The government of Ghana has explained that it is seeking IMF support for three main reasons.
A statement from the Finance Ministry explained the reasons as follows:
1. Addressing Policy Challenges following the Covid-19 Pandemic and the Russian and Ukraine War
The government explained that the confluence of shocks from the Covid-19 pandemic and the Russian-Ukraine War have complicated the conduct of public policy globally, resulted in rising debt and erosion of buffers, worsening financing conditions, high inflation, and exchange rate and BOP pressures especially for Emerging Markets and Frontier Economies. As is the case in key EMs and FMs, it said Ghana is seeking IMF support to back its Enhanced Domestic Programme which will seek to restore stability, help to contain the rising debt, and address the emerging BOP needs.
2. Balance of payments support
The government said it wants concessional/cheaper financing to shore up international reserves, stabilize the cedi, continue smooth payments for imports (petroleum products, pharmaceuticals, medical equipment, among others) and restore conditions for strong economic growth (including support for government flagship programmes), while correcting underlying problems.
3. Catalytic effect.
It explained that the support is to provide catalytic effect of accessing additional financing from third parties (friendly sovereigns/commercial creditors), including resuming ICM market access sooner than later, facilitating credit rating upgrades.
The government also explained that it is going to the IMF now and not earlier because the primary conditions that necessitate an IMF-supported programme did not exist earlier.
“For a country to seek an IMF support, it would need to have a balance of payments challenge. A few months ago, the conditions that pertain today and the outlook is considerably different from six months ago,” the statement clarified.
It said the IMF in April 2022 revised its economic forecasts and is predicting that global economic recovery from coronavirus will run into “multiple challenges” this year, warning of lower growth and higher inflation.
These, according to the Finance Ministry, were not known at the beginning of the year and were not factored in their baseline projections.
“Given what we know now from the data and by assessing the impact of economic growth forecast downgrades in the world’s two largest economies, China and the US, and their policy responses to the challenges, spells doom for many developing and emerging markets. These developments have substantially changed our own assessment of the economic outlook necessitating the decision to engage the IMF for support. This will help us considerably to weather an impending economic storm,” the statement said.