IMF to tinker with conditionalities

The International Monetary Fund (IMF) is set to tinker with some of the conditions under the three-year Extended Credit Facility programme in order to allow government among other things to borrow more.

The request for changes to the conditions under which government is assessed on progress made in ensuring fiscal consolidation was put forward by government last month, amidst the declining prices of export commodities on the world market.

The IMF staff after the recent review of the programme implementation efforts have backed government’s request, and subsequently recommended the proposal to the Fund’s Executive Board for consideration.

At the core of government’s request, which is likely to be approved by the Fund’s board, is making room for government to secure more credit facilities from both the domestic and international market.

Information from the IMF indicates that government wants the debt-limit on non-concessional loans for the rest of this year raised from US$1billion to US$2.5billion to accommodate the imminent issuance of the biggest Eurobond ever raised, as well as loans for projects critical for national development goals — mainly in the areas of transportation, agricultural development and the electricity sector.

With concerns raised about Ghana’s increasing debt profile, with the Fund describing the country’s position as being at high-risk of debt distress, the IMF wants non-concessional borrowing to remain exceptional under the new debt limits policy.

According to the Finance Minister Seth Terkper, revising the debt limit upward will allow government to execute projects that are linked to the heart of the country’s development strategy, by addressing Ghana’s immediate production and supply bottlenecks that cannot be financed with available concessional resources.

The IMF has noted that increasing the total amount of the Eurobond by US$500million will allow for a lengthening of the average maturity of public debt and reduce interest bills on public debt under reasonable assumptions for future exchange rate depreciation and international capital market conditions.

According to the IMF, the total amount of new contracting of non-concessional loans for projects by end-2015 will amount to US$850million, including US$350million associated with the national oil company’s (GNPC) oil field development.

It added: “Further, the World Bank provided budget support of US$150million with a grant element close to but lower than 35 percent.

Five potentially concessional loans are currently under negotiation, and limits of US$100million will be set on concessional external borrowing as an indicative target in line with the new debt limit policy”.

In addition to the expanded band on the debt limit, the IMF board will further consider government’s request for an increase in the gross credit advanced to government by the Bank of Ghana for GH¢1.2billion this year, in view of the upward revision to the outstanding stock at end-2014, to include large overdrafts accumulated last year in the form of negative deposits which were found to have been mistakenly excluded from the end-2014 stock of gross credit to government.

The request for more budgetary funding from the central bank has been made in the face of the Fund’s expectation that the Bank of Ghana will eliminate entirely its financing of government deficit by December this year.

But the IMF staff in backing government’s request noted: “While gross credit at end-2015 will now be much lower than at end-2014 (as opposed to a programmed increase), this will allow restoring some government cash buffers which were largely used to repay part of the 2014 overdrafts.

Net credit to government is projected to be close to zero for the year as a whole, if it is able to raise financing on the domestic and international markets as planned”.

Additionally, the IMF’s staff have supported government’s request that net international reserves and net domestic assets at end-December will be revised upward and downward, respectively, to reflect the larger amount of Eurobond envisioned this year.

Subsequently, the definition of net international reserves will be revised to exclude Bank of Ghana deposits with the Ghana International Bank, London, in line with IMF guidelines on international reserves.

According to the IMF, with the volatility in the foreign exchange market and unending energy crisis, it is now expected that the indicative target for inflation will be revised upward to account for the higher inflation trend observed up to June 2015.

“The revisions are consistent with Bank of Ghana’s revised inflation forecasts for 2015,” the IMF staff noted in a report to the board.