The government of Ghana and the International Monetary Fund (IMF) have reached an agreement regarding the initial review of a $3 billion loan program. In a statement released on Friday, the IMF said, “To ensure timely completion of the review, the country needs official creditors to quickly reach an agreement on a debt treatment in line with the financing assurances they provided in May 2023.” The IMF staff-level agreement is subject to approval by the IMF's Executive Board, which is expected to meet in early November.
This three-year extended credit facility is conditional upon domestic and external debt restructuring, as well as the implementation of spending reductions and other fiscal adjustments. In May, Ghana received the initial tranche of the loan amounting to $600 million, according to Reuters.
The loan program is intended to help Ghana restore macroeconomic stability and debt sustainability and to lay the foundation for stronger and more inclusive growth. The program includes a wide range of reforms, including measures to improve fiscal discipline, strengthen the financial sector, and promote private investment.
According to Business Insider Africa, the Ghanaian government had filed for bankruptcy last month. Indeed, the financial crisis has had far-reaching effects, with many contractors laying off workers, exacerbating the country’s unemployment problem.
The IMF has commended Ghana's progress in implementing the loan program so far. The Ghanaian authorities have met all of the quantitative performance criteria and structural benchmarks for the first review. Ghana is making significant progress in reducing its fiscal primary deficit on a commitment basis, with an expected decrease of 4% points of GDP in 2023. The government further noted that its spending has remained in line with the established program limits.
The successful conclusion of the initial review is a positive step for Ghana. It paves the way for a disbursement of $600 million from the IMF, which will help Ghana to finance its budget deficit and meet its external debt obligations. Ghana continues to negotiate with its creditors to restructure its external debt. This could involve reducing the amount of debt, extending the repayment period, or lowering the interest rate.
Ghana's tax revenue is relatively low compared to other countries. Increasing tax revenue would provide the government with more resources to repay debt. At the same time, too many taxes could disincentivize Ghanaian taxpayers to keep producing outputs if all they produce is massively taxed. President Nana Akufo shall consider implementing market-oriented policies to facilitate economic growth.
Through the implementation of supply-side policies, foreign investment can help to generate jobs, boost economic growth, and increase tax revenue to some extent. Ghana should create a favorable environment for foreign investment.