IMF Approves $918 Million for Ghana to Stabilize its Economy

The International Monetary Fund approved a three-year, $918 million extended credit facility for Ghana to help it repay debt and stabilize the nation’s economy.

The IMF Executive Board has allowed immediate disbursement of $114.8 million, the fund said in a statement Friday.

“The program aims to restore debt sustainability and macroeconomic stability to foster a return to high growth and job creation, while protecting social spending,” the Washington-based IMF said in the statement.

Ghana turned to the IMF last year as its currency plunged and economic growth slowed because of a drop in commodity prices, including oil and gold. The government missed a budget deficit target, borrowing costs surged to a five-year high and credit-rating companies cut the nation’s creditworthiness.

Joel Toujas-Bernate, the IMF mission chief for Ghana, said top officials including Ghanaian President John Dramani Mahama are fully dedicated to meeting the goals set out in the plan, including in the run-up to the national elections next year.

“We received a very strong commitment from the authorities for implementing this program,” he said on a conference call with reporters. “Already a number of actions were implemented before the program was approved today and we will have as usual a number of reviews during the program period to monitor progress of the reform.”

Enhanced Transparency

Enhancing the transparency of public finance will be an important aspect of the program, specifically to give better access to data on budget preparation and execution.

“All the program documents will be published soon so it will be for everyone to see what are the objectives and conditions,” Toujas-Bernate said. Increased transparency will “allow all parts of Ghanaian society to see the progress” that the government is making in implementing the program.

The money will help increase foreign reserves to support the currency and curb the budget gap before a $1 billion Eurobond sale scheduled for June. The government is in talks with Bank of America Corp. to borrow as much as $1 billion to refinance domestic and international debt before the bond sale.

IMF’s first disbursement to the Bank of Ghana will be made in “a matter of days,” Toujas-Bernate told reporters. The next rounds will be conditioned on reviews conducted twice a year through 2017 to evaluate whether Ghana is meeting program objectives on the fiscal deficit, central bank reserves, and structural reforms regarding public finance management, tax administration, and monetary policy reforms, he said.

Deficit Target

Minister of Finance Seth Terkper raised the fiscal gap target to 7.5 percent of gross domestic product for 2015 because of the more than 50 percent decline in the price of oil. The previous estimate was 6.5 percent. Inflation soared to 17 percent last year, curbing consumer demand and limiting economic growth already hampered by chronic power outages.

The economy will probably expand 3.9 percent this year from 4.5 percent last year. That’s the slowest pace in 20 years. Ghana is the world’s second-largest producer of cocoa and Africa’s second-largest gold miner. Ivory Coast is the largest maker of the chocolate ingredient. South Africa is the continent’s biggest producer of bullion.

The cedi plunged to a record 3.88 last year against the dollar. The currency fell 0.2 percent to 3.835 per dollar Friday in Accra, the capital.

Source: Bloomberg.com

By: Jeff Kearns & Andres R Martinez

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