Government open to borrow more from IMF – EIU

With government scheduled to open discussions with the International Monetary Fund (IMF) about a possible extension of the 3-year bailout programme, following several missed fiscal targets in 2016, the Economist Intelligence Unit (EIU) believes that government could take advantage to borrow more money from the Fund.

The current US$918 million Extended Credit Facility (ECF) programme is to end in April 2018, but owing to several missed targets last year, there have been suggestions that government must engaged the Washington-based lender over a possible extension of the scheduled end-date to allow it meet the bailout’s objectives.

According to Philip Walker, Regional Manager at the Economist Intelligence Unit (EIU), President 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.

Mr. Walker, in an emailed response to the B&FT, said 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 fulfill 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. 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,” Mr. Walker explained.

According to sources close to the Fund and local authorities, should the extension be agreed upon, it could stretch the current deal between 6-12 months to allow the government significantly realise key objectives as agreed upon at the commencement of the programme.

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.

“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,” Mr. Walker said.

As at December 2015, Ghana’s balance of payment, which is the record of all economic transactions between the residents of a country and the rest of the world in a particular period, had a deficit of US$129 million.

However, according to the Bank of Ghana, as at December 2016, the BoP reversed the negative trend and reached US$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 five percent.

But Mr. Walker believes that with the scheduled increment in oil production at the TEN fields and the coming on-stream of the Sankofa-Gye Nyame oil and gas project, Ghana's BoP situation will improve, and limit the need for lots of extra borrowing.