Since the government requested IMF financial support in early July 2022, the IMF team and the Ghanaian authorities have been discussing expeditiously about a set of policies and reforms that could be supported by an IMF arrangement?

Leandro Medina (LM): Last December, the Ghanaian authorities and IMF staff reached agreement on these policies and reforms and on the path towards approval of the programme by the IMF Executive Board.

For this to happen, the government had to launch its economic reforms with a number of key actions; and sufficient progress had to be made to ensure debt would be put on a sustainable path and enough external financing would be generated for the programme.

With Ghana’s Official Creditor Committee under the G20 Common Framework having been recently formed and having offered the necessary financing assurances, these requirements were met.

So last Wednesday, the programme request was presented to and approved by the IMF Executive Board.

A new $3 billion Extended Credit Facility (ECF) arrangement is now in place. And the first disbursement, equivalent of roughly $600 million, has hit Ghana’s coffers.

TY: What are the key characteristics of this particular IMF programme?

In terms of the objectives and the policies?

And how critical will the IMF programme be to Ghana’s economic recovery?

LM: The authorities’ economic programme, that is being supported by the ECF, has three key objectives: restoring macroeconomic stability, ensuring debt sustainability, and laying the foundations for higher and more inclusive growth.

If fully implemented, the programme promises to address the economic woes experienced by the Ghanaians and to secure a bright and more inclusive future for all of them.

To reach these objectives, a number of policy priorities have been laid out by the government:

First, large and frontloaded measures to bring public finances back on a sustainable path.

This will be done through mobilising more domestic revenue and improving the efficiency of public spending.

Coupled with the debt restructuring launched by the government in December, fiscal consolidation will help restore debt sustainability.

Importantly, the programme includes efforts to protect the vulnerable, with a focus on the key and most effective social programmes.

Second, to support the fiscal adjustment and enhance resilience to shocks, ambitious structural reforms will be implemented in the areas of tax policy, revenue administration, public financial management, as well as to address weaknesses in the energy and cocoa sectors.

Third, steps are being taken to bring inflation under control.

The Bank of Ghana has been raising interest rates and eliminating monetary financing of the budget.

This is already paying off, as inflation has declined over the past few months.

Additionally, a flexible exchange rate policy will help rebuild international reserves.

Fourth, the authorities will also be focusing on measures to preserve financial stability as well as reforms to encourage private investment, growth, and job creation.

I would like to also highlight the expected catalytic role of the programme, in mobilising external financing from development partners and providing a framework for the successful completion of the ongoing debt restructuring. 

TY: Since the focus of the programme will be on expenditure rationalisation, how will the programme impact on the social interventions?

Is the programme  pro-poor in nature?

LM: Ensuring adequate social protection is a key aspect of the IMF-supported programme.

It is very important, especially in the context of an economic crisis and of bold reforms, to make sure that the vulnerable, who are usually hit the hardest in difficult times, be protected.

Therefore, the programme’s goal is to make sure that effective social protection programmes are expanded.

The 2023 budget has already taken decisive steps in this respect.

Benefits under the existing targeted cash transfer programme, the Living Empowerment Against Poverty (LEAP) have been doubled.

Allocations towards the school feeding programme were also boosted.

And the programme set some quantitative objectives to ensure these objectives are achieved. 

TY: What are the key conditionalities of the current programme?

LM: When we talk about programme conditionality in an IMF programme, we mean the ways the policy and reform commitments made by the government will be monitored.

There are four main categories:

First, prior actions, which are the steps member countries agree to undertake before the IMF Executive Board approves a programme request or completes a review.

They ensure that a programme will have the necessary foundation for success.

In the case of Ghana, you could see in the recently published programme documents that prior actions covered several areas, including fiscal policy, monetary financing of the government, and energy prices.

Second, quantitative performance criteria, which are specific, measurable quantitative indicators that need to be met for programme reviews to be completed.

They usually track key macroeconomic indicators under the control of country authorities.

Such variables include, for example, net international reserves, primary fiscal balance, and external borrowing.

Third, indicative targets, which are flexible numerical trackers, usually a set of quantitative indicators to help monitor progress in meeting one or several programme objectives.

An example of this type of target in the case of Ghana is the “floor” on social spending I referred to earlier.

Finally, we have the structural benchmarks, which are measures that are critical for achieving programme goals and used as markers to assess programme performance in the area of structural reforms.

Key structural benchmarks under this programme that are to be met soon are related to the strategies to strengthen the financial sector and to bolster the energy sector.

TY:  You already talked about the main objectives and policies of the programme: How confident are you that these reforms will have an impact?

How is the Fund supporting with the structural transformation of the economy in the long term? 

LM: The economic policy and reform programme laid out by the Ghanaian authorities is very comprehensive and adequately ambitious to tackle the difficult economic and financial conditions faced by the Ghanaians.

In fact, the measures already implemented have already borne fruit—for example, the currency has stabilised and inflation has decreased from 54 per cent in December to 41 per cent recently.

Of course, more remains to be done, and success will be determined over time.

But we are also confident that the reforms included in the government’s programme will have a lasting impact.

This is because they are aimed at improving policy frameworks and institutions and, ultimately, at making Ghana more resilient to shocks.

For example, efforts are being made to strengthen expenditure controls, avoid the occurrence of arrears, strengthen tax administration to fight fraud and tax evasion.

The authorities will also be taking steps to bolster the fiscal rules guiding the budgets and strengthen the fiscal council.  

Extremely important are also the steps to be taken to strengthen governance and transparency.

For example, the authorities have requested IMF technical assistance to conduct a Governance Corruption Diagnostic Assessment, which will be used as input into the ongoing efforts to update the National Anticorruption Action Plan. 

Additionally, the authorities are developing a set of policies to support inclusive growth, economic diversification, private sector development and financial inclusion. For example, the Ghanaian authorities aim at improving the business environment and export competitiveness.

All of these are important aspects to make Ghanaians’ future brighter. 

TY:  Is the fund satisfied with the country’s progress or restructuring its debt?

There have been talks of a second round of domestic debt restructuring, is that an indication that the fund is not satisfied with what was done?

LM: In addition to the policies and reforms mentioned above, the authorities launched last year a comprehensive debt restructuring operation, which includes domestic and external debt.

The domestic debt exchange has largely and successfully been concluded.

And while the government is still seeking to complete the full restructuring exercise by tackling some remaining debt (e.g. US dollar denominated debt and cocobills), the debt exchange completed in February was a very important milestone.

On the external side, following assurances provided by official bilateral creditors, the government will now be seeking to reach agreement with its creditors on the exact terms of the restructuring.

The authorities are seeking to reach such understanding by the time of the first programme review, sometimes in the Fall.

As far as external commercial debt is concerned, the government has been engaging with its bondholders to seek their support.

With discussions reportedly cordial and constructive, we are hopeful good progress can be made in the next few months.   

TY. The country will be going to the polls next year.

Elections years typically are characterised by budget overruns and fiscal slips.

How does the Fund ensure fiscal discipline from the government?

LM: We are confident that the programme will be implemented as planned.

For one, this is what is needed to ensure macroeconomic stability is restored.

The Ghanaians are looking forward to a further reduction in inflation, more orderly public finances, and higher growth and job creation.

So the interests are aligned, and there are incentives for sound policies.

At the same time, the strong commitment and determination that the government has shown in recent months in taking bold actions to implement its programme bode well for success in the future.