BoG expects flexibility in IMF programme amid changing economic dynamics

The Governor of the Bank of Ghana, Dr. Ernest Addison, has expressed expectations for flexibility within the IMF programme to accommodate the evolving dynamics of the local economy.

Speaking at a joint press conference on the second review of the IMF-supported post-COVID-19 Programme for Economic Growth (PC-PEG), Dr. Addison explained that the programme includes a “monetary policy consultation clause” that defines targets for inflation outcomes. He noted that Ghana has been outperforming those inflation targets so far.

“If we were to strictly go by the rules under the monetary policy consultation clause, we need to sort of try to explain why we are doing better than the original path for inflation,” Dr. Addison said. “So, these are some of the issues where at least the fund has to exercise that flexibility.”

Dr. Addison said the IMF has agreed that Ghana should not interpret the lower part of the consultation clause as strictly as they would if the country was missing its targets.

“If we were doing badly in terms of the inflation outcome, then probably the issue of a consultation with the fund will become more imperative,” Dr. Addison added.

The central bank governor also discussed flexibility around the target for building up foreign exchange reserves. He noted that if Ghana is able to conclude its debt restructuring discussions earlier than anticipated, it may need to adjust the reserve accumulation targets for 2024 to accommodate higher debt service payments.

Despite the temporary uptick in inflation in March due to base effects from 2023, Dr. Addison reiterated that the Bank of Ghana’s end-of-year inflation target of 15 percent plus or minus 2 percent remains within reach. He said the month-to-month increases in inflation are still on a downward trend and the disinflation process is expected to resume in the second quarter of 2024.

The IMF’s mission chief to Ghana, Stéphane Roudet, echoed the central bank governor’s comments on flexibility within the programme.

“On flexibility on the programme, the big picture here is that reviews are meant to assess performance under the programme, but they’re also meant to discuss the current economic circumstances, adjust policies here and there to make sure that given the current economic circumstances, given the projection and the revised projection, the objectives of the programme are still within reach,” Mr. Roudet said.

The mission chief noted that the programme’s objectives, including the 15 percent inflation target, remain achievable despite the need to adjust some elements given the lower cocoa production and other changing economic circumstances.

“As long as the end-point and the overall programme objectives of restoring macroeconomic stability or achieving all of the targets, including the 15 percent inflation by the end of the year, that’s where we are at the current juncture; that’s why we have reached that level of agreement,” Mr. Roudet said.

The joint press conference follows the completion of the second review, which paves the way for the disbursement of an additional US$360million, which is dependent on the country reaching an agreement with its official bilateral creditors on an MoU consistent with the terms agreed in January 2024.

Dr. Addison noted that Ghana has shown “steadfast commitment” to the programme’s policy measures despite very difficult circumstances, and the country is beginning to reap substantial macroeconomic dividends.

“We have also continued to strengthen our foreign exchange reserve buffers and our current account balance has improved. Despite the delays in disbursement of some donor support, our foreign exchange reserves have remained steady and is reported at US$6.2 billion as of 5th April, 2024,” Dr. Addison said.

With this year’s election approaching, the government and central bank have vowed to remain committed to the IMF programme to ensure continued macroeconomic stability and an early return to the capital markets.