On Friday, May 31, the World Bank greenlit a $250 million International Development Association (IDA) credit for a five-year Ghana Financial Stability Project.
This initiative aims to bolster Ghana’s Financial Sector Strengthening Strategy (FSSS) by bolstering financial stability through the recapitalization of viable Banks and Specialized Deposit-taking Institutions (SDIs) affected by Ghana’s Domestic Debt Exchange Program (DDEP).
Given the pivotal role of the financial system in the Ghanaian economy, providing essential services to households, firms, and the government while fostering economic growth, addressing the significant repercussions of the DDEP on financial institutions was imperative. Consequently, the Government established the Ghana Financial Sector Stability Fund (GFSF) to extend solvency support to banks, pension funds, insurance companies, fund managers, and collective investment schemes.
“This project will contribute to Ghana’s financial stability, by providing solvency support to banks and SDIs impacted by the DDEP through the GFSF,” said Robert R. Taliercio, World Bank Country Director for Ghana, Liberia, and Sierra Leone.
“Through direct support to banks and SDI, the project will benefit Ghana’s financial sector and the economy by supporting the access of depositors and other financial consumers to savings, payments, and other core financial services provided by adequately capitalized banks and SDIs.“
The Ghana Financial Stability project is poised to offer immediate assistance to eligible undercapitalized but viable banks and SDIs, while also being available to other banks and SDIs in the future should they require support due to potential new losses. Additionally, it will serve as a safeguard against unforeseen losses.
“The World Bank Group’s support aims to help address short-term shocks to improve prospects for long-term sustainable development and long-term resilience against future shocks. The project promotes financial stability, a key requirement to protect people and preserve jobs,” said Carlos Leonardo Vicente, Senior Financial Specialist and Team Lead.
The project aligns with the World Bank’s broader efforts to support Ghana’s economic development and financial sector reform agenda. It complements existing initiatives such as the Development Programme Financing series and the IMF-Extended Credit Facility, which focus on enhancing the macroeconomic environment and promoting profitability and capital generation within financial institutions.
Furthermore, it synergizes with other World Bank-funded projects aimed at fostering economic recovery and job creation in Ghana, including the Ghana Development Financing Project.
This particular project facilitated the establishment of the Development Bank of Ghana and provides vital long-term financing to small and medium enterprises and small corporates.
Established in 1960, the International Development Association (IDA) plays a crucial role in assisting the world’s poorest countries.
Through grants and low to zero-interest credits, IDA funds projects and programs that stimulate economic growth, alleviate poverty, and enhance the well-being of vulnerable populations.
With a focus on the 74 poorest countries globally, including 39 in Africa, IDA resources have positively impacted the lives of over 1.3 billion people.
Since its inception, IDA has provided a total of $458 billion to 114 countries, with annual commitments averaging approximately $29 billion over the last three years (FY19-FY21), with a significant portion directed towards projects in Africa.