: Crucial deadline looms for programme’s conditions

The country is racing against the clock to fulfill three crucial conditions by the end of June 2023 as part of the International Monetary Fund (IMF)-supported program.

The country’s compliance with conditions which encompass fiscal operations, financial sector stability, and energy sector reforms – and similar terms by the end of September 2023 – is pivotal to unlocking the first review of the Extended Credit Facility arrangement in November 2023 and receiving subsequent tranches of financial support: the second tranche of another US$600million and five other tranches of US$360million each after the semi-annual reviews are successfully concluded.

The initial condition necessitates conducting a comprehensive stock-taking of payables across government agencies, devising a clearance plan, and implementing structural reforms to prevent future arrears.

The aim is to gain clarity on outstanding payments, ensure timely clearance and integrate commitment controls with the Government Integrated Financial Management Information System (GIFMIS). To promote fiscal discipline, sanctions under the Public Financial Management (PFM) Act will be enforced… accompanied by mechanisms to monitor expenditure beyond budgetary allocations. By June’s end, a strategy to prevent arrears’ build-up will be formulated, emphasising procurement prioritisation for approved projects and purchase orders.

The second condition focuses on fortifying the country’s financial sector and rebuilding institutions’ buffers, working in collaboration with the IMF. The Bank of Ghana (BoG) will implement strategies to address the impact of domestic debt exchange and macroeconomic challenges. Incentives for early recapitalisation, enhanced disclosure requirements and restrictions on undercapitalised banking activities will be introduced. Dividend payments by financial institutions lacking adequate capital buffers will be prohibited.

In addition, risk-based supervision will be promoted to curb excessive risk-taking, while government solvency support will encourage private capital injections and structural reforms. Recapitalisation of state-owned banks will receive priority, ensuring their future viability and a level playing field with private banks.

The third condition stipulates the publication of the updated Energy Sector Recovery Plan after Cabinet approval. The plan must encompass well-defined measures and timelines. Additionally, negotiations on power purchase agreements (PPAs) to mitigate the take-or-pay liability should be concluded. Strategies to enhance the performance of the Electricity Company of Ghana (ECG) and other state-owned enterprises (SOEs) will be formulated, along with reforms to reduce revenue shortfalls caused by subsidies. By the end of 2023, a new policy directive on the procurement of new Independent Power Producers (IPPs) will be published to alleviate the state’s commercial burden.

In a related development, an IMF team led by Stéphane Roudet recently concluded its visit to Ghana from June 8 to June 15. The discussions centred on the country’s economic progress and implementation of the IMF-supported programme approved in May 2023.

Mr. Roudet acknowledged positive signs of stability in the economy: such as decreased inflation, increased international reserves, and a more stable exchange rate. The authorities’ compliance with key commitments will be formally evaluated during the Extended Credit Facility arrangement’s first review in November.

Throughout the visit, IMF staff engaged with high-level officials including President Akufo-Addo, Vice President Mahamudu Bawumia, Finance Minister Ken Ofori-Atta, and Bank of Ghana Governor Ernest Addison. Meetings were also held with representatives from government agencies, parliament’s Finance Committee, the private sector, and civil society.

The IMF team expressed appreciation for the constructive engagement and support received from Ghanaian authorities and stakeholders during the mission.

Successful completion of the IMF-supported programme’s conditions will bolster economic foundations and enhance confidence among international investors and lenders. Acknowledgment by the IMF team of the economy’s stabilization indicates a positive trajectory for the country’s growth. However, strict adherence to the timeline and effective implementation of the required measures remain crucial for the government and its stakeholders.