IMF review of Extended Credit Facility (ECF) with Ghana: The take home message

The review and the approval of $191million covering two belated releases should be good news.

However, the take home message from the review meeting is more important to the managers of the economy and citizens than the amount to be released.

The first take home message is that it is not clear if the program will indeed end on 31st December 2018 or not. The last sentence says “The Fund is looking forward to the successful completion of the ECF in the coming year............”. The coming year is certainly not 2018. Certainty about the completion date should be made public.

Another take home message is that Ghana is experiencing elevated or increased debt repayment burden with high debt stock and that debt to GDP ratio is marginally above 70.5%.

The IMF stated that “as the debt burden remains elevated, continued prudence in debt management is essential to reduce the risks associated with market-based borrowing.

It will be important as intended, to undertake liability management operations with part of the proceeds from the planned Eurobond to help mitigate foreign-exchange roll-over risk and smooth the debt maturity profile”

The Fund maintained its stand on zero borrowing from the Central Bank and asked government to sign and publish the memorandum of understanding on zero financing of the government by the Bank of Ghana.

The implication is that does believe that the memorandum is an alternative to a statutory provision.

The Fund further demanded that despite the possible publication of a memorandum on zero borrowing from the Bank of Ghana, there should be amendments to the Bank of Ghana Act to solidify the zero lending by BoG to government as a more robust way to eliminate the prospect of fiscal dominance.

This requirement is crucial because all the past financial and economic derailments have fiscal dominance as a key factor.

In my opinion, the take home message is very clear and crucial. Debt sustainability as one of the cardinal metrics of a successful Extended Credit Facility demands greater efforts.