IMF bailout extension gives comfort to the market – RMB Research

South African based research firm, RMB Research, has lauded the government's decision to agree an extension of the IMF bailout programme with Ghana, noting that it brings comfort and continuous fiscal discipline to the market.

“The IMF’s prolonged stay gives comfort to the market of continued fiscal market discipline. Given the West African giant’s track record with expenditure overruns, life after the IMF programme would have introduced a higher sovereign risk premium,” the research firm noted.

The IMF approved an extension of its Extended Credit Facility (ECF) package for Ghana, initially worth $918 million, which will see the programme continue for an extra year beyond its original April 2018 end date.

The decision was made during a meeting of the Funds executive board that also approved a tranche of $94.2 million in balance of payment support following the fourth review of the programme.

“The IMF’s support and approval add vigour to the steady recovery of Ghana’s economy; real GDP is growing at its fastest pace in more than two years; the central bank is cutting policy rates as inflation slows, and bond yields are falling to record levels,” RMB added.

RMB called for a further narrowing in the deficit in 2017 and 2018, due to a strengthening of the economy and planned fiscal consolidation, but noted that the 3 percent deficit target for 2019 is too optimistic given the ruling party’s commitments to campaign promises.

“The rate of decline in the fiscal deficit will not be enough to significantly improve debt levels. We expect the level to remain above 70 percent of GDP over the medium term. Debt sustainability will entail continuous fiscal consolidation and vigourous economic growth.

“If passed, the planned legislation that sets to impose a statutory limit of not more than a 5 percent budget deficit will go a long way to limiting the risks of a fiscal blowout,” it added.