IMF Approves US$918 million ECF Arrangement Million for Ghana’s reform program

Ghana’s medium-term economic reform program has received a boost from the Executive Board of the International Monetary Fund (IMF) who today  approved a three-year arrangement under the Extended Credit Facility (ECF) for Ghana in an amount equivalent to SDR 664.20 million (180 percent of quota or about US$918 million).

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 Executive Board’s decision will enable an immediate disbursement of SDR 83.025 million (about US$114.8 million).

At the conclusion of the Executive Board’s discussion, Mr. Min Zhu, Deputy Managing Director and Acting Chair, stated: “After two decades of strong and broadly inclusive growth, large fiscal and external imbalances in recent years have led to a growth slowdown and are putting Ghana’s medium-term prospects at risk. Public debt has risen at an unsustainable pace and the external position has weakened considerably. The government has embarked on a fiscal consolidation path since 2013, but policy slippages, exogenous shocks, and rising interest costs have undermined these efforts. Acute electricity shortages are also constraining economic activity.

“The new ECF-supported program, anchored on Ghana’s Shared Growth and Development Agenda, aims at strengthening reforms to restore macroeconomic stability and sustain higher growth. The main objectives of the program are to achieve a sizeable and frontloaded fiscal adjustment while protecting priority spending, strengthen monetary policy by eliminating fiscal dominance, rebuild external buffers, and safeguard financial sector stability.

“Achieving key fiscal objectives will require strict containment of expenditure, in particular of the wage bill and subsidies. The government’s efforts to mobilize additional revenues will also help create more space for social spending and infrastructure investment, in particular in the energy sector. The government is rightly adjusting expenditures further to mitigate the shortfall in oil revenue and avoid a larger debt build-up. Moreover, a prudent borrowing strategy will be needed to ensure that financing needs are met at the lowest possible cost.

Ghana has experienced strong and broadly inclusive growth over the last two decades and its medium-term economic prospects are supported by rising hydrocarbon production. However, emergence of large fiscal and external imbalances, compounded by severe electricity shortages, has put Ghana’s prospects at risks. In recent years, a ballooning wage bill, poorly targeted subsidies and rising interest payments outpaced rising oil revenue and resulted in double digit fiscal deficits. These imbalances have led to high inflation, a decline in reserves, a significant depreciation of the Cedi and high interest rates, weighing on growth and job creation.