The International Monetary Fund (IMF) has urged the Ghana government to enhance domestic revenue mobilization, tighten expenditure controls, and finalise comprehensive debt restructuring. These directives followed the approval of Ghana’s programme during a meeting of the IMF Executive Board on Friday, June 28.
The approval triggered the immediate release of the third tranche of $360 million, totaling disbursements to approximately $1.6 billion since May 2023.
In its statement, the IMF commended the government for its progress while cautioning against excessive spending due to the upcoming general elections. “The medium-term outlook remains favorable but subject to downside risks—including those related to the upcoming general elections,” the statement noted.
Despite clearing the second review hurdle, the government faces new tasks before the next review later this year. The IMF emphasised the importance of maintaining the momentum in domestic revenue mobilization, tightening expenditure controls, improving tax administration, managing arrears, strengthening fiscal rules and institutions, and enhancing state-owned enterprises (SOEs) management.
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With election pressures mounting and President Akufo Addo’s comments that all halted projects will resume, the government would have to navigate carefully to avoid slippages in its programme with the Fund.
Regarding monetary policy, The IMF acknowledged efforts made at bringing down inflation but added that “Going forward, maintaining an appropriately tight monetary stance, and enhancing exchange rate flexibility are of the essence, along with timely implementation of Fund’s advice on safeguards.”
This suggests the Bank of Ghana would most likely lean towards an increase or stay of the monetary policy rate rather than a reduction, unless there is a dramatic drop in the rate of inflation. Additionally, the Central Bank is not likely to overly control the cedi, as it is believed that its true value is higher than 16 to the dollar.
The Fund also lends its support to the ongoing banks’ recapitalization plans including state-owned banks such as the National Investment Bank. It noted that “Sustaining these efforts, together with a cost-effective resolution of legacy issues, are essential to ringfence financial sector stability going forward”, pointing to a strong perception that the decision to disburse 1.5 billion to customers of financial institutions affected by the banking sector cleanup, is IMF engineered.
The Bretton Woods institution also wants greater focus on reforms aimed at private sector development to foster inclusive growth and poverty reduction. It therefore wants government to ensure that the policy interventions underpinning the country’s National Development Policy Framework are “recalibrated to reflect the socio-economic impact of the shocks that occurred after the COVID-19 pandemic.” It also wants government to boosts targeted social protection programmes needed to cushion the vulnerable from the impact of the increased revenue mobilization efforts and expenditure cuts.
Government’s mid-year review budget to be presented in July will reflect these directives from the IMF.
