The Economist Intelligence Unit (EIU) believes that the government of Ghana, scheduled to soon open discussions with the International Monetary Fund (IMF,) could take advantage of a possible extension of the three-year bailout programme, following several missed fiscal targets in 2016.
According to Ghana Web, the current $918 million Extended Credit Facility programme is set to end in April 2018.
Media reported that the regional manager at the EIU, Philip Walker, said President Nana Akufo-Addo’s government has enough reasons to amend the programme in its current state and possibly request for funds to strengthen its balance of payment (BoP) position.
Last week, while delivering his first State of the Nation Address, Akufo-Addo also touched on how much the country’s energy sector is in debt.
The President said of December 2016, the energy sector had accumulated a $2.4 billion debt, adding that attempts by the previous government to resolve the power crisis has led to “a gargantuan debt”.
Meanwhile, Walker explained that the renegotiation of the Fund programme, apart from being occasioned by the missed targets of the previous government, has also become necessary given that the new government would require some fiscal space to fulfil its campaign promises.
“I think there are grounds for amending the current agreement, not least the change in government and revelation of significant overspending by the previous administration in 2016,” he said.
“The fiscal consolidation needed by Ghana to ensure economic stability will come up against the new government’s desire to implement some of its manifesto pledges. This will require compromise with the IMF in particular,” Walker explained.
Media reported that sources close to the Fund and local authorities said if Ghana is granted the extension, that could also enable the current deal to stretch between 6-12 months.
The extension opens the doors for government to seek additional credit to support its balance of payment, which is what the IMF credit is generally for, media reported.
IFM credit facility
Walker said: “IMF credit tends to be cheaper than that available elsewhere, so if the government does want to borrow more, then the Fund is a good source. However, there is a limit to how much can be borrowed and the IMF will expect commitments from the government in return.”
As of December 2015, it is reported that Ghana’s balance of payment had a deficit of $129 million. However, in December 2016 the balance of payment reached $247 million.
Should Ghana decide to borrow more to support its BoP, it would mean that the country gets to strengthen its position, which would in turn lead to a stronger local currency, which has so far depreciated by more than 5%, media stated.