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.

IMF tells Ghana to stop borrowing from its central bank: report
by Ifeoluwa Awowoye, exclusively for Mariblock

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.

- This story was updated at 10 am WAT, April 4 to include details about BoG’s zero financing deal with the Ghanaian government.

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.

The details

  • 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.

- In recent developments, the Bank of Ghana said it has finalized a Memorandum of Understanding (MoU) with the country's Ministry of Finance on zero financing to the budget.  

- This would ensure that the government of Ghana no longer borrows from its central bank to finance its budget, a major requirement for the implementation of the Staff Level Agreement Ghana has with the International Monetary Foundation.

- Instead, the bank will now look towards new revenue measures, structural fiscal reforms and bilateral donors to fund its budget.

- The BoG further added that all that is left for the advancement of the country's program to the IMF board is the passage of relevant bills by the parliament.

Before now

  • 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.

Zoom out

  • 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.

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