Ghana’s new government has the likelihood of battling with continued high domestic and financing costs as its debts expands and global interest rates rises. It is said to likely face challenges such as high youth unemployment; ongoing delays in the resolution of debt incurred by state-owned enterprises; and the high cost of electricity and need to better match its capacity and the demand for supply.
However, the Ghanaian economy is set to witness a tremendous turnaround following the approval of the disbursement of $94.2 million, bringing total disbursements to $565.5 million by the International Monetary Fund (IMF).
An economic crisis that ensued from already accumulated debts after receiving a waiver over most of its debts in 2015 and a plunge in oil prices forced the former Ghanaian government to negotiate a $920 million extended credit facility from the IMF in April 2015.
Africa’s second largest cocoa producer’s economy made a solid progress on fiscal consolidation in bringing the fiscal deficit down from 10.2% of GDP in 2014 to 6.3% in 2015, but the target to narrow it further to 5.3% of GDP in 2016 was missed by a wide margin with the deficit widening to 9% of GDP. However, GDP growth at 3.6% was slightly higher than the forecast of 3.3%, and inflation after remaining intractably above 17%, fell a little to 15.4% in December and further to 13.3% in January 2017, closer to the central bank’s target range of 6%–10%.
The just approved disbursement is part of Ghana’s three year arrangement of about $920 million under the IMF Extended Credit Facility (ECF) program, a 180% of quota at the time of approval of the arrangement in 2015.
With the recent approval, the West African country’s government aims to restore debt sustainability and macroeconomic stability in the country, fostering a return to high growth and job creation, while protecting social spending.
In order to ensure the actualization of the new Ghanaian government’s goals of macroeconomic stability, fiscal discipline and ambitious agenda, financial support is paramount.
“Decisive implementation of these policies and reforms would allow Ghana to reap its economic potential and achieve higher and more inclusive growth rates. These efforts will be supported by the continued implementation of the ECF program” says Tao Zhang, deputy managing director and acting chair of the IMF executive board.
With decline in inflation and a stable exchange rate, external position has continued to improve, supported by strong foreign investors’ participation in the domestic debt market, IMF projects gradual decline in both the fiscal deficit and the current account deficit are projected to decline over medium term .
The Board has also approved Ghana’s request for waivers of non-observance of performance criteria, and modification of one performance criterion; and the extension of the arrangement by one year.