IMF tells Ghana to stop borrowing from its central bank: report
The West African country must do this to access the loan it requested from the International Monetary Fund.
Editor’s note: This story is part of Mariblock’s “State of Fiat” coverage. Digital assets such as bitcoin are seen as competitors to central bank money. We consider it worthwhile to inform our audience of the state of their local currencies.
The International Monetary Fund (IMF) has told the government of Ghana to stop borrowing funds from the Bank of Ghana. The West African country must do this to access the loan it requested from the International Monetary Fund, per a Bloomberg report.
- Last December, the IMF announced that it had reached a staff-level agreement on a three-year extended credit facility with Ghana for about $3 billion. This is subject to approval by the IMF board as well as necessary financial assurances from Ghana’s partners and creditors.
- A staff-level agreement is simply the preliminary financing agreement between the IMF team and a country. Such an agreement isn’t finalized until it secures an IMF board approval.
- It has now become known that one of the requirements unofficially stated by the IMF is that the government reduces its borrowing from the Bank of Ghana.
- As of November 2022, the Ghanaian state reportedly owed 575.7 billion cedis (approximately $47 billion). This constitutes 93.5% of its GDP.
- Of this figure, the government’s debt to the central bank is estimated at 40 billion cedis ($3.2 billion).
- The IMF wants a restructuring of Ghana’s existing debt — starting with the government of Ghana and the Bank of Ghana committing to zero-financing to secure final approval for the $3 billion IMF bailout.
- Ghana has been ravaged by a non-stop upsurge in its inflation rate, reaching a record 37.2% last September. It has only worsened, with the inflation rate now at 53.6%.
- In addition, the Ghana cedi was adjudged the world’s worst-performing currency against the dollar, recording a 57% drop in October.
- The cedi has also lost 47.35% of its value against the dollar over the past year.
- The Bank of Ghana also said in a statement on its website that in the first quarter of 2022, the country’s credit rating was downgraded, and it was shut out of the International Capitals Market.
- As a result, there was no inflow from external sources to support budget implementation, and the government had to resort to internal borrowing from the Bank of Ghana.
- All these highlight Ghana’s economic problems and point to why the government needs a bailout.
- In 2016, under a similar arrangement, the IMF directed the government of Ghana to strengthen the Bank of Ghana’s functional autonomy and prohibit the bank from lending to the government.
- Lawmakers, however, rejected this, opting for a 5% cap on the government’s borrowing rather than outrightly prohibiting it. The 5% cap relates to government revenue for the previous year.
- Experts believe the IMF will approve the bailout in April or May if the conditions are met. They are cautiously optimistic that it would help shore up the country’s reserves and boost investor confidence.