Ghana Seen Facing Discipline Test as IMF Bailout Nears End

ACCRA (Capital Markets in Africa) – Ghana will reap the rewards of higher investor confidence and lower borrowing costs if it can stick to sound financial policies without the supervision of the International Monetary Fund, the lender said.

West Africa’s second-largest economy faces a test to maintain economic gains and fiscal discipline after its almost $1 billion bailout program with the IMF ends in April. Authorities are aware of the potential gains of staying the course, but also the risks of deviating, after 2018’s successful issuance of $2 billion in Eurobonds and S&P Global Ratings’ improved credit assessment, said IMF country representative, Albert Touna Mama.

“There will be a lot of investment coming if there’s a sense that the fiscal discipline can be maintained without the IMF, and that will bring lower funding cost,” he said Tuesday in an interview in the capital, Accra. “Staying the course of discipline will potentially do wonders to the Ghanaian economy.”

Ghana agreed to the IMF program in 2015 after a collapse of the currency caused inflation and the public debt load to soar. The program was extended when President Nana Akufo-Addo’s government took power in January 2017 because the economy missed key targets, with the fiscal shortfall at almost double the target the previous year.

Since then, the rate of output growth has doubled, making Ghana the second-fastest growing economy on the continent in 2017. Inflation that’s halved since 2016 and Ghana achieving a primary budget surplus are signs that the program was successful, according to Touna Mama.

“It’s fair to say the economy is in a better place than at the start of the program,” he said. “The program was useful to have an orderly adjustment. The program was also useful just as a signal to the market.”

The IMF said in March Ghana must improve revenue collection to achieve its fiscal targets. While there has been progress, the economy remains at high risk of debt distress unless the government can improve domestic revenue mobilization, Touna Mama said.

Revenue equal to about 2 percent to 3 percent of gross domestic product is lost to tax exemptions, he said.

“Domestic revenue mobilization will remain priority past the program, especially if you want to create that fiscal space to fund those programs and reduce the debt stock,” he said.

Key Points on IMF Program

• While the extended credit facility program expires on April 4, the remaining reviews won’t assess data past December 2018.
• The seventh and eighth reviews of the program targets are still outstanding and will likely be combined. An IMF mission will visit Ghana in February to complete discussions on these reviews.
• The IMF will disburse the last tranche of about $200 million dollars after the reviews.
• There has been no discussion of further IMF oversight.