The Mahama-led National Democratic Congress government, through the manoeuvrings of Finance Minister Seth Terkper, has outwitted the International Monetary Fund, having its way on the critical issue of Bank of Ghana's financing of government.
That was after whipping Parliament to enable it to breach the key condition in the IMF's agreement with the country.
The bailout agreement reached with the IMF three years ago stipulated zero Central Bank financing of government.
This was against the background that the unbridled borrowing from the Bank of Ghana, especially in 2012 and 2013, constituted a crucial factor in Ghana's economic malaise.
The Mahama government agreed to the condition and pledged to introduce a Bank of Ghana Amendment Bill to make the policy of zero financing a law in 2016.
As a cushioning measure, the IMF agreed to allow 5% Central Bank financing of the government in 2015, as a prelude to zero financing which was due to take effect this year.
However, with elections approaching and a desire to still keep the Bank of Ghana as a major financier, the government has effectively pulled a smart one on the IMF, effectively breaking the deal it has with the world financing body.
Without stating openly that it was determined on flouting the agreement, government presented the Bank of Ghana Amendment Bill to Parliament, which included the required zero financing provisions.
But it quietly went behind the IMF to whip Members of Parliament, especially the majority side, to reject that particular provision and rather amend the provision to allow the Central Bank financing of the government's budget deficit up to a ceiling of 5 percent of the previous year's total revenue instead of the agreed zero financing.
During the discussions on the Bill at a committee meeting in Akosombo, Finance Minister Seth Terkper kept quiet throughout the period the IMF Resident Representative was present.
However, as soon as the Representative left the chamber, he rose to make a passionate plea to MPs to reject the zero ceiling in the very Bill he had presented to Parliament.
Below are the relevant sections/clauses of the Ghana–IMF Agreement which stipulated zero financing from 2016 onward.
"64. To prepare for the implementation of the zero financing from Bank of Ghana to the budget starting January 2016, the ministry of finance will enhance it cash planning and management capacity, possibly with IMF technical assistance."
"74.....This new MoU also formalises that from 2016 onwards, a zero financing of government from the BoG will be in effect in anticipation of the amendment of the BoG Act, consistent with a modern IT framework."
"31. The authorities' objective to bring inflation back into single digit territory will be supported by restoring the effectiveness of the Inflation-Targeting (IT) framework. To this end:
Central bank financing of the central government and state-owned enterprises will be progressively eliminated. A memorandum of understanding between the Ministry of Finance and BoG limits central bank's financing to 5 percent of previous year's revenue in 2015, while the adoption of a new Bank of Ghana Act will bring the financing to zero from 2016 onwards (MEFP 74/84)."
"Table 3. Ghana: Structural Reforms Benchmarks for 2015–16: Bank of Ghana Act - Submit to Parliament a revised Law that: strengthens the functional autonomy of BOG; sets a zero limit on monetary financing to the government and public institutions; establishes appointment durations for Governor and Board members; sets rules for emergency lending to banks in distress; and ensures compliance with IFRS (as described in MEFP 85)."
This big blow to the IMF bailout programme comes at a time Ghana is seeking a new $1 billion Eurobond on the international markets despite many cautions from analysts and economists on the dangers in the government's unquenched thirst to raise Ghana's already high debt levels and the high rate the bond could come at.
Meanwhile, financial analysts have cast serious doubts about Ghana's Eurobond prospects and the general outlook for the economy.
"As the West African nation markets its fifth sale of dollar securities in nine years, its bonds are faltering as investors fret about the government's commitment to fiscal targets in an election year. Ghana's $1 billion of bonds due 2023 have tumbled, pushing yields up by 75 basis points since July 22 to 10.4 percent on Tuesday, compared with a 48 basis-point drop to 6.8 percent in average yields of 17 sub-Saharan African nations," Bloomberg reports.
Bloomberg further quotes global finance analysts who all gave negative reviews of the current quest to borrow a billion dollars.
"The cost of floating the bond looks prohibitively expensive," Celeste Fauconnier, Nema Ramkhelawan-Bhana and Neville Mandimika, analysts at Johannesburg-based RMB, said in a note on Tuesday, according to Bloomberg.
"The risk of debt distress remains high. We do not believe the faith in the market is strong enough" to prevent an expensive transaction," the RMB analysts added.