Ghana: Outlook contingent on reaching deal with IMF

Goldman Sachs anticipated that Ghana will need six to nine months from the start of negotiations with the International Monetary Fund (IMF) to reach a deal on a funded program, as it considered that authorities are not showing a sense of urgency to conclude an agreement with the IMF. It expected the government to rely on foreign currency reserves to meet its external financing needs in the near term given the lack of international market access, and on the Bank of Ghana (BoG) to meet domestic fiscal financing needs, in case domestic market participants are unwilling to finance the deficit. It also forecast foreign currency reserves to decrease to less than $6bn by the end of 2022, but anticipated that a $750m loan and $1.3bn in proceeds from cocoa bonds will slow down the decline in reserves in the second half of the year. It said that protracted negotiations with the IMF would imply a further decline in foreign currency reserves and the deterioration of the balance of payments, which would worsen debt metrics and increase external financing needs in the medium term.

In parallel, it noted that local market participants are expecting that authorities will reprofile the domestic debt, or restructure the domestic and external debt, given that the majority of debt servicing costs consists of interest on the domestic debt. It said that the authorities are reluctant to restructure the external debt since their principal goal is to regain international market access, which could be hindered or delayed by defaulting on their external sovereign obligations. But it considered that the current pricing of Eurobonds provides an opportunity for the government to restructure these obligations.

Further, it considered that Ghana’s macroeconomic outlook is highly dependent on the authorities’ momentum to reach an agreement with the IMF, which would contain pressures on foreign currency reserves and on the balance of payments, and restore credibility to fiscal policy. It cautioned that protracted negotiations would further weigh on foreign currency reserves and on the cedi, and exacerbate short-term financing risks.

Source: Goldman Sachs