Ghana’s Parliament rejects IMF’s zero BoG financing
Parliament yesterday [Tuesday]August 2nd, 2016 voted against one of the International Monetary Fund (IMF)’s key conditions under the Extended Credit Facility deal with Ghana.
The house voted against the IMF’s clause under the IMF deal requesting government of Ghana to undertake zero percent financing of its budget from the Bank of Ghana (BoG).
The condition was one of many under the deal aimed at pushing government’s borrowing and debts down.
Prior to the MPs rejection the central bank was providing ten percent financing for government’s budget.
Ghana’s total debt stock at the end of 2015 stood at US$26.4 billion (71.6% of GDP) compared with US$24.8 billion (70.2% of GDP) at the end of 2014. Domestic debt accounted for some 40 percent of total public debt in 2015 compared with 44 percent in 2014.
No re-negotiation due to rejection
Despite the rejection from the MPs, the Finance Ministry in an earlier statement said it was already committed to the zero financing deal.
In a statement to Citi Business News it assured that government is committed to attaining the provisions outlined in the International Monetary Fund programme.
The statement explained that government is implementing the objectives of the Fund programme which includes the adherence to the zero-financing of Government by the Bank of Ghana.
There are fears the latest move by parliament will lead to a hold of the cash and a renegotiation of the IMF deal.
However, Finance Minister Seth Terkper earlier in an interview with Citi Business News said government will not renegotiate the terms under the programme.
Mr. Terkper stated that, “even in the event that parliament comes out with the number above five, does it warrant a renegotiation of the IMF agreement?. I will say no”.
IMF on Parliament’s rejection
Prior to the passage of the bill the International Monetary Fund told Citi Business News it was closely observing the current parliamentary debate on the reduction of government budget support by the Bank of Ghana from 10 percent to zero.
Responding to a questionnaire from Citi Business News, the IMF, it reminded that “under the IMF-supported programme, the government committed to eliminate regular financing from the BoG”.
The statement further explained that “this is an important feature to support the credibility and effectiveness of the inflation-targeting framework for monetary policy”.
The statement warned that “fiscal dominance of monetary policy through central bank financing of government on a large scale has been a key contributor to elevated inflation in the recent past in Ghana.”
The statement acknowledged that there has been significant progress to achieve the objective as government has not received any new financing from Bank of Ghana since the beginning of 2016.
IMF programme with Ghana
On Friday, 3rd April, 2015, the Executive Board of the International Monetary Fund (IMF) approved a 3-year Extended Credit Facility (ECF) Programme for Ghana.
A total amount of SDR664.20 million (US$918 million) will be given to Ghana as balance of payments support over the 3-year period.
The total amount will be disbursed in eight equal tranches. The first disbursement was made immediately after the Executive Board approval of the programme.
Government is currently waiting the third tranche after an IMF team visited Ghana to undertake an assessment.