Market confidence is set to experience a significant uplift with expected forex inflows in the coming week from both the International Monetary Fund (IMF) and the World Bank.
On Tuesday, January 23, the World Bank greenlit a US$300 million Development Policy Operation for Ghana, marking the initial step in a three-part series. This initiative aims to address the country’s fiscal constraints while sustaining the momentum of its economic recovery.
In a release, the World Bank emphasized that the Government of Ghana remains steadfast in its commitment to restoring macroeconomic stability and implementing enduring reforms to guide the economy towards robust, long-term sustainable growth and transformation.
“The disbursement of this US$300million Development Policy Financing, the first in a series of three, will play a vital role in easing Ghana’s fiscal constraints, sustaining the momentum of economic recovery while protecting the poor and vulnerable,” said Ken Ofori-Atta, Minister of Finance
“Restoring fiscal and debt sustainability, bolstering growth prospects, curbing inflation, and protecting the most vulnerable – measures supported by this financing – are urgent priorities for Ghana. They are also essential steps to allow the country to attract more foreign investment, revitalise its domestic private sector, build resilience against climate change, and improve the quality of life of its people,” said Ousmane Diagana, World Bank Vice President for Western and Central Africa.
These initiatives, backed by the financing, play a pivotal role in attracting foreign investment, rejuvenating the domestic private sector, enhancing resilience against climate change, and elevating the overall quality of life for the people of Ghana.
The Resilient Recovery Development Policy Operation is the inaugural phase of a three-part series, each amounting to US$300 million. It forms part of the World Bank’s broader commitment to crisis response and resilience for Ghana, with a focus on reinstating fiscal sustainability, supporting financial sector stability, promoting private sector development, improving energy sector financial discipline, and bolstering social and climate resilience.
Specific reforms include strengthening domestic revenue mobilization, controlling expenditures, ensuring financial sector stability, promoting private investment, addressing energy sector challenges, fortifying the social protection system, and integrating climate adaptation and mitigation into policies.
In addition, the government recently completed the first review of its three-year, US$3 billion Extended Credit Facility (ECF) arrangement with the IMF. This successful review facilitated the disbursement of the second tranche of US$600 million under the program, bringing total disbursements to approximately US$1.2 billion. This approval followed a constructive US$5.4 billion debt negotiation with Ghana’s official creditor committee.
Furthermore, the World Bank is poised to disburse US$250 million in support of the Ghana Financial Stability Fund (GFSF), designed to address solvency issues in the financial sector.
These injections are expected to result in a substantial FX inflow of about US$1.15 billion, further fortifying the stability of the cedi in the foreseeable future.
However, despite some FX liquidity injection last week and the IMF’s first review, the cedi experienced a decline against major trading currencies, primarily due to a stronger US dollar. The USD index closed 100 basis points stronger following robust US economic data indicating a cautious approach by the Federal Reserve regarding policy rate cuts.
According to Databank, an asset management company, this led to the strengthening of the US dollar against a basket of African currencies, including the cedi. Consequently, the central bank’s US$11.6 million spot market support failed to cushion the cedi, resulting in a 1.60 percent weakening against the US dollar to a mid-rate of 12.53/$ on the retail market.
The local currency also experienced a 1.12 percent and 1.11 percent week-on-week decline against the GBP and the Euro on the retail market.
“Despite the prevalence of corporate demand, we expect FX market sentiment to improve as the deal’s inflow should help increase supply-side intervention and cushion the cedi in the near-term,” Databank said.