IMF hints at bailout renegotiation as it engages new gov’t in weeks

The International Monetary Fund (IMF) has given indication it is open to renegotiating some success benchmarks of its ongoing 3-year External Credit Facility (ECF) programme with the government of Ghana, following government’s inability to keep to the 5.2percent fiscal deficit target.  

In an email response to questions posed by the B&FT, a spokesperson of the Fund in Washington said a team “will be ready to visit Accra in the coming weeks to discuss recent economic developments and hear from the authorities about their plans for engaging with the Fund going forward.”

Ghana, the response said, appears unlikely to achieve its fiscal objectives for 2016, given the outturn for the first three quarters of the year, calling for “stronger efforts.”

The Fund expects the overall fiscal deficit, on a cash basis, to be some 2 to 3 percentage points higher than the 5.2 percent of GDP that it projected in September, “owing to a weak revenue performance and higher than planned capital spending.”

Prior to the December 7 elections, the IMF had insisted the programme, which it described then as “broadly satisfactory,” would not be affected should there be a change of government.

But after the immediate past Finance Minister, Seth Terkper, in his last press interaction following the elections, confessed that government will miss the fiscal target, the Fund appears to have relaxed its earlier tough posture, saying “We will deepen our engagement after the new finance minister has taken office.”

Some analysts have said it would be virtually impossible for the new government to carry out the extensive tax cuts it promised whilst keeping to the bailout programme, especially as public debt remains a major problem.  

Although the Fund’s last review of the bailout programme, published in late September, commended the then government on its performance, it warned about the poor revenue performance, among other things, which it said could impact negatively on the 3-year deal.

As it turns out, the poor revenue performance, as well as the John Mahama-government’s “higher than planned capital spending” in the run up to the polls, culminated in leaving the Fund programme in a less favourable state for the new administration.

“Going forward, this means that stronger efforts will be required in order to achieve the fiscal consolidation targeted under Ghana’s Fund-supported Extended Credit Facility program,” the IMF said.

“Further discussions on this will be held with the authorities during an upcoming IMF staff visit to Ghana.”

The incoming Finance Minister, who remains pivotal to the ambitious economic programme of the government, is most likely to ask the Fund to relax its austere measures in order to allow the new government roll out key campaign promises.

The new government has promised varying tax cuts as a means of stimulating economic growth and to create jobs for the mass of unemployed youth.

The upcoming talks will, among other things, afford government the opportunity to put forward its approach in dealing with the out-of-hand public debt, which hovers around 70 percent of GDP or a whopping GH¢112billion.