A staff team from the International Monetary Fund is getting ready to visit Ghana this month for the final country review under the Extended Credit Facility programme which the two counterparties entered into in April 2015. The ECF programme was originally scheduled to run for three years, but lapses in implementation in 2016 led the IMF to insist on a one year extension which the then newly installed President Nana Akuffo-Addo administration reluctantly agreed to in 2017.
The February visit by an IMF team will likely combine the 7th and 8th programme reviews, ahead of the official expiration of the ECF programme on April 4. However, only economic and financial data up to December 31, 2018 will be used for the reviews, which means, for example that the cedi’s significant depreciation since the beginning of this year will not be considered. Ghana is also expected to receive about US$200 million, this being the last tranche of the US$918 million in total financial support agreed by the IMF under the programme. The financial support was originally to be given in its entirety to the Bank of Ghana as balance of payments support but since the beginning of last year, the IMF has agreed to a government request that part of it be used for budgetary spending support.
The IMF’s country representative to Ghana, Dr Albert Touna Mama has also confirmed that there have been no discussions on further direct collaboration between the Fund and government.
Indeed, the incumbent government did not want the one year extension of the ECF programme suggested by the IMF in 2017, after its predecessor had overseen a sharp rise in the fiscal deficit in 2016 to nearly twice the target for that year, and only acquiesced after the Fund had given it a thinly veiled warning that this would send negative signals to the international financial community on which Ghana is currently forced to rely heavily for financing its fiscal gap.
During its electoral campaign for the December 2016 general elections, the then opposition had promised to replace the demand management focus prescribed by the IMF with supply side expansionary economic policy. Since assuming office in January 2017 however, the new government had to stay its hand because of Ghana’s commitment to the ongoing IMF programme. Instructively though, its 2019 budget – its first without direct Fund influence – is cautiously expansionary with the first deliberately planned increase in the fiscal deficit since 2015, from 3.9 percent of (the rebased) Gross Domestic Product) in 2018 to 4.2 percent this year.
While both the IMF and the Government of Ghana have tried to give the impression publicly that they are on exactly the same page, the IMF itself seems to see the need to resort to its previous “carrot and stick” tactics. Its Ghana representative, Dr Albert Mama, last week asserted that “There will be a lot of investment coming if there is a sense that the financial discipline can be maintained without the IMF and that will bring lower financing costs. Staying the course of discipline will do wonders for the Ghanaian economy.”
To be sure government is acutely aware of the dangers of instigating negative reviews by the IMF even after the programme expires. Government has announced plans to do a US$3 billion bond issuance on the international capital market this year even as it tries to convince foreign investors in its cedi-denominated medium and long tenured domestic debt securities to keep their investments in Ghana despite falling local interest yields and rising interest rates in the United States and Europe.
Crucially, government agrees with the IMF that its ambitious public spending programmes need to be financed by significantly increased domestic tax revenues, rather than widening fiscal deficits.