Ghana is facing a severe debt crisis that threatens its economic stability and recovery. The West African nation has been struggling to repay its external creditors, especially China, which holds about a quarter of its $50 billion debt.
The International Monetary Fund (IMF) has agreed to provide a three-year, $3 billion Extended Credit Facility (ECF) program to help Ghana restore its macroeconomic stability and debt sustainability. The program, which was approved in May 2023, also aims to support the government’s Post-COVID-19 Program for Economic Growth (PC-PEG), which includes wide-ranging reforms to build resilience and foster inclusive growth.
However, the IMF has warned that it will not release the second tranche of $600 million until Ghana reaches a debt treatment agreement with its official creditors, in line with the financing assurances they provided in May 2023. The IMF said that securing timely debt restructuring agreements is essential for the successful implementation of the ECF program.
The IMF’s Director of Communications, Julie Kozack, said that the Ghanaian authorities’ strong policy and reform commitments under the ECF program are starting to bear fruit. She noted that there are signs of economic stabilization, as growth in 2023 has proven more resilient than initially expected, inflation has come down, and the fiscal and external positions have improved. She also said that exchange rate volatility has declined.
Kozack said that the IMF team reached a staff-level agreement on the first review under the program on October 6, 2023, and once this review is completed by the Board, Ghana would have access to $600 million in financing. “We certainly hope that an agreement can be reached soon so that we can rapidly bring the program to the Board,” she said.
Ghana’s Finance Minister, Ken Ofori-Atta, expressed optimism that Ghana will reach a deal with China by next week, which will pave the way for the IMF to approve the $600 million bailout package. He said that one of the key issues is the cut-off date and ensuring that treatment is comparable among the creditors.
Ghana is not the only African country facing a debt crisis amid the pandemic. Zambia, Ethiopia, and Chad have also requested debt relief from their creditors under the Common Framework for Debt Treatments, which was endorsed by the G20 in November 2022. The framework aims to facilitate timely and orderly debt restructuring for eligible low-income countries.
However, the process has been slow and contentious, as bilateral creditors such as China and private bondholders have been reluctant to take a bigger hit on their loans. Analysts have warned that the lack of coordination and transparency among the creditors could jeopardize the debt sustainability and recovery prospects of the distressed African nations.
Ghana, which is known for its rich natural resources and vibrant democracy, has been praised for its economic performance and poverty reduction in the past decade. However, the country has also been plagued by fiscal indiscipline, corruption, and mismanagement of its energy and cocoa sectors. The pandemic has exacerbated the country’s pre-existing vulnerabilities, resulting in a loss of international market access, increasing reliance on monetary financing, and declining investor confidence.
The IMF has urged Ghana to implement wide-ranging reforms to address its structural weaknesses and enhance its resilience to shocks. These include increasing domestic revenue mobilization, streamlining expenditure, strengthening social safety nets, improving fiscal transparency, and tackling the challenges in the energy and cocoa sectors.
The IMF has also emphasized the importance of preserving financial stability and encouraging private investment and growth. The IMF said that appropriately tight monetary and flexible exchange rate policies will help bring inflation back to single digits and rebuild international reserves. The program also has a strong focus on improving the business environment and governance.
Despite the daunting challenges, Ghana has shown its determination and commitment to overcome the debt crisis and achieve a sustainable and inclusive recovery. The country has also received support from its development partners, such as the World Bank, the African Development Bank, and the European Union, which have pledged to provide additional financing and technical assistance. With the help of the IMF and other stakeholders, Ghana hopes to restore its economic credibility and regain its status as one of Africa’s success stories.
Source: GhanaWeb
