Minister of Finance, Ken Ofori-Atta, will today appear before parliament to answer questions from lawmakers on the Domestic Debt Exchange Programme (DDEP).
His appearance was announced last Friday, February 10 by deputy Majority Leader, Alexander Kwamena Afenyo-Markin, when he presented the Business Statement for this week to the House.
Speaker of Parliament, Alban Bagbin ordered the minister to appear before the House following calls by Minority MPs for Ofori-Atta to furnish the House with details of the programme.
The MPs, argued that it was unacceptable for parliament and the general public not to have been furnished with the full details of the DDEP, a situation they say continues to fuel anxiety about the exercise.
Government announces 85% subscription rate for DDEP
Ghana is currently hoping to secure an International Monetary Fund (IMF) bailout to help save the economy from collapse amid rising inflation, rapid depreciation of the cedi against the US dollar and credit downgrades by international rating agencies.
Government earlier this week announced the conclusion of subscription towards the Domestic Debt Exchange Programme (DDEP) which saw an 85% official subscription rate.
The DDEP is said to be a core condition that could help Ghana get an approval from the IMF board for a US$3 billion facility after a Staff-Level Agreement was reached last December.
The DDEP was dogged by controversies from demands by various groups demanding exemption from the programme.
The ministry is still grappling with pensioner bondholders who are demanding they are formally exempted even though the minister insists they have automatically been exempted and that their coupons will be honoured when due.
Ablakwa champions cause to summon Ofori-Atta
MP for North Tongu, Samuel Okudzeto Ablakwa, had earlier noted that the government is acting contrary to what the finance minister had promised in the 2023 budget, announcing the details of the debt exchange programme before its implementation.
The failure, he said, has led to some challenges in its implementation, including the recent picketing by affected pensioners and individual bondholders at the ministry.
“Ghanaians are genuinely concerned about their life savings and investments, and this House is yet to be briefed. We have not debated this programme and yet the Ministry of Finance is going ahead to implement this debt exchange programme which they say is a condition for the ongoing IMF engagements.
“The Minister of Finance must appear before us and we must debate and agree exactly what should be the nature of this Domestic Debt Exchange Programme, who should be exempted and the implications – what are the full ramifications on the Ghanaian economy and on the affected citizens who are currently living in anguish, in pain and great anxiety,” he said in a social media post.
Deputy Ranking Member of the Finance Committee of Parliament, Isaac Adongo, has criticized government for sacrificing $10billion bondholders’ money for $3billion IMF bailout.
This comment comes after the finance minister in a press statement announced that the government has secured more than the needed 80% participation in the (DDEP) as part of key steps to reach board-level approval with the International Monetary Fund (IMF) on a $3 billion facility to restore macroeconomic stability in the country.
Government targeted 80% participation in the program to help restructure 137.3 billion Ghana cedis in bonds on the domestic market to bring its total debt, which stands at about 575.5 billion Ghana cedis to sustainable levels which was a criterion the country must meet to secure a possible $3 billion bailout.
The government expressed gratitude to the people of Ghana for their support throughout these very difficult times and said it will consider inputs made by all stakeholders during the DDEP engagements to further streamline government’s expenditures.
The finance ministry maintained that the exercise was voluntary and thus the right of the individual to self-exempt was never in doubt.
Speaking in an interview on Morning Starr on Starr FM with Francis Abban the deputy ranking member said,” The government is saying, forgo your money so that we can achieve compliance with the internal arrangement of the IMF. So we can get a program that gives us $3 billion and yet the people’s money that you want to use to sacrifice is over $10billion. So, you want to destroy $10billion in order to go and collect $ 3 billion dollars over three years not even one year. These are people’s monies, these are not the government of Ghana money, these are pensioners’ money and these are monies they gave to you on the trust of the sovereign. Now the government says we want to take your money, we won’t give you the money because the economy is in trouble”.
He continued; “So the government says in the budget I have 52 billion of interest payment. 31billion of that is attributable to Ghanaians that I need to pay them in 2023. I am not going to pay you that money I will pay you zero. I have extended 21billion that I have to pay to external creditors. I write a letter to them suspending payment I’m not going to pay. The same external creditors, I owe then 22billion that I have to pay this year, I am not going to pay. So, in all, to achieve debt sustainability and be able to qualify for the IMF program, in 2023 alone, 74billion of debt service I am not paying. How can you do this and celebrate as success”.
Ghana hopes to reduce its debt to 55% of Gross Domestic Product by 2028 with the debt operation which involves both domestic and external creditors. The completion of the DDEP puts next engagements with external creditors on a possible debt restructuring.
International Ratings agency, Fitch, has downgraded Ghana’s local-currency credit score to ‘restrictive default’.
The latest verdict comes on the back of the conclusion of the Domestic Debt Exchange Programme with Fitch Ratings describing the exercise as a distressed one.
Fitch further cited the “material reduction in terms vis-à-vis the original contractual terms and the fact that the exchange is needed to avoid a traditional payment default” as part of its reasons for the recent downgrade.
The agency in its latest statement on Ghana also placed the country’s long-term foreign currency IDR at ‘C’, which is the lowest score before default.
This verdict is due to Ghana defaulting on its local bonds and Eurobond coupon payments in January this year while Fitch has also cut the foreign-currency grade to ‘RD’ on the back of the grace period expiring on February 17, 2023.
Meanwhile, the government of Ghana on February 13, disclosed that over 80 percent of local bondholders signed unto the Domestic Debt Exchange Programme (DDEP).
The programme forms part of the requirement ahead of Ghana securing a Board-Level Agreement from the International Monetary Fund (IMF) for an amount of $3 billion financial bailout.
The government has successfully swapped GH¢83 billion of its old cedi bonds for new ones under a domestic debt exchange programme (DDEP) that ended on February 10.
The amount is equivalent to about 85 per cent of the domestic debt stock, which totaled about GH¢118 billion – when pension fund holdings are excluded.
The government exempted the pension funds, whose holdings are about GH¢12.3 billion from the programme that extends repayment tenures and lowers the coupons.
It is a prerequisite to securing a US$3 billion support from the International Monetary Fund (IMF) to help stabilise the cedi, which lost more than 50 per cent of its value to the US dollar, in 2022 and arrest inflation that spiraled to 54.1 per cent last December.
One of the sources said some individual bondholders did not subscribe to the offer but said their holdings were insignificant.
Pensioner bondholders openly declined the offer, describing it as inimical to their investments interests, and their request for exemption was not heeded.
The successful conclusion of the DDEP paves the way for the government to open similar discussions with external creditors, with the view to bringing the debt stock to sustainable levels.
Bank of Ghana (BoG) Governor, Dr. Ernest Addison, has justified the bank’s decision to fund government spending in 2022 – stating that not doing so would have destabilised the economy.
As of November 2022, broad fiscal deficit exceeded the target of 6.7 percent of gross domestic product (GDP) – standing at 9.8 percent of GDP. With underperforming domestic revenue and no access to the international capital market, there was a risk of default. The central bank’s intervention, Dr. Addison explains, was therefore necessary to prevent an economic standstill.
In all, the central bank’s net claims to government amounted to GH¢44.5billion at the end of 2022.
“It is important to recognise that we could have gone into this crisis much earlier than we did; if the BoG hadn’t stepped in, investors in government bonds were not going to be paid the interest,” Dr. Addison said at the State Interest and Governance Authority (SIGA) annual stakeholder meeting at Kwahu Abetifi in the Eastern Region.
“We need to remember where we were coming from at the beginning of 2022 when we lost access to the capital market,” said Dr. Addison. “This is a government that had access to the capital market for at least US$3billion each year, but we started 2022 with a downgrading of the economy – and therefore the source of financing was not available.”
Governor Addison explained that the situation became unsustainable by mid-2022, leading to government’s decision to seek support from the International Monetary Fund (IMF).
He added that revenue measures were not successful, leading to financial distress: “In addition to that, the revenue measures were not working – with the revenue projections performing below targets. All those meant that government finances were in trouble, as expenditures needed to be funded but there was no money,” he narrated.
Overwhelmed, he said, government admitted the need for financing from the central bank while it explored other options. “We had been discussing this plan with the IMF over the last three to six months, and finally had a staff-level agreement in December.”
The plan, according to Dr. Addison, involves fiscal consolidation and debt restructuring.
“So when people speak as if we have been reckless, I disagree completely,” he said.
The Bank in an earlier statement issued last week revealed that the GH¢37.9billion overdraft was extended solely for the purpose of addressing auction shortfalls, paying matured bonds and financing critical imports. This was in addition to GH¢7.2billion which represented the bank’s purchase of Treasury bonds from banks to provide them with liquidity; and also GH¢8.9billion as on-lending facilities granted by the IMF for onward lending to government.
The BoG also highlighted the increase in government’s deposit liabilities at the Bank, which recorded an increase of GH¢9.5billion in the course of 2022.
“On a net basis, therefore, putting together all claims and netting-off all deposit liabilities, these transactions resulted in an increase in Bank of Ghana’s net claims to government by GH¢44.5billion,” the BoG said.
One of the IMF programme’s key objectives, according to Dr. Addison, is to ensure that the revenue and expenditure plan for 2023 does not require BoG financing – so as to make the central bank’s interest rate policy more effective.
The International Monetary Fund also cautioned Ghana that if its borrowing continued, it posed a serious threat of becoming a high-debt crisis country.
The use of borrowed money primarily for consumption rather than for capital projects or investments generated concerns among the international organizations.
Country Director of World Bank, Pierre Frank Laporte speaking to the media said, “Countries especially developing countries have to borrow because most of us do not have adequate resources, we have to borrow to develop but we have to borrow responsibly. At the moment, Ghana’s debt situation according to World Bank description is a country at moderate rate to high risk of debt distress; of course, yes, the country has to be careful”.
Read the full story originally published on February 7, 2020 by Classfm
This comes a day after the country successfully raised US$3 billion Eurobond which was five times oversubscribed.
The International Monetary Fund has also warned the nation that it is at a high risk of becoming a debt-distressed country.
According to the Fund, the Debt Sustainability Analysis is mainly driven by debt service to revenue exceeding the threshold throughout the forecast horizon, though all other indicators also exceed their threshold at some point over the horizon.
Concerns have also been raised regarding the borrowed funds being used mainly for consumption rather than capital projects or investments.
Speaking to the media after a courtesy call on the Speaker of Parliament, the Country Director of World Bank, Pierre Frank Laporte said though every country will have to borrow it must be cautious of the quantum of borrowing.
“Countries especially developing countries have to borrow because most of us do not have adequate resources, we have to borrow to develop but we have to borrow responsibly. At the moment, Ghana’s debt situation according to World Bank description is a country at moderate rate to high risk of debt distress; of course, yes the country has to be careful”, said Mr. Laporte.
He added that : “I’m confident the Finance Minister and his team are fully aware of that, we discussed all the time and borrowing as I said is not always a bad thing but you must borrow at the right terms, as best as most favorable as possible and the right amount and the right way.”
He however applauded the country for the economic progress made over the last couple of years, but added there are important challenges that the nation needs to address.
Ghana’s total public debt stock increased by GHS6.3 billion between September and November 2019 to reach GHS214.9 billion in November 2019.
Of the total debt stock, domestic debt was GHS101.4 billion, of which GHS11.2 billion (3.8 per cent of GDP) represented bonds issued to support the financial sector clean-up.
In 2019, interest payments on loans were expected to be GHS19.756 billion. Out of this, GHS4.60 billion was spent on the external debt while GHS15.156 billion was used to service loans contracted from the domestic market.
The government has created the voluntary Domestic Debt Exchange Programme (DDEP) to address its domestic debts in order to achieve this. Additionally, it has proposed other steps, such as having the nation join the Paris Club to address its international debts (to have the foreign debts delayed or forgiven).
With the DDEP, the government is seeking to restructure approximately GH¢137.3 billion of the domestic debts it accrued through bonds it issued, including the E.S.L.A. Plc and Daakye Trust Plc, and per the requirement of the IMF, 80 percent of the country’s total debts must be subject to this debt exchange programme.
However, the government has been struggling to get the needed stakeholders to sign up for the DDEP to meet the required standard and has extended the deadline for the programme several times.
This article looks at the different times the government has had to extend the deadline for participation in the DDEP and the new offers it made to bondholders.
This announcement was in line with the government’s debt sustainability analysis, as contained in the 2023 budget he presented to Parliament on November 24, and it gave entities up to December 30, 2022, to indicate their participation in the programme.
The minister laid out, among other things, the exchange of existing domestic bonds with four new ones, as well as their maturity dates and terms of coupon payments.
Under this initial offer, for bondholders with bonds maturing in 2023, the government promised four new bonds that were expected to mature in 2027, 2029, 2032, and 2037, and 0% interest in 2023, 5% interest in 2024, and 10% interest in 2025, which will continue till the maturity of your bond.
Initially, the government stated that the programme would affect securities dealers and funds, private banks and investment companies, insurance schemes, pension funds, and non-resident investors, but not individual bondholders.
First extension from December 30, 2022, to January 16, 2023
After fierce resistance from trade unions about the inclusion of pension funds in the DDEP and the lack of enough voluntary participation, the government announced the extension of the voluntary participation in the programme to January 16 with the following modifications:
• Offering accrued and unpaid interest on Eligible Bonds and a cash tender fee payment to holders of Eligible Bonds maturing in 2023;
• Increasing the New Bonds offered by adding eight new instruments to the composition of the New Bonds, for a total of 12 New Bonds, one maturing each year starting January 2027 and ending January 2038;
• Modifying the Exchange Consideration Ratios for each New Bond. The exchange consideration ratio applicable to Eligible Bonds maturing in 2023 will be different from other Eligible Bonds;
• Setting a non-binding target minimum level of overall participation of 80% of the aggregate principal amount outstanding of eligible bonds; and
• Expanding the types of investors that can participate in the exchange to now include individual investors
Second deadline extension from January 16, 2023 to January 31, 2023:
The government on Monday, January 16, extended the deadline for DDEP to Tuesday, January 31, 2023, after resistance by some of the stakeholders involved in the programme, particularly individual investors whom the government promised not to include in the programme.
A press release on the development, issued by the Public Relations Unit of the Finance Ministry, announced some modifications by the government on the invitation to the exchange, including;
Offering accrued and unpaid interest on Eligible Bonds and a cash tender fee payment to holders of Eligible Bonds maturing in 2023;
Increasing the New Bonds offered by adding eight new instruments to the composition of the New Bonds, for a total of 12 New Bonds, one maturing each year starting January 2027 and ending January 2038;
Modifying the exchange consideration ratios for each New Bond. The exchange consideration ratio applicable to Eligible Bonds maturing in 2023 will be different than for other Eligible Bonds;
Setting a non-binding target minimum level of overall participation of 80% of the aggregate principal amount outstanding of Eligible Bonds; and
Expanding the types of investors that can participate in the exchange to now include individual investors.
Extension of deadline from January 31, 2023 to February 14, 2023
The government had to once again extend the deadline for voluntary participation in the DDEP to February 14, 2023, from January 31, 2023, citing its latest offer to individual bondholders.
Even though this time around a lot of groups, including banks, have agreed to participate in the programme, the government still wants to include individual bondholders.
The latest offer includes the exchange of instruments with a maximum maturity of 5 years instead of 15 years and a 10% coupon rate to individual bondholders below the age of 59 to encourage them to participate in the DDEP.
Additionally, all retirees (including those retiring in 2023) will be offered instruments with a maximum maturity of 5 years instead of 15 years and a 15% coupon rate.
The current deal has, however, been rejected by individual bondholders. The individual bondholders, who are pensioners, picketed at the Ministry of Finance on Monday, February 6, 2023, to demand that the government exclude them from the DDEP.
President Akufo-Addo claims that even though the government’s debt swap program had a number of difficulties after being announced, the general public has generally accepted it.
When German Federal Minister of Finance Christian Lindner paid him a visit at the Jubilee House on Friday, he let him know about it.
“We have already taken one important step forward in concluding a staff-level agreement with the IMF. One of the steps was the domestic debt exchange programme which encountered a lot of difficulties, but it has now been virtually concluded…We are now looking towards going the full hog and concluding the agreement. We’re hoping that will be done by the middle of March,” President Akufo-Addo said.
He also called on Germany to encourage China, an ad hoc member of the Paris Club to support Ghana’s debt restructuring efforts.
This, he said, will enable Ghana to restore economic growth.
It would be recalled that the International Monetary Fund (IMF) on Tuesday, December 13, 2022, reached a staff-level agreement with Ghana on economic policies and reforms to be supported by a new three-year arrangement under the Extended Credit Facility (ECF) of about US$3 billion.
According to the IMF, the authorities’ strong reform programme is aimed at restoring the macroeconomic stability of Ghana’s economy.
An IMF team led by its Mission Chief for Ghana, Stéphane Roudet, said Ghanaian authorities have launched a comprehensive debt operation by way of restoring the country’s public debt sustainability.
Ghana has over the past five months run to the International Monetary Fund (IMF) for a financial bailout after the local economy took a nosedive and has been in an unsteady position since.
The local currency – Cedi – on the other hand, depreciated against major trading currencies which led to the suffering of businesses or a large extent, the collapse of some as they struggled to remain in business.
Government implemented some measures to ensure that the Cedi was strengthened to compete against major trading currencies, especially the US dollar.
To ensure debt sustainability in the shortest amount of time, the government has been recommended to utilize a three-pronged strategy of fiscal, structural, and debt restructuring.
This was stated in an exclusive interview with the Ghana News Agency regarding the ongoing DDE program by Professor Godfred Bokpin, Professor Peter Quarter, and Dr. John Kwakye, all distinguished Ghanaian economists.
Additionally, efforts should be intensified to change the structure of the economy from being highly-import-driven by streamlining various sectorial agriculture, manufacturing and trade policies and implementing them effectively, they said.
However, the Economists stated that DDE programme alone, requiring bondholders to trade about 80 per cent of a total of GHS137 billion in bonds for new ones, could not secure debt sustainability.
They, therefore, asked the Government, to immediately reduce the number of ministers and merge some ministries to save money in addition to intensifying efforts to change the structure of the economy with prudent and sustainable initiatives to spur manufacturing and industrial growth.
Prof Bokpin of the University of Ghana Business School said efforts by the government such as the audit of Ghana’s COVID-19 expenditure and reaching some level of agreement with bondholders signalled a sign of progress on the DDE.
However, he said: “When your debt is judged to be unsustainable, measures for sustainability must be a triangle approach, which involves fiscal adjustment, structural adjustment and debt restructuring.”
He said: “If the president decides that he is going to have to reduce the size of the government by 50 per cent and also reduce the number of ministers, and merge some Ministries, Agencies, and Departments, we could have saved more than GHS10 bn.”
Prof Quartey, Director, Institute of Statistical, Social and Economic Research (ISSER) said the government, in addition to the proposed reduction in spending as put in 2023, should “go ahead and reduce the size of government.”
The ISSER Director said: “If we minimise waste, and corruption and ensure value for money in our expenditure, add value to our raw materials and support the agriculture value chain and manufacturing, we’ll be able to export more and get more foreign exchange and enhance our revenue mobilisation.”
“The Government should keep its focus, continue dialoguing and build consensus with the key stakeholders and ensure that we’re able to sign onto this IMF programme and get it running by the first quarter of this year.” He advised.
He added: “Hopefully when we sign onto the programme, we should make judicious use of the resources so, we’re able to grow the economy out of where we find ourselves. Once we do that, we can restore confidence and get our economy running.”
Dr Kwakye, Director of the Institute of Economic Affairs (IEA), noted that while the government urged bondholders to make some sacrifices, it was also prudent for it to do same.
“We believe the DDEP cost should be spread across the economy to the widest extent possible, in the spirit of burden-sharing,” he said and encouraged the Government to also make some sacrifices.
“All the borrowings that the government accumulated, the Finance Minister earned GHS160 million directly or indirectly, as part of burden sharing, why doesn’t he say, I’m also refunding 50 per cent?” He quizzed.
The DDE forms part of efforts by the government to assure the International Monetary Fund (IMF) of debt sustainability through creditors’ confidence by signing up for the programme, which has so far seen four postponements in the deadline as the government continues to engage stakeholders.
Individual bondholders and pension schemes have been exempted from the programme, though the Government has made new provisions for individual bondholders to be part of the DDE.
The bonds, which will also pay the interest owed to the Bank of Ghana, would be issued by the finance ministry, according to sources with knowledge of the situation.
There are no specifics regarding a schedule for the securitization, but the government wants to finish restructuring its public debt this quarter in order to receive board approval from the International Monetary Fund (IMF) by the end of March.
The securitized central bank loan will be added to the list of domestic debt under restructuring, according to the sources. The new bonds would bring the central bank into Ghana’s ongoing debt restructuring process, under which the government is asking investors to swap out 137.3 billion cedis ($11.2 billion) worth of local government securities into new notes with less attractive terms. The voluntary exchange has a February 7 deadline.
The restructuring is a key condition for Ghana to qualify for a desperately needed $3 billion bailout from the IMF. However, the IMF has also urged Ghana to stop borrowing from the central bank in order to secure the bailout, as previously reported.
Besides restructuring its local bonds, Ghana is also in talks to restructure its bilateral and external debt.
A spokesperson for the central bank declined to comment, while a spokesperson for the finance ministry did not immediately respond to requests for comment.
According to Ghanaian regulations, Section 30 of the Bank of Ghana Act permits the central bank to lend to the government. However, if repayment is “unduly delayed,” the Bank may transfer the debt to the public through the sale of treasury bills. Securitizing the loans would head off the central bank issuing treasury bills to recoup its money.
Ghana has been shut out of international markets after suspending interest payments on $13 billion of Eurobonds.
The country is facing fiscal and economic challenges, and the securitization of central bank loans could help it avoid further difficulties as it seeks to secure a much-needed bailout from the IMF.
By the end of 2022, the Bank’s loans to the government had nearly reached GH 42 billion. This raised concerns about the public debt stock’s expansion and potential inflationary pressures. The Bank has come under fire for these loans.
As a result, it is anticipated that the IMF would stipulate that one of the requirements for its US$3 billion facility agreement is that a Memorandum of Understanding (MoU) be signed and implemented between the central bank and fiscal authorities, promising zero financing from the latter.
“If the policies are implemented as designed, there will be no need for the central bank to step in,” he said, while expressing optimism that total agreement with the Fund and first disbursement can be attained by end of quarter-one.
As of June 2022, the economy was in a difficult position with no access to international capital markets, low revenue and obligations to be met, leading to the central bank’s direct financing of government.
“The central bank stepped in to ensure that the economy continued to function; to service our debts for holders of government instruments to get their payments. This was the scenario in June 2022.
“Revenues were not there, but the payments needed to be made. The central bank had to support the system. There was really no choice and there was no plan B but the system needed to be kept stable. But once the decision was made to go to the IMF – plan B, it all changed. Plan A was not sustainable, as the Bank of Ghana alone could not hold the system together for much longer,” Dr. Addison explained.
The deficit financing, analysts say, was one of the major contributors to dwindling the nation’s stock of reserves as it became inflationary through the exchange rate channel [where more cedis flooded the financial system].
Data from the first Summary of Economic and Financial Data for the year published by the BoG showed that at the close of 2022, Gross International Reserves totalled US$6.2billion – equivalent to 2.7 months of import cover – down from US$9.7billion, equivalent to 4.4 months of import cover at the comparable period in 2021.
Similarly, the Net International Reserve dropped from US$6.1billion to US$2.4billion during the period under consideration.
Already, provisional data on budget execution for the period January to November 2022 indicate an overrun on the broad fiscal deficit, on a cash basis, from the intended target of 6.7 percent of Gross Domestic Product (GDP) to 9.8 percent of GDP.
The 2023 budget has a deficit target of 7.7 percent of GDP, equivalent to GH¢61.47billion and above the legally-mandated ceiling of 5 percent.
As the cash-strapped government struggles to gather money and finalize a bailout from the International Monetary Fund, the Ghana Revenue Authority (GRA) is requesting millions of dollars in past taxes from some of the largest corporations in the country (IMF). The largest wireless provider in Africa, MTN Group Ltd., as well as Tullow Oil Plc and Gold Fields Ltd., have all received notices that they owe past taxes.
The largest wireless provider in Africa, MTN Group Ltd., as well as Tullow Oil Plc and Gold Fields Ltd., have all received notices that they owe past taxes. The businesses all refute the assertions made by the government. The majority of Ghana’s income must now go toward paying off an estimated 576 billion cedis ($48 billion) in governmental debt.
“Ghana is clearly facing fiscal and economic challenges at the moment,” Gold Fields spokesman Sven Lunsche said in an emailed response to questions. “We are hopeful that the government will not resort to unreasonable fiscal measures that will further imperil the challenges facing the corporate sector.”
Gold Fields is in talks with the country’s tax authority to try and resolve the demand for 2018 to 2020. MTN, which has been ordered to pay $776 million, has until Friday to reach an agreement with the Ghanaian authorities.
Kosmos Energy, headquartered in Dallas, said the authorities claimed the company underpaid certain taxes and other contractual fiscal obligations. The claim is without merit and Kosmos will “vigorously dispute” it if required. Both Gold Fields and Kosmos declined to give financial details.
A spokeswoman for the Ghana Revenue Authority declined to comment when contacted by phone.
The Bank of Ghana’s latest survey is consistent with the Ghana Purchasing Managers Index conducted during the same period, which improved to 47.0 percent in December 2022 from 44.9 percent the previous month.
Per the January 2023 summary of economic and financial data, the latest business confidence survey – conducted in December 2022 – shows that the optimism of businesses turned positive and logged at 75.7 percent from a baseline level of 100 percent, following a 5th consecutive decline in business confidence surveys. Notwithstanding, the current survey remains lower compared to the same period of 2021 at 98.4 percent.
The central bank has observed that business sentiments turned positive due to the achievement of short-term targets and optimism about companies’ and industry prospects – during the last confidence survey in December 2022.
“Business sentiments also turned positive due to the achievement of short-term targets and optimism about company and industry prospects, following the local currency rebounding during the month. The survey findings were broadly aligned with observed trends in Ghana’s Purchasing Managers Index, which improved to 47.0 percent in December 2022 from 44.9 percent in the previous month,” the Bank of Ghana Governor, Dr. Ernest Addison, said at a press briefing following the 110th Monetary Policy Committee (MPC) meeting.
Meanwhile, the latest confidence survey conducted by the Bank in December 2022 pointed to some marginal improvement in sentiments. Consumer confidence improved on the back of recent reductions in ex-pump petroleum prices and transportation fares.
A final agreement with the IMF following the staff-level agreement (SLA) is contingent on the Domestic Debt Exchange Programme and external debt restructuring, which when concluded and the necessary financial commitment is obtained will allow the SLA’s presentation to the IMF Board.
Confidence would further be boosted by a final agreement with the IMF following the SLA, which is contingent on the Domestic Debt Exchange Programme and external debt restructuring.
The IMF final agreement, when reached, will help restore fiscal and debt sustainability and bring down inflation as well as help stabilise the currency.
Economic activity
According to the Bank, domestic growth conditions softened in 2022; and are projected to moderate and remain below potential over the near-term, based on the elevated inflation levels.
Inflation remained elevated in 2022, driven by both demand pressures and supply shocks. The two price readings since the last MPC meeting showed a significant jump in headline inflation, to 54.1 percent in December 2022 from 50.3 percent in November and 40.4 percent in October 2022.
The updated Composite Index of Economic Activity (CIEA) showed a continued dip in economic activity, despite the slight improvement in consumer and business sentiments from the latest surveys. In nominal terms credit to the private sector rose sharply, but was moderated in real terms by price pressures.
Further into the fourth quarter, the Bank’s high frequency indicators recorded a moderation in economic activity, as the real CIEA contracted by 6.2 percent in November 2022 compared with a growth of 10.2 percent in the same period of 2021. The major items that weighed down the index during the period were port activity, cement sales, imports and industrial consumption of electricity.
Similarly, economic activity – as tracked by Ghana Statistical Services (GSS) – for the first three quarters of 2022 was within projections, albeit at a moderated pace than a year earlier; expanding at an annual rate of 3.6 percent during the first three quarters of 2022 relative to 4.8 percent during the corresponding period in 2021.
Globally, the economic outlook remains uncertain owing to broad-based and elevated inflation, policy tightening, worsening financing conditions and lingering spill-over effects from geopolitical tensions. These headwinds are likely to persist through the first half of 2023, driving down confidence and weakening real household disposable incomes in advanced and emerging market economies.
For emerging and developing economies, growth momentum is projected to remain firm, supported by the relaxation of lockdown restrictions in China and still-high commodity prices. Though showing signs of cooling, inflation levels remain elevated; and central banks, especially in advanced economies, have signalled the need to maintain a tight monetary policy stance to contain inflationary pressures, albeit at a measured pace.
The accord is a condition Ghana is required to meet in order to secure final approval for a $3 billion IMF bailout, one of the people said.
An IMF spokesperson didn’t immediately respond to an email seeking comment. Spokespeople for the Ghanaian finance ministry and the central bank didn’t immediately respond to requests for comment.
The decision would bring a halt to central bank loans to the government that amount to about 40 billion cedis ($3.2 billion), according to one of the people.
An agreement would also bar state-owned enterprises such as the Ghana Cocoa Board, which owes about 7 billion cedis, from using more central bank financing, according to the person.
The cocoa regulator — the sole buyer of cocoa from farmers in the world’s second-biggest producer of the chocolate ingredient — uses the funding to support growers.
Auction Undersubscribed
An auction of cocoa bills worth 940 million cedis was “severely” undersubscribed last week, the central bank said after it declined to buy the instruments issued by the board.
The central bank used to step in when there were under-subscriptions, Steve Opata, who heads financial markets at the central bank, told Accra-based broadcaster Joy FM earlier this week.
“The bank decided to do things differently, so this shortfall was not financed by the central bank,” he said without giving further detail.
Ghana is overhauling an estimated 467 billion cedis of its loans. It’s been locked out of international capital markets since borrowing costs surged last year on investor concern about the state of Ghana’s public finances.
The country secured a staff-level agreement for a $3 billion IMF bailout last year, but final approval by the IMF board requires the fulfillment of so-called “prior actions,” which haven’t been made public.
It is also negotiating a restructuring plan for its local and external debt in a bid to show that it can make its loans more sustainable, another requirement to tap IMF funding.
Ghana is targeting a reduction in its debt to 55% of gross domestic product by 2028, compared with an IMF estimate of 105% in 2022.
The Domestic Debt Exchange Programme (DDEP) extension expectedly provided some holders with an opportunity to rebalance their portfolios, as well as allow investors time to decide whether or not to participate in the Programme.
Instructively, investors’ preferences shifted toward short and long-term papers – with February 2023 coupons of 16.50 percent being actively traded and settling at 46.97 percent, while August- 2039 with coupons of 20.20 percent cleared at 42.12 percent.
As the Debt Exchange Programme deadline draws near, market activity is expected to be muted this week as investor mull over participation in the market. This will be dependent on government’s updated memorandum for the DDEP. The upcoming deadline will also be a key factor to watch as the market continues to evolve.
Despite this, the market appears to be optimistic about the future as investors continue to show interest in long-term papers.
In order to help the country obtain US$3billion in economic aid from the International Monetary Fund, government aims to have 80 percent of investors participate in the DDEP.
Through the Paris Club – a group of creditor nations, the Treasury is corresponding with bilateral creditors as well; in an effort to secure a restructuring agreement before the end of February. Members of the Paris Club have agreed to set up a committee of creditors to talk about debt-relief options for Ghana.
S&P downgraded Ghana’s Eurobond for January 2026 from CC to D [selected default] – since government did not pay the coupon due on January 18 as a result of the nation’s decision to stop making interest payments on its external debt last month. Ghana failed to pay the required US$40.63million in interest on the January 2026 maturity.
Uncertainty strains risk appetite in primary market
The Treasury fell short of its auction target last week, with investors tendering only GH¢1.93billion across the 91 to 364-day bills – missing the target size of GH¢2.42billion. This resulted in a deficit of 20 percent.
The total bids accepted were insufficient to cover the GH¢2.22billion worth of bills that matured on Monday, January 23, 2023 – resulting in a deficit of 13 percent.
Uncertainty surrounding the Debt Exchange Programme appears to have strained risk-appetite on the market. Despite the Finance Minister’s reassurance that Treasury bills are excluded from the Programme, investors remain cautious.
Treasury yields were also erratic last week, with the 91-day bill surging by 17 basis points (bps) to 35.63 percent. In contrast, the 182 and 364-day bills fell by 2bps and 36bps to settle at 35.81 percent and 35.56 percent respectively.
The Treasury plans to raise a total amount of GH¢1.28billion across the 91- to 364-day bills next week, in order to refinance a sum of GH¢1.07billion in short-term papers due next week. The auction is scheduled for Friday, January 27, 2023.
The market anticipates that the Treasury will meet its target in the upcoming auction, given the smaller target size. However, a further downside in money market yields is expected.
The market continues to be uncertain and investors are keeping a close eye on developments, particularly regarding the controversial Debt Exchange Programme. Government’s efforts to reduce the country’s debt burden are commendable, but investors must also be mindful of the potential risks and uncertainties that come with it.
The next few weeks will be crucial in determining the primary market’s direction during the coming months.
There is a growing sense of cautious optimism about the future of the world economy at the World Economic Forum’s Annual Meeting in Davos and elsewhere. According to economists at Davos, inflation appears to be leveling down, and moderate growth is anticipated rather than a full-blown recession.
Speaking during the Forum’s Annual Meeting’s final session, Global Economic Outlook: Is this the End of an Era?, In response to these forecasts, IMF Managing Director Kristalina Georgieva has pleaded for realism and asked monetary authorities to “stay put.”
“What has improved is the prospect for China to boost growth.
“We project 2.7 per cent for the world. This may be corrected somewhat in a couple of days… What is positive is that we have seen demonstrably the strength of labour markets translating into consumers spending and keeping the economy up.”
However, she went on to reiterate her plea for caution, making clear that the global economic outlook remains poor.
“Why we should be cautious? Well, first, 2.7 per cent growth, if this is the growth we achieve, by far is not fabulous. This is the third lowest growth rate in the last decades after the global financial crisis and COVID. It’s not great.”
She also warned that a resurgent Chinese economy — dormant for three years during the pandemic — could inflame inflation just as the rest of the world appeared to be getting to grips with it.
“What if the good news of China growing faster translates into oil and gas prices jumping up, putting pressure on inflation?”
“Stay in the middle of realism,” said Georgieva, “that seems to serve the world well.”
And while economies showed signs of recovery, the IMF boss warned that the Ukraine war continued to represent a “tremendous risk” for confidence everywhere, but particularly in Europe. She also emphasized the risk that unemployment could return, adding: “It is very different for a consumer to have cost of living crisis and a job than to have cost of living crisis and no job.”
The danger of fragmentation
She also issued a stark warning on the potential for global fragmentation of trade to slow or even reverse the fragile global economic recovery.
On supply chains, she said, “if we diversify rationally, the cost of this adjustment would be low. We put it down to 0.2 per cent of GDP. If we are like an elephant in a china shop and we trash trade that has been an engine for growth for so many decades, the costs can go up to 7 per cent loss of GDP: $7 trillion.”
She urged authorities to: “Be pragmatic, collaborate, do the right thing. Keep the global economy integrated for the benefit of all of us.” — IMF
A sick 77-year-old retiree, Peter Kojo Nyasepe, has vowed to stay at his bank’s premises until he receives his interest on his bonds at the end of the month.
Peter, who is a bondholder says he buys medications to survive from the returns on his bonds and therefore the returns cannot be withheld.
Speaking in an exclusive interview with JoyNews’ Joojo Cobbinah, the aggrieved septuagenarian said he opted for government bonds due to his painful ordeal with a ponzi scheme in the past.
But according to him, he is now living in anxiety due to the government’s Domestic Debt Exchange programme which will deny him the returns for this year.
“I gave the money to the Ghana Commercial Bank so they’ll give me the money before I come. I’m going to stay there.
“If they say the money is not there, I’m going to stay there. I’m going to stay there until they carry me wherever they want to carry me because I cannot walk myself so they’ll carry me.
“Wherever they want to carry me they have to carry me and go. That’s the only thing I can do. I cannot fight them also”, the distraught retiree said.
Mr Nyasepe’s sentiments come on the back of government’s proposed debt exchange programme.
In a bid to rescue the economy and secure a deal with the International Monetary Fund (IMF), government has proposed that all bondholders will not receive any interest on their bonds for the 2023 financial year.
The payment of dividends, according to government is likely to begin next year, 2024 at a discounted rate of 5%.
In relation to this, bondholders who may want to transfer their bonds will not be able to get the full principal they initially invested as bonds.
This proposal, since its announcement, has been rejected by many bondholders who have expressed frustration about the development.
In their view, if the proposal is implemented, they will suffer a great deal of loss, with many of them stating that their investments may even become unprofitable.
Private legal practitioner, Martin Kpebu, who is an avowed critic of the policy has described the programme as a ‘weapon of mass destruction’.
Speaking on Joy FM’s midday bulletin on Wednesday, the maverick lawyer reiterated his resistance.
According to him, he and other concerned citizens will continue to mount pressure on government to suspend the programme which they say will worsen the lives of individual bondholders.
“We’re still standing by the ‘no-no-no-no’. So we’re asking government to respectfully exempt individual bondholders from this exchange.
“As I’ve stated over and over, the programme, that’s the domestic debt exchange programme is proven to a weapon of mass destruction”, he stated.
Mr Kpebu continued, “It [debt exchange programme] is going to kill more citizens, it’s going to destroy more businesses. It’s going to destroy more schools and livelihoods and so on and so forth”.
Following the public agitations, government is currently in talks with individual bondholders to reach an amicable agreement.
The government, however, insists that despite the agitations, it will not back on the programme since its a vital steps in helping salvage the ailing economy.
According to the Finance Minister, Ken Ofori-Atta, his outfit may modify some of the terms instead of an outright suspension which has been advocated by a section of the general public as well as the Minority in Parliament.
Addressing a press conference on Monday, the Minority Leader, Haruna Iddrisu, said the programme as currently structured will worsen the plight of Ghanaians, hence the need for the President to put it on hold and consult some more.
“We in the NDC, the Minority group call on President Nana Addo Dankwa Akufo-Addo to immediately suspend the ongoing debt exchange programme. It is already failing”, he stressed.
The Christian Council of Ghana (CCG) has asked the government to suspend its Domestic Debt Exchange programme (DDE) and pursue wider engagement with stakeholders.
The CCG in a January 19, 2023 statement signed by Rt. Rev. Prof. J.O.Y Mante said it had arrived at that position after keenly following public debates and talking to some affected parties.
Their call for engagement, the statement noted, was because they had “identified lapses in the debt restructuring programme, a major one being lack of consultation with affected individuals and institutions.”
The statement continued: “With the current economic hardships in the country and the agitations among the general public, it is in the nation’s interest for the Finance Ministry to suspend the 31st January deadline given to individuals to sign on to the program and rather propose a road map for dialogue to make the process participatory such that the outcome would be acceptable to all.”
The government has failed to secure a debt restructuring deal with domestic lenders, postponing a deadline for the DDE thrice, the latest deadline being January 31, 2023.
The DDE is seen as a crucial requirement to secure a programme with the International Monetary Fund (IMF) following a torrid 2022 in which the economy suffered from rising inflation, massive depreciation of the Ghana cedi and the rising cost of living.
The government has repeatedly blamed the crisis partly on the aftershocks of the COVID pandemic and the ongoing Russia-Ukraine war but has promised to turn around the economic fortunes of the country after sealing a Staff-Level Agreement with the IMF late last year, with hopes that funds from the US$3 billion facility will be released early this year.
The government is hamstrung by hurdles as it attempts to secure a debt restructuring programme at home. Processes are underway to restructure external debts too, Finance Minister Ken Ofori-Atta disclosed to Accra-based Joy FM on January 18.
Organized labour successfully fought off plans to include pensions in the DDE; now individual bondholders are also rejecting plans to include them with talks ongoing on a mutually acceptable way forward.
The Minority NDC Caucus in Parliament is set to hold nationwide roadshows to promote a better understanding of the Debt Exchange Programme.
The Programme is a government initiative seeking to classify domestic bonds into four categories to create fiscal space as part of preparations to qualify Ghana for an International Monetary Fund facility.
Among other things, the roadshows would rally Ghanaians to demand a more favorable resolution to the alleged unprecedented economic crisis Vice President Mahamudu Bawumia-led Economic Management team has plunged the country into.
Addressing a press conference in Parliament, in Accra on Monday, Mr Haruna Iddrisu, the National Democratic Congress (NDC) Minority Leader, said: “The inclusion of individual bondholders in the Domestic Debt Exchange is the biggest transfer of funds from the pockets of Ghanaians to the government.”
“ This will leave affected persons, mainly the middle class, improvised while worsening the plight of the poor. This must immediately be stopped.”
“We wish to take this opportunity to indicate our intention to embark on nationwide roadshows to foster a deeper understanding of this matter and rally Ghanaians to demand a more favorable resolution of the economic crisis….”
Mr Iddrisu, the Member of Parliament for Tamale South, called on President Akufo-Addo to suspend the ongoing Domestic Debt Exchange Programme.
He, therefore, urged the President to engage in more comprehensive consultations on the matter with all stakeholders and the Ghanaian people.
Meanwhile, the Government on Monday announced an extension of the Debt Exchange Programme to Tuesday, January 31, 2023.
The Managing Director of the International Monetary Fund, Kristalina Georgieva, will visit Rwanda later this month after traveling to Zambia, Reuters has revealed.
Madam Georgieva on Thursday said she would visit Zambia the week after next, but her visit to Rwanda has not been previously reported. She will travel to Africa after speaking at the World Economic Forum in Davos, Switzerland next week.
Rwanda was the first African country to receive IMF funding under its new Resilience and Sustainability Trust.
The IMF in October reached a staff-level agreement with Rwanda on a 36-month financing package valued at $310 million.
At the time, the IMF said the funding would help the country move forward with its economic reforms and build resilience against climate change.
Oxfam, the bloc of global organizations fighting against poverty has ranked Ghana’s engagement with the International Monetary Fund (IMF) in 2015 as one of the most open processes globally.
In a report authored by Oxfam, the openness was grounded in how the then-government approached the fund leveraging on consultations with Civil Society Organizations (CSOs).
IMANI Africa’s Bright Simons shared an extract from the report on Twitter with the caption: “Oxfam says Ghana’s IMF engagement in 2015 was one of the most open in the world, with strong engagement by CSOs pushing a public interest agenda.”
He added that as an actor in the CSO sector, he agreed with Oxfam: “I also find that the current IMF process is the opposite: with zero govt interest in openness & engagement.”
Mahama government goes to IMF
In 2015, Ghana’s economy was in trouble, hobbled by widening current account and budget deficits, rampant inflation, and a depreciating currency. Credit dried up as interest rates rose and banks’ bad loans piled up.
At the root of Ghana’s woes was out-of-control government spending, largely to pay salaries of an overgrown civil service.
The program
In early 2015, Ghana turned to the IMF for a $918 million loan to help stabilize the economy. IMF advisors, working with the Ghanaian government, developed a three-part program:
Extract from IMF report: Box 2: Ghana
Of all the case studies, Ghana represented the most successful example of meaningful engagement between CSOs and the IMF. This success was due to several factors which collectively amplified the power of Ghanaian civil society with respect to the IMF.
These included: the formation of a joint coalition of over 11 CSOs in 2014, known as the Civil Society Platform on the IMF Programme – now the Economic Governance Platform (EGP); structured preparation and capacity building among the coalition prior to and during IMF engagement; the support of Global North actors such as Oxfam in accessing IMF decision makers and political stakeholders at headquarters level; detailed research and published analysis of the issues up for discussion;*# and public-facing awareness and advocacy campaigns which included experts and stakeholders from different sectors.
These combined factors meant the coalition’s goals and concerns could not be ignored.
The Civil Society Platform on the IMF Programme [the Platform’) was principally responsible for ensuring the success of civil society negotiations with the IMF.
He further accused politicians of hoarding dollars, leading to the depreciation of the cedi.
Speaking at the maiden edition of the McDan Business Forum, Kofi Amoabeng said “Ghana exchange rate regime is a pathetic one. The so-called politicians are the ones hoarding the dollars, but it’s seen out there as if they are not the cause of all this. Corruption is part of our problem and we need to work on it”.
“One thing that causes big demand for dollars is corruption. All the money they are making and stealing are not in cedis but in dollars…They must change dollars. So they hide it under their beds and when they get the opportunity they put it outside”, myjoyonline quoted him to have said.
It would be recalled that on October 20, 2022, Bloomberg reported that the cedi had diminished in value by 9.6%.
The news portal said it makes the total loss of the cedi in 2022 almost 52%, the highest recorded in 22 years.
The free fall of the cedi now places the currency at the 148th position of worst-performing currencies in the world.
“The currency depreciated as much as 9.6% on Thursday, heading for its biggest decline in 22 years. That took losses in 2022 to nearly 52%, the worst performance among 148 currencies tracked by Bloomberg,” the news portal reported.
During the same period, a committee was formed to hold talks with domestic bond investors on debt management strategy and how to negotiate the deal with the International Monetary Fund (IMF).
He added that the IMF initiative would reaffirm investor faith in the economy.
“I have no doubt that the projected International Monetary Fund (IMF) Support Package will restore confidence in our economy and bring it back to the pre-COVID levels,” Alan Kyerematen remarked in a speech on January 10, 2023.
Ghana is targeting $3 billion over a three-year period from the IMF once an agreement on a programme is finalized.
On December 13, 2022, the International Monetary Fund announced that it has reached a staff-level agreement with Ghana on economic policies and reforms to be supported by a new three-year arrangement under the Extended Credit Facility (ECF) of about US$3 billion.
A former trade and industry minister, Alan Kyerematen, has formally declared his intention to run as the New Patriotic Party’s (NPP) flag bearer.
In an official address to the nation, he said even though he believes Ghana’s economy will be restored following the International Monetary Fund (IMF) Support Package, going back to IMF will be a thing of the past as the country if he is given the nod considering the country has gone for aid for the seventeenth time over the last 57 years.
According to Alan Kyerematen, to ensure economic stability for the country, a new plan ought to be put in place, one he intends to introduce.
Describing this plan as the Great Transformational Plan (GTP) of Ghana, he said it will span the period of 2025 to 2030.
He outlined some of these plans as follows:
A Strong Macroeconomic Environment:
The success of the GTP will depend primarily on strong macroeconomic fundamentals, which will include among other things, a stable currency, low inflation, sustainable debt levels, revenue optimization and tight expenditure control to guarantee fiscal balance, low competitive interest rates, strong external reserves backed by high levels of liquidity to support the financial sector.
To a large extent, the IMF support programme when fully executed, will create the appropriate conditions that will underpin the Great Transformational Plan.
New Agricultural Revolution (NAR) for Ghana:
The NAR will be based on five critical elements.
i. Introducing Technology and Innovation into Agriculture, through Research & Development (R&D) in Agronomy, Mechanization, Irrigation, and Plantation Management. This will build on the foundation laid by the Planting for Food and Jobs and Planting for Export and Rural Development (PERD) Programmes. Our farmers cannot be competitive without technology and innovation.
ii. The establishment of Licensed Food Distribution and Marketing companies by the Private Sector throughout the country at the district level, to be supported by the Government. These companies will constitute a vital link between farmers and Market Queens in the urban and peri-urban areas. It will be complemented by the introduction of a digitalized food distribution and marketing online platform which will connect producers to buyers and consumers.
iii. The strengthening of the Ghana Commodity Exchange as the marketplace for all actors in the Agricultural value chain.
iv. Deepening the current regime for lending and financing for the agricultural sector.
v. Enhancing the de-regulation of the Cocoa sector by deepening private sector participation in the buying and marketing (including export) of Cocoa.
vi. Mass Citizens participation in Agriculture by introducing an ‘Operation Own a Farm’ programme for the Ghanaian citizenry in general.
Industrial Transformation:
This will build on the successes of Government’s Ten Point Industrial Transformation Programme including the One District One Factory (1D1F) initiative; the establishment of Strategic Anchor Industries to diversify the economy beyond Cocoa and Gold e.g the Automobile assembly, Garment and Textiles, Pharmaceuticals and the Petrochemical industry; enhancing the growth and development of Small and Medium Enterprises; establishment of Industrial Parks and Special Economic Zones; and supporting Domestic Retail Trade and Distribution.
Accelerated Infrastructure Development : Promoting Private sector financing for public infrastructure such as Roads, Railways, Ports and Harbours, Water Supply Systems, Public Housing etc, which will reduce Government’s exposure to the financing of such infrastructure projects.
• Digital Mainstreaming: Digitalization will be mainstreamed in all Government and Public sector activities, building on the current work led by the Ministry of Communication and Digitalization.
• Energy Security and Diversification: Greater emphasis to be placed on developing renewable sources of energy, by fast-tracking the execution of Government’s energy transition strategy, including but not limited to nuclear and hydrogen energy.
• Decarbonization and Climate Resilience: Scaling up Government’s current efforts at reducing Ghana’s carbon footprints and facilitating access to the carbon trading markets, as well as establishing mechanisms to strengthen the country’s preparedness against the negative effects of climate change.
• National Security and Defence Optimization: Deploying resources to strengthen National Security and Defence Mechanisms and Infrastructure, to deal substantively with emerging security threats and challenges, particularly in the Sahalian region.
• Downsizing Government: The architecture of Government will be overhauled by consolidating some existing Ministries, Departments and Agencies. This will mean running a lean Government structure that will ensure operational efficiency and effectiveness in the delivery of Government services.
Strategic Engagement with the International Community:
Ghana’s diplomatic and economic relations with the International Community under the GTP will be predicated on the principle of ‘positive neutrality’, based on the strategic interests of Ghana, as well as our shared commitments for the preservation of peace around the world and respect for humanity.
President Nana Addo Dankwa Akufo-Addo accepted responsibility in October of last year for the government’s decision to approach the International Monetary Fund (IMF) for financial support.
This came after the administration initially declared that it would not seek assistance from the Bretton Woods institution since it was putting homegrown economic recovery plans into action.
President Akufo-Addo stated, “I take full responsibility for it,” when speaking on OtecFM in the Ashanti area. But I fervently hope that these talks will be over by the middle of November, or one month from now. In the middle of November, we’ll decide on a national budget.
Read the full story originally published on October 19, 2022 by www.ghanaweb.com.
President Nana Addo Dankwa Akufo-Addo has for the first time taken the blame for government’s decision to resort to the International Monetary Fund for financial support.
This comes after government had occasionally insisted that it would not turn to the Bretton Woods institution for support as it believes in its homegrown solutions until government backed down on its stance on July 1, 2022.
Speaking on Kumasi-based OTEC FM during a tour of the Ashanti Region, President Akufo-Addo on October 18 said the decision to turn to the IMF had become necessary in the face of economic headwinds.
“I take full responsibility for it. But I’m hoping very strongly that by the middle of November, a month from now, these negotiations will be over. We are going to come to a budget for the country in the middle of November,” he explained.
“I’m hoping that the IMF negotiations will be over at least substantially so we will have a clear idea of the elements of the agreement with the Fund, which hopefully will be able to feed into the budget and have that drive our budgetary projection for next year and the year ahead,” the president said.
“For me, my hope is that we will have a programme of fiscal adjustment. It will take us through most of the immediate budget but then will put us in a position in 2024 to begin the recovery and the growth,” he added.
Meanwhile, the Finance Minister, Ken Ofori-Atta, is reported to be pushing for the speedy completion of negotiations with the International Monetary Fund for an economic support programme.
Officials from Ghana and IMF have been engaged in the second round of negotiations in the United States of America toward reaching an agreement with the Fund.
Ghana is targeting an amount of $3 billion from the Fund once an agreement can be reached with funds likely to be accessed in 2023.
According to him, three groups representing individual bondholders are mobilizing to file a class action lawsuits against the government.
Individual bondholders were included in the DDE which was announced by Minister of Finance late last year after labour organizations forced government to remove pensions from the DDE programme.
“It was anticipated that adding individual/retail investors to Ghana’s debt default will increase the risk of litigation,” Simons noted in a January 7, 2023 tweet,
Adding: “At least 3 groups representing individual bondholders have commenced mobilisation to file class action lawsuits. One group is led by a former SEC Boss.”
Government is hoping to close a deal on debt restructuring at home in order to be able to access an International Monetary Fund (IMF) facility to support the failing economy.
Minister of Finance Ken Ofori-Atta on December 6 announced that government was restructuring bonds held by institutional investors, putting them into four groups stretching 15 years. With interest also spread in four tranches in four years.
The programme faced stiff opposition from major professional groups and workers union in the country because of its pension component.
Ken Ofori-Atta outlines Domestic Debt Exchange programme
After Inter’s third goal was disallowed and a late equalizer against Monza was given away, Simone Inzaghi was left feeling “very angry.”
After Patrick Ciurria thwarted Matteo Darmian’s early goal, Lautaro Martinez capitalized on a Pablo Mari slip-up to put Inter back in front and look like they were going to win.
However, as a free kick was sent into the Monza area after a disputed Roberto Gagliardini challenge and Francesco Acerbi nodded in the goal with the score at 2-1, referee Juan Luca Sacchi whistled for a foul.
Inter experienced heartache in the 93rd minute when Luca Caldirola scored to rescue a point for Raffaele Palladino’s team and prevent the Nerazzurri from winning their fourth straight Serie A match. This goal, which certainly would have ended the game, was disallowed.
Inzaghi was upset during the game because he felt the referee’s early whistle cost his team all three points and prevented them from closing the gap on league leaders Napoli to just five points before the Partenopei’s trip to Sampdoria on Sunday.
“I’m very angry at what I saw,” Inzaghi told reporters. “Unfortunately, after five years of VAR, there was an error that penalised us.
“A clear mistake on Acerbi’s goal, there are two Monza players who fell between them. It’s a huge disappointment on our part.
“I complimented Palladino, [but] without that mistake we would have won the match.”
Romelu Lukaku impressed for Inter as they ended Napoli’s unbeaten start to the season on Wednesday, but Inzaghi opted to start Martinez alongside Edin Dzeko up top against Monza, over the Belgium international.
With Lukaku struggling for fitness, Inzaghi is unsure when the striker will be back to his best, saying: “Time will tell, he’s training in the best possible way.
“He had a very good first half with Napoli, today it was difficult. We’ll do the analysis tomorrow when we’ll be more rested.”
Asked whether he felt Inter sat back too much late in the game, inviting Monza on, Inzaghi replied: “In the first half we conceded little or nothing.
“There are always difficult opponents, Monza are organised and have excellent players.
“Without what we’ve seen [Acerbi’s disallowed goal], there wouldn’t have been this question.
“Now we start again. It’s normal that there is huge disappointment on everyone’s part.”
Oduro, 38, told Al Jazeera, “I am running at a tremendous loss.” She trades in imported goods including juices, cookies, soft drinks, soaps, and chocolates, but her business is suffering greatly as a result of Ghana’s economic woes.
“Prices of goods keep soaring, and it is affecting my principal capital,” she said. “I want to close my store and find something else to do. Things are tough for me because I can’t sustain the business and I have a family to keep.”
Ghana, a country once described as Africa’s shining star by the World Bank, had the world’s fastest-growing economy in 2019 after it doubled its economic growth. But today, it is no longer the economic poster boy of West Africa. Despite being a major cocoa and gold exporter, it is currently battling its worst financial crisis in decades with inflation hovering at a record 50.3 percent, the highest in 21 years.
Ghana’s economic successes were in the limelight when the new government of President Nana Addo Dankwa Akufo-Addo took power in January 2017 and brought down inflation significantly. Under the previous government in 2016, it was 15.4 percent, and it fell to 7.9 percent by the end of 2019 and remained in single digits until the pandemic hit in March 2020.
Ghana’s budget deficit, which was about 6.5 percent of the nation’s gross domestic product before Akufo-Addo’s government came to power, was brought down to under 5 percent of GDP by the end of 2019.
“The growth that we experienced around 2017 to 2019 was actually coming from the oil sector,” Daniel Anim Amarteye, an economist with the Accra-based Policy Initiative for Economic Development, told Al Jazeera.
“We were so excited that the economy was growing, but we couldn’t devise strategies to ensure that the growth reflects in the other sectors of the economy,” he said. “For instance, we neglected the agriculture sector, and we couldn’t do any meaningful value-added investment in that sector. The government became complacent.”
According to the United Nations’ Food and Agriculture Organization, agriculture represents 21 percent of Ghana’s GDP and accounts for more than 40 percent of its export earnings. At the same time, it provides more than 90 percent of the food the country needs.
“Over the years, the government failed to invest in increasing output in the agricultural sector that will eventually lead to economic growth and transformation and food security. We are a major cocoa growing country, but we didn’t pay attention to increasing yields to translate into more foreign exchange earnings to drive economic growth and employment,” Amarteye said.
Ghanaian traders, who contribute significantly to the economy, mostly buy and sell products they import from Western countries and China, including home appliances, consumables, cars and second-hand clothes.
Due to the nature of their businesses, there is a persistent strong demand for the US dollar to pay for imports. This led to the continuous depreciation of the local currency, the cedi, which was recently described as the worst-performing on world markets.
As inflation surges, rising prices keep the cost of living accelerating for Ghanaians.
“Things are not the same anymore,” said Francis Anim, a vehicle spare parts importer. “I used to spend $5 a day with my wife and child on food alone early this year. Now we spend close to $10 [for the same amount of food]. Why?”
“We are feeling the heat,” he said. “The import duties are very high at the ports, so we have to pass on that burden to retailers, and eventually the consumer suffers. This has resulted in a high cost of living in Ghana, and the economy is not helping us either.”
A nation in crisis
The president conceded in a recent address to the nation that the West African country is in crisis. He blamed the situation on external shocks – the pandemic and Russia-Ukraine war.
However, analysts say the government took certain political and economic decisions that would have eventually exposed the weaknesses in the system even without those external factors.
For instance, to fulfil one of Akufo-Addo’s most expensive campaign pledges, his government launched a free education programme in public high schools nine months after he took office. It also provided free meals to students at primary and secondary levels.
Also in 2017, the governing New Patriotic Party scrapped what it called 15 “nuisance taxes”. These included the 17.5 percent value added tax on financial services, real estate and selected imported medicines. They also reduced import duties on spare car parts, abolished the 1 percent special import levy and the 17.5 percent VAT on domestic airline tickets.
“This brought a massive reduction in government revenue,” Williams Kwasi Peprah, a Ghanaian associate professor of finance at Andrews University in Michigan, told Al Jazeera. “To make up for the revenue shortfall, the government adopted borrowing. This increased Ghana’s bond market activities domestically and externally and, as a result, a high debt-to-GDP exposure, leading to the current debt unsustainability levels.”
From August 2017 to December 2018, Akufo-Addo’s government spent more than $2.1bn on what it called the “banking sector clean-up”.
The central bank said some banks were insolvent and were operating on life support, putting the interests of depositors at risk. The clean-up saw a reduction in the number of banks from 33 to 23 while more than 340 other financial institutions, such as savings and loans companies, had their licences revoked.
The government aimed to restore confidence and reposition the banking sector to support economic growth.
“The financial sector clean-up also cost the country more than anticipated in attaining a robust financial sector before 2022,” Peprah said.
He said the discovery of two more oilfields in 2019 led to the anticipation of more revenues. The government responded by issuing more domestic and external bonds, increasing its debt and raising spending on interest payments, social programmes and employment.
The government is Ghana’s largest employer, primarily in the fields of education, healthcare and security. It spends almost half of its budget on wages; this year, it raked in $8.2bn in estimated revenue and used about $4.2bn to pay salaries of public sector workers.
In 2017, the government also restored allowances for trainee nurses and teachers. President John Mahama lost to Akufo-Addo in the 2016 election partly for suspending those allowances two years earlier. They put a huge strain on the public purse. For the nurses’ allowances alone, the government paid more than $2.5 million annually.
“That was a poor political and economic decision the Akufo-Addo government made at that time because the country was faced with revenue challenges,” said Kwasi Yirenkyi, a financial analyst with Accra-based Data Crunchers. “The government was spending more than it was receiving, and at the same time, it failed to widen the tax net. We were slowly heading for disaster.”
The pandemic and debt load
There was a significant drop in revenue in 2020 coupled with a rise in government expenditures. They were mainly COVID-related as the government adopted a populist approach, provided free water and electricity to citizens and fed 470,000 households during a three-week lockdown that cost the nation $9.4m.
In August 2021 Akufo-Addo began what he later admitted was “an overly ambitious” construction project of 111 hospitals with an estimated price tag of more than $1bn. Pressure kept mounting on his government to fulfil a plethora of other electoral promises, such as the construction of roads, schools and markets, forcing the government to keep borrowing and leaving an economy dogged by high public debt. The most recent data released by the central bank put the country’s debt load at $48.9bn as of September. That represents 76 percent of GDP.
“Largely, the debt that we accrued were not actually prudently used to drive economic growth,” Amarteye said. “If that was done, we could have generated sufficient inflow to be able to meet repayment obligations. Borrowing is not a bad thing, but how you use it is critical. On our part, the managers of the economy failed to invest it in the critical sectors of the economy.”
The oil-exporting country produced 39.15 million barrels of crude oil from January to September, according to the 2023 budget statement read by Finance Minister Ken Ofori-Atta in Parliament in November. They brought in $873.25m in revenues for the eighth-largest oil producer in Africa. Although oil production declined between January and June, according to a report by the Public Interest and Accountability Committee, a surge in prices resulted in the government taking in more revenue than it had expected.
“Where did all the oil revenue go to?” opposition member of parliament Isaac Adongo asked. “The economy has been on life-support system because this government kept borrowing. We have now hit the ceiling, and there is no way out.”
In spite of the challenges, the government had been optimistic that the economy would bounce back after the pandemic. However, Russia’s war in Ukraine has derailed Ghana’s economic recovery. The cedi, its currency, lost more than 50 percent of its value between January and October 2022, causing Ghana’s debt burden to rise by $6bn.
“The war affected global economies and exposed fundamental weaknesses,” Peprah said. “Within a short period, prices in Ghana had increased, leading to hyperinflation and currency devaluation affecting both macro and micro levels of the economy. The Bank of Ghana did not have the needed dollars to pay for the country’s commitments. The balance of payment had deteriorated, leading Ghana to insolvency.”
Workers and traders protested from July to September over price hikes, which have increased the cost of electricity by 27 percent and water by 22 percent.
Activists and anti-corruption campaigners have also accused the government of mismanaging public finances.
“We have gold, oil and cocoa, yet we’re still foundering as a nation,” said Bernard Mornah, a leading member of the Arise Ghana pressure group. “The level of corruption under this government is unprecedented. There are so many revenue loopholes that must be blocked. Government officials are looting state funds and assets, so how do we develop?”
A 2021 Transparency International study on perceptions of corruption in Africa ranked Ghana ninth out of 49 Sub-Saharan African countries.
Investor confidence dims
Investors began to lose confidence in the economy as the government grappled with liquidity challenges. They started moving their money out of Ghana. In May, Minister Ofori-Atta introduced an unpopular e-levy, which placed a 1.5 percent tax on all electronic and merchant payments, bank transfers and remittances as part of measures to increase revenue. It brought in a paltry 10 percent of its targeted amount in its first month.
In the middle of this economic storm, credit ratings firms such as Moody’s downgraded Ghana to junk status, pushing even more investors away. At this point, Ghana was forced in July to turn to the International Monetary Fund (IMF) for relief.
It was a difficult decision for Akufo-Addo to make after he had condemned his predecessor for mismanaging the economy and taking an IMF bailout.
In December, the government reached an agreement with the IMF for a $3bn loan. However, the West African country needs to carry out a comprehensive debt restructuring in order to receive the funds.
This means that Ghana will have to renegotiate the terms of its debt with its creditors, including extending repayment period, lowering the interest rate, or reducing the overall balance owed.
Formerly regarded as an investor favourite, Ghana has also suspended payments on part of its foreign debt to preserve the fast-depleting international reserve of the central bank. There is also a freeze in hiring into the public sector among many other measures taken to cut expenditure.
“The story would have been different but for the pandemic and the Russia war in Ukraine,” Deputy Finance Minister Abena Osei-Asare said. “We have instituted clear policies to return to economic growth. We are very hopeful the economy will bounce back.”
The economy has made some gains since Ghana reached the agreement with the IMF. The cedi is recovering against the US dollar, appreciating by 63.7 percent in mid-December, according to the Bank of Ghana, after suffering a year-to-date depreciation of 54.2 percent at the end of November. But economists and scholars such as Peprah believe the long-term solution is for the government to live within its means.
“The solution to the current problem is for the government to reduce expenditure and increase revenue,” Peprah said. “It needs to ensure efficient and effective allocation of resources backed by accountability.”
For his part, Amarteye said the government must be downsized, and he called for stringent measures to check corruption.
“We have to ensure that every cedi that is extended to government agencies are accounted for,” Amarteye said. “The Office of the Special Prosecutor should be empowered to be able to deal with corruption in the system. There should be fiscal discipline, and also we have to add value to our produce by supporting the private sector to lead that particular space.”
“If that is done, jobs will be created and also the economy will bounce back,” he said.
In Odorkor, shop-owner Oduro, like many Ghanaians, wants to see a thriving economy again, one in which she can do business and feed her family.
“I have played my part as a voter,” she said. “The government must play its part too – fix the economy. This is not the Ghana we came to meet.”
Addressing the country’s debt burden, government on Monday, December 5, 2022 launched the Domestic Debt Exchange programme aimed at restructuring the country’s domestic debt to ensure sustainability. This programme is particularly relevant in the context of Ghana’s current economic challenges, including elevated inflation and interest rates, as well as a weakening cedi and recent multiple credit rating downgrades on the back of a deteriorating economic situation.
This programme, as indicated by government, is meant to alleviate the debt burden in a most transparent, efficient and expedited manner, which would minimise impacts from the domestic debt exchange policy on investors holding government bonds.
Overall, government’s policy for investors in this domestic debt exchange programme appears to be focused on minimising the impact on individual bondholders and assuring them that their investments will not be affected. Government states that it will not implement a principal haircut on eligible bonds, and that Treasury bills will be completely exempted from the exchange programme. Individual bondholders will not be affected, and will be able to exchange their existing bonds for new ones with longer maturities and stepped-up interest rates.
Government also emphasises that this domestic debt exchange programme is part of a broader agenda to restore debt and financial sustainability, and that it is working toward a restructuring of its external indebtedness. It is also seeking support from the International Monetary Fund.
Leading Indicators
Inflation in Ghana has been on the rise in recent months, reaching an annual rate of 50.3% in November 2022. This has put pressure on the country’s central bank to raise interest rates to curb inflation. The monetary policy committee (MPC) of the Bank of Ghana (BoG) concluded its last MPC meetings of the year in November 2022 by raising the benchmark interest rate another 250bps to 27.0% – continuing its fight against surging inflation and re-anchoring inflation expectations. This brings full-year rate increases to a historic 1,250bps (12.50%) in 2022.
A higher benchmark rate is targetted at reducing demand for goods and services, thus slowing the rate of inflation. However, this can also have negative consequences for the financial market as higher interest rates can make it more difficult for businesses to access credit, which could in turn slow economic growth and job creation.
Headline inflation is expected to peak in Q1-2023 and settle around 25% at end of Q3-2023 in their baseline scenario. However, implementation of the 2.5% increment in VAT and the pass-through effects of exchange rate losses remain significant risks.
The cedi, Ghana’s currency, has also been struggling in recent months – depreciating against the dollar and other major currencies. The cedi lost 0.73 against the greenback on the BoG’s interbank market in Nov 2022. Cumulatively, the local currency has depreciated by some 52% this year, rendering imported goods more expensive and reducing the purchasing power of businesses. This has also made it more difficult for government to repay its foreign debt, as it must use more cedis to buy the same amount of dollars or other foreign currencies.
Per 2023 budget, the Public Debt-to-GDP ratio stood at 75.9 percent at the end of September 2022; largely reflecting the impact of currency depreciation. The external debt as a percentage of total debt stock was 58.1 percent as at end of September 2022, up from the 48.4 percent recorded in 2021. The sharp growth in external debt stock was largely on account of the local currency’s sharp depreciation. The Ghana cedi’s depreciation added GH¢93.86billion to the external debt stock compared to the transaction effect of GH¢7.55billion.
Overall, the rate of debt accumulation increased from 20.7 percent at end-December 2021 to 32.7 percent for end-September 2022; reflecting the impact from depreciation of the Ghana cedi on external debt.
Impact on the financial market
Against this backdrop, the Domestic Debt Exchange programme can be seen as a potentially positive development for the financial market in Ghana. By swapping high-interest domestic bonds with lower-interest ones, the programme can save government millions of dollars in interest payments, which could be used to help boost the economy and address other challenges such as inflation and the depreciating cedi.
However, the DDE programme could also have negative consequences for the financial market which might be complex and very much uncertain. While it has potential to improve the country’s fiscal health and reduce the debt burden, it could also lead to increased volatility in the market.
The proposed interest rate being offered in this domestic debt exchange programme is 10% per year, with a stepped-up schedule starting at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. This proposed interest rate may have a number of impacts on investors.
Instructively, one potential impact of the DDE programme is on attractiveness of the new bonds compared to existing ones. Given that the current interest rate on existing bonds hovers around 38.82% for the 2-yr note and 48.71 % for the 20-yr bond, the proposed interest rate of 10% per year may be seen as less attractive to investors.
The debt restructuring programme’s details further dampened investor-sentiment and sent investors into a quandary, as there could be a potential loss on their investment in the long-term. Signals from the secondary market as of Friday, December 9, 2022 showed selling interest remained elevated while buying interest was elusive. Trading activities hovered around the medium- to long-term papers. At the far end of the curve, Jul-2033 (Coupon of 11.65%) was actively traded and settled at 40.50%, while Nov-2026 (Coupon of 19.00%) at the belly of the curve cleared at 39.03%.
The market very much expects yields to continue their upward trajectory as participants offload their holdings to reduce exposure amid elevated risk due to the proposed debt exchange programme.
In the context of Ghana’s current economic challenges – including elevated inflation, a depreciating cedi and interest rate increases – it will be important to closely monitor effects of the DDE programme and make any necessary adjustments to ensure its success.
It is worth noting that the exchange programme is not the only measure being taken by the government of Ghana to address the country’s economic challenges. For example, government has also implemented measures to increase revenue and reduce spending, such as increasing taxes and cutting subsidies.
Additionally, government has been working with international organisations such as the International Monetary Fund (IMF) to obtain financial assistance and support as the staff level agreement (SLA) has been achieved in record time, marking a significant milestone in Ghana’s quest for policy support for its post-COVID-19 economic recovery efforts.
Disputes over the proposed DDE programme
Despite any possible success the domestic debt exchange programme could make, it has faced opposition from some groups within the financial sector and the public at large. These groups have argued that the programme is not sustainable in the long-term, and that it exposes investors to significant risks.
One of the main concerns raised by opponents of the programme is lower interest rates on the new instruments being offered as part of the exchange. These lower rates may not be sufficient to compensate investors for the risks associated with holding Ghanaian debt, and may make the new instruments less attractive to investors. This could limit the programme’s overall success, and hence make it more difficult for government to attract investors’ participation.
Another concern raised by opponents of the programme is its potential impact on the country’s credit rating. The programme will successfully reduce the overall cost of Ghana’s domestic debt, but has led to further a downgrade of the country’s credit rating since it was first announced. This could make it more difficult and expensive for government to borrow in the future, and could have negative consequences for the country’s economy.
Despite these concerns, government remains committed to the domestic debt exchange programme and continues to believe it is a necessary and effective tool for addressing the country’s economic challenges. The programme has been adjudged appropriate for reducing overall cost of the country’s domestic debt, and improving investor confidence and liquidity in the domestic debt market.
This, when fully completed, will afford government some fiscal space to operate – as it envisages reducing, particularly, the domestic interest cost in 2023; which is estimated at GH¢31.29billion out of the total GH¢52.55billion.
These could lay the foundation for a more sustainable financial market in Ghana, and also contribute to overall stability of the country’s economy.
Addressing the Investors’ Concerns
Government can take steps to address concerns about the programme’s potential impact on the country’s credit rating. These could include implementing policies that improve overall sustainability of the country’s debt and reduce the risks associated with holding Ghanaian debt. By taking such steps, government could help convince the financial sector that the domestic debt exchange programme is a worthwhile investment and can help attract more investors.
Overall, Ghana’s government will need to take a proactive approach to address the concerns raised by opponents of the domestic debt exchange programme. By implementing policies that increase the attractiveness of new instruments being offered as part of the exchange, and which provide investors with greater confidence in the programme’s long-term sustainability, government can convince the financial sector to join the programme and support the country’s economic growth and development.
What’s next?
In conclusion, the Domestic Debt Exchange programme is a significant initiative that has potential to improve the country’s fiscal health and reduce its debt burden. The proposed interest rate may have an impact on the overall level of interest rates in the economy. If government is successful in attracting a large number of investors to participate in the exchange programme and the new bonds are widely held, this could lead to an increase in overall supply of government bonds in the market.
This, in turn, could put downward pressure on interest rates more broadly, as the increased supply of bonds may lead to a decline in their prices and a corresponding increase in their yields. On the other hand, if government is unable to attract sufficient investor interest in the new bonds, this could lead to a decline in the supply of government bonds – which could put upward pressure on interest rates.
However, it is important to carefully monitor its implementation and effects and take any necessary steps to ensure its success. By working together, government, the financial market and other stakeholders can help to support the stability and growth of Ghana’s economy.
It is also worth noting that success for the DDE programme will not depend only on the actions of government and the financial market. The broader economic environment will also play a role in determining the programme’s success. For example, factors such as global economic conditions and commodity prices could impact Ghana’s economy, and in turn effectiveness of the DDE programme.
Furthermore, the DDE programme’s success will also depend on the willingness and ability of Ghanaians to support and participate in it. For example, individual investors and institutions holding domestic bonds will need to willingly exchange their bonds for new ones with different terms for the programme to achieve its goals.
To support the DDE programme’s success, it will be important for government to communicate clearly and transparently with the public about the programme and its benefits. By providing clear and accurate information, government can help build trust and support among the public – which will be essential for the programme’s success.
The cedi took a climb to GH¢11 to $1 in October. This came as a shock to many as Ghanaians were expecting an appreciation from the local currency against the trading currencies.
As part of measures to avert the depreciation of the cedi, the government run to the International Monetary Fund (IMF) for financial bailout.
The IMF bailout would help rescue the cedi, as well as, stabilize the economy that has taken a nose dive.
While Ghana awaits the money from IMF, international credit rating agencies; Moody’s, Fitch, Standard and Poors’, remarked that Ghana’s economy looked gloomy.
This led to a hike in the monetary policy rate by the Bank of Ghana to 24. 5%. The hike in the policy rate was to stem the soaring inflation which has subsequently led to an increase in goods and services.
Cedi depreciates further, highest decline in 22 years – Report
Bloomberg has on Thursday, October 20, 2022, reported that Ghana’s local currency – the cedi – has diminished in value by 9.6%.
This, the news portal said, makes the total loss of the cedi in 2022 almost 52%, the highest recorded in 22 years.
The free fall of the cedi now places the currency at the 148 position of worst performing currencies in the world.
The currency had lost up to 54 per cent of its value at the end of November, making it one of the worst performing currencies in the world.
Meanwhile, Government of Ghana is targeting an amount of $3 billion over a three-year period from the International Monetary Fund (IMF) once an agreement on a programme is reached.
The new amount requested as a loan is double the government’s initial target of $1.5 billion.
The IMF programme is aimed at restoring macroeconomic stability and safeguarding debt sustainability among many others.
UK based Economist Intelligence Unit (EIU) has however predicted doom for the cedi.
It said the cedi will depreciate about 22% against the dollar in 2023.
This, EIU said will rank the local currency as the third weakest performing currency on the African continent.
Dean for the University of Cape Coast Business School (UCCBS), Professor John Gatsi has said the announcement on the external debt payment for an International Monetary Fund (IMF) loan places the country in bad light for future loans.
Ghana has announced a suspension of all debt service payments under certain categories of external debt, pending an orderly restructuring of the affected obligations.
The suspension, according to a press statement by the Finance Ministry, will include the payments on Eurobonds; commercial term loans; and on most of the country’s bilateral debt.
Commenting on the announcement on Starr Today with Joshua Kodjo Mensah Monday, Mr. Gatsi indicated that the government’s difficult situation is self-inflicted.
He further added that the government’s predicaments on various debt restructuring were completely avoidable.
“We risk further downgrades but the question is a downgrade to where because we are already in junk status. If you are downgraded deeper it doesn’t mean much to you because you are not going to the debt market now. It is when you go later that you get the backlash as someone who does not keep a covenant. We may give you money but after some time you will come back and say you cannot pay.”
“So that is the risk awaiting us as we journey along even though I know that further downgrade does not mean much but it will catch up with us at a future date,” Mr. Gatsi explained.
He said the government had every opportunity to avoid the current situation it finds itself in but failed to recognize it.
“We had every opportunity to borrow according to the revenue size of the country. We had every opportunity to manage our debts well and we had every opportunity not to use COVID to overborrow. We had every opportunity not to use the COVID year to borrow excessively for elections. So we had every opportunity to manage our finances prudently but we chose not to do that and that is what has landed us in this situation.”
It further said that if the IMF board fails to meet the January 2023 expected date, the programme would be approved latest by March 2023.
A myjoyonline report indicates that Red Intelligence in its latest analysis on Ghana’s debt restructuring said the staff-level agreement is in good shape and the end of December target looks realistic.
It would be recalled that the International Monetary Fund (IMF) on Tuesday, December 13, 2022, announced that, it has reached a staff-level agreement with Ghana on economic policies and reforms to be supported by a new three-year arrangement under the Extended Credit Facility (ECF) of about US$3 billion.
According to the IMF, the authorities’ strong reform programme is aimed at restoring macroeconomic stability of Ghana’s economy.
An IMF team led by its Mission Chief for Ghana, Stéphane Roudet, said Ghanaian authorities have launched a comprehensive debt operation by way of restoring the country’s public debt sustainability.
Redd Intelligence, while touching on Ghana’s debt sustainability programme said it shows government is serious about achieving external debt restructuring in the first half of 2023.
On Monday, December 5, 2022, government rolled out a debt restructuring programme to restore its capacity to service its high-rising debt.
Under this programme, all domestic bondholders have been charged to exchange their instruments for new ones.
Existing domestic bonds as of December 1, 2022, will be exchanged for a set of four new bonds maturing in 2027, 2029, and 2037.
The annual coupons on all of these bonds will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity.
According to him, it came as a surprise to realize that the government is using its reserves to strengthen the dollar.
In a tweet on December 19, 2022, he wrote: “Okay, I was wrong. I told folks at various times that the govt of Ghana will not suspend payments on the external debt until it formally engages creditors on a plan next year. I did not anticipate that it will burn thru its reserves to reinforce a run on the dollar.”
The Ghana cedi has, in the last two weeks, gained about 63% against the dollar. The currency raced from behind to become the strongest performer against the dollar in the past week.
The government has associated the appreciation with the announcement of the debt exchange programme and the staff-level agreement reached with the International Monetary Fund.
Meanwhile, President Nana Addo Dankwa Akufo-Addo has stated that the appreciation of the cedi against all major trading currencies is a result of deliberate policy interventions introduced by the government over the last few months.
The CPA wants retailers and transportation companies across the nation to reduce prices at the same rate at which they have been raising products and transportation costs.
In a statement issued on Tuesday, December 20, 2022, the CPA said it decided to “take a ‘wait and see’ attitude about measures put in place to mitigate the cost of fuel and the depreciation of the cedi to the dollar, unfortunately, after these measures were put in place, cost of consumer goods hasn’t been reduced as of today.”
The CPA noted that it “expects the transport unions and GUTA to use the same speed and alacrity to increase prices to reverse the prices downwards.”
It further noted the country operates a free market so it “understands and appreciates the importers & retailers and transport unions but that doesn’t give them the advantage to not adhere to the same principles when it favours them and when it favours the consumer there shouldn’t be a challenge.”
The CPA reminded businesses that consumers wield a weapon that can be used against them which is “their purchasing power” and urged them to put this into consideration in order to “encourage the free flow of commerce in the country because the worse situation is for consumers to either reduce their consumption or stop patronising their businesses.”
This, it stressed, “is not healthy for the economy.”
President Nana Akufo-Addo made a similar call to traders and transport operators a few days ago.
“I believe this is not only a fair request, but also a just one, and I urge all of you to join me in this clarion call so we can all have a more pleasant Christmas,” the president said on Sunday, 18 December 2022, when he delivered an address at the centenary celebration of the Ga Presbytery of the Presbyterian Church of Ghana, held at the Black Star Square, Accra.
Addressing the congregation, which included the Moderator of the Presbyterian Church of Ghana, Rev. Prof. Joseph Obiri Yeboah Mante, he stated that with appropriate policy, determination and hard work on the part of the government, things are beginning to turn around.
Transport fares are expected to go down by 15.3 per cent on Monday, 19 December 2022.
According to President Akufo-Addo, “the strengthening of the cedi has not happened by chance, but through the implementation of deliberate policies by government, in collaboration with the Bank of Ghana.”
These measures, he said, include “cedi liquidity tightening measures, resulting in the offloading of forex, as a store of value, by speculators; the improvement of forex flows from remittances and the mining sector; and the reaching of a staff-level agreement with the IMF for a US$3 billion package.”
The cedi keeps making significant gains in value against the dollar and other currencies of international trade right after the International Monetary Fund and the government of Ghana announced a staff-level agreement for a US$3-billion extended credit facility for the gold-producing West African country whose economy has been on a downward spin since the beginning of the year.
The cedi fell by more than 54% against the dollar this year.
Some few weeks ago, a dollar hovered around ¢15.
However, it started rallying in the lead-up to a joint announcement by the government of Ghana and the IMF on Tuesday, 13 December 2022 that a staff-level agreement had been reached for a three-year IMF-supported programme for Ghana.
According to the Bank of Ghana, the dollar is currently selling at ¢8.0055 from Thursday’s ¢9.3047 and Wednesday’s ¢10.4052 and being bought at ¢7.9975 from Thursday’s ¢9.2954 and Wednesday’s ¢10.3948.
Within a matter of two weeks, the cedi became the best-performing currency in the world after being the worst performer for a few months.
At the end of the mission, Mr Roudet issued the following statement: “I am pleased to announce that the IMF team reached a staff-level agreement with the Ghanaian authorities on a three-year programme supported by an arrangement under the Extended Credit Facility (ECF) in the amount of SDR 2.242 billion or about US$3 billion”.
“The economic programme aims to restore macroeconomic stability and debt sustainability while laying the foundation for stronger and more inclusive growth. The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances by Ghana’s partners and creditors”, Mr Roudet said.
“The Ghanaian authorities have committed to a wide-ranging economic reform programme, which builds on the government’s Post-COVID-19 Programme for Economic Growth (PC-PEG) and tackles the deep challenges facing the country”, he added.
He said: “Key reforms aim to ensure the sustainability of public finances while protecting the vulnerable. The fiscal strategy relies on frontloaded measures to increase domestic resource mobilisation and streamline expenditure. In addition, the authorities have committed to strengthening social safety nets, including reinforcing the existing targeted cash-transfer program for vulnerable households and improving the coverage and efficiency of social spending”.
Additionally, he noted: “Structural reforms will be introduced to underpin the fiscal strategy and ensure a durable consolidation”.
“These include developing a medium-term plan to generate additional revenue and advancing reforms to bolster tax compliance. This will help create space for growth-enhancing measures and social spending”.
Efforts, he mentioned, “will also be made to strengthen public expenditure commitment controls, improve fiscal transparency (including the reporting and monitoring of arrears), improve the management of public enterprises, and tackle structural challenges in the energy and cocoa sectors. The authorities are also committed to further bolstering governance and accountability”.
To support the objective of restoring public debt sustainability, Mr Roudet said “the authorities have announced a comprehensive debt restructuring. Sufficient assurances and progress on this front will be needed before the proposed Fund-supported programme can be presented to the IMF Executive Board for approval”.
He stressed: “Reducing inflation, enhancing resilience to external shocks, and improving market confidence are also important programme priorities”, noting: “Accordingly, the Bank of Ghana will continue to strengthen its monetary policy framework and promote exchange rate flexibility to rebuild external buffers”.
“As part of the authorities’ debt strategy, a domestic debt exchange has been launched. The authorities are committed to taking the necessary mitigation measures to ensure financial sector stability is preserved”, the Bretton Wood institute delegation head pointed out.
He said the IMF staff held meetings with Vice President Mahamudu Bawumia, Finance Minister Ken Ofori-Atta, and Bank of Ghana Governor Ernest Addison, and their teams, as well as representatives from various government agencies.
The IMF team has also continued to engage with other stakeholders.
The staff expressed their gratitude to the Ghanaian authorities, Parliament’s Finance Committee and all the private sector, trade union, and civil society representatives for their open and constructive engagement over the past few months.
For his part, Ken Ofori-Atta told journalists that the deal, once approved by the IMF Board, will help Ghana restore economic stability, tackle inflation and strengthen the Ghana cedi, Finance Minister Ken Ofori-Atta has said.
Addressing journalists at a press conference on Tuesday, iDecember 13, 2022, following the staff-level agreement, Mr Ofori-Atta said: “Truly, the eventual conclusion of the programme will assist us in our efforts to restore stability, tackle inflation, and strengthen our currency.”
“That is why the various ingredients of the programme should be supported by all Ghanaians and all stakeholders.”
The committee is a representation of a wide range of institutional investors, including hedge funds, family offices, mutual funds, asset managers, insurance companies, and hedge funds.
Abrdn, Amundi (UK) Limited, BlackRock, Greylock Capital Management, and Ninety One are among the steering committee’s members.
The committee in a statement said it is focused on the orderly and comprehensive resolution of Ghana’s debt challenges recognising that such resolution will require fair burden-sharing and collaboration among the Ghanaian authorities, private creditors, both domestic and international, and official sector creditors.
The committee noted that a process of good faith negotiation would avoid unilateral actions and would require, inter alia, the timely exchange of detailed economic and financial information among the committee, the Ghanaian authorities and the IMF, and would need to be anchored in reasonably feasible economic adjustment by the Ghanaian authorities.
In this regard, the committee has endorsed the Institute of Intentional Finance’s Principles for Stable Capital Flow and Fair Debt Restructuring, which provides meaningful guidance for successful sovereign debt restructurings.
The committee said it stands ready for a swift engagement on that basis.
It added that it aims at securing an outcome that is both equitable to creditors and responsive to the economic and social challenges facing Ghana.
According to the Eurobond holders, a key factor in measuring the success of Ghana’s debt resolution would be the timely restoration of international market access, which remains critical for Ghana to meet its development objectives.
The committee has appointed Orrick, Herrington & Sutcliffe LLP as legal advisor and Rothschild & Co as financial advisor.
The Ghana Federation of Labour (GFL) Secretary General, Mr. Abraham Koomson, emphasized that Organized Labor, which includes all recognized unions and workers’ organizations, continues to oppose the government’s domestic debt exchange program.
Organized labor has aggressively opposed the debt swap program, according to Mr. Koomson, who claimed this in an interview with the Ghana News Agency (GNA) Tema.
To prevent any labor upheaval in the nation, he consequently urged the government to respect the viewpoint of labor unions.
“Organized Labour vehemently opposed to government’s announced of domestic debt exchange programme to satisfy the International Monetary Fund (IMF) conditions for a bailout from the self-inflicted economic mess,” he said.
The GFL Secretary General added that, “various workers’ organizations have spontaneously reacted against this programme having considered the devastating consequences on workers’ pensions, and other investments when implemented.”
According to him, the government had not demonstrated good faith in discussions with organized labour prior to opting for IMF support in addressing Ghana’s economic crisis.
He said it was on record that the government never considered going to IMF as a progressive alternative to revive the ailing economy.
“The 13 affiliate unions of GFL were taken aback by the government reneging on its assurance in Parliament never to seek IMF assistance in dealing with Ghana’s economic challenges,” he started.
The Ministry of Finance on December 04, 2022, announced its domestic debt restructuring programme; noting that “Under the Programme, domestic bondholders will be asked to exchange their instruments for new ones.”
Also under the programme, existing domestic bonds as of December 1st, 2022, would be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037.
“The annual coupon on all these new bonds will be set at zero percent in 2023, 5 percent in 2024 and 10 percent from 2025 until maturity. Coupon payments will be semi-annual.”
Treasury Bills were, however, completely exempted and all holders will be paid the full value of their investments on maturity, according to the Finance Ministry.
The Ministry also noted that there would be no haircut on the principals of bonds, while individual holders of bonds would not be affected.
The announcement of the Staff-Level Agreement reached with the International Monetary Fund has helped the Cedi’s performance against the US dollar, according to Mr. Seth Terkper, a former finance minister, who spoke with the media on Saturday as he arrived at the Accra Sports Stadium for the 10th National Delegates Congress of the National Democratic Congress (NDC).
To maintain the advantages, he stated, “The Government must speed up efforts on its domestic and external debt adjustment Programme.
To support the nation’s economic policies and reforms, the government announced on Tuesday, December 13, 2022, that it had secured a staff-level agreement with the International Monetary Fund (IMF) on a three-year, US$3 billion Extended Credit Facility (ECF).
The agreement was reached after a visit by the IMF team led by Mr Stéphane Roudet, Mission Chief for Ghana, from December 1 to 13, 2022, to discuss with the Ghanaian authorities IMF support for their policy and reform plans.
The loan support programme is aimed at restoring Ghana’s macroeconomic stability and debt sustainability, protect the vulnerable, preserve financial stability, and lay the foundation for strong and inclusive recovery and growth.
However, the staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances by Ghana’s partners and creditors.
The cedi has made some progress over the last two weeks when compared to other main trading currencies, particularly the US dollar, registering a 63.7 percent increase in mid-December 2022.
President Akufo-Addo stated in a speech marking the centennial commemoration of the Ga Presbytery of the Presbyterian Church of Ghana that the government, working with the Bank of Ghana, will guarantee that achievements gained on the cedi are sustained.
Explaining the rationale behind the recent appreciation, he noted that “Cedi liquidity tightening measures, resulting in the offloading of forex, as a store of value, by speculators; the improvement of forex flows from remittances and the mining sector; and the reaching of a staff-level agreement with the IMF for a US$3 billion package.”
“Indeed, in the weeks ahead, the Bank of Ghana will continue with the purchases of forex from the mining and oil sectors to enhance liquidity supply to the market; continue with the single, unified forex forward auction and some modest targeted bilateral support to critical imports; and the implementation of the gold for oil swap transaction, which will significantly remove forex pressures on the cedi,” President Akufo-Addo said.
Despite being optimistic about the gains made thus far, President Akufo-Addo maintained that the country was still ‘not out of the woods yet’ toward restoring the economy.
The agreement is however subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances by Ghana’s partners and creditors.
According to Mr. Seth Terkper, a former finance minister, who was speaking to the media on Saturday as he arrived at the Accra Sports Stadium for the 10th National Delegates Congress of the National Democratic Congress, the announcement of the Staff-Level Agreement reached with the International Monetary Fund has helped the Cedi’s performance against the US dollar (NDC).
“The Government must expedite action on its domestic and external debt restructuring Programme to sustain the gains, he said.
The government announced Tuesday, December 13, 2022, that it had reached a Staff-Level Agreement on a three-year US$3 billion Extended Credit Facility (ECF), with the International Monetary Fund (IMF), to support the country’s economic policies and reforms.
The agreement was reached after a visit by the IMF team led by Mr Stéphane Roudet, Mission Chief for Ghana, from December 1 to 13, 2022, to discuss with the Ghanaian authorities IMF support for their policy and reform plans.
The loan support programme is aimed at restoring Ghana’s macroeconomic stability and debt sustainability, protect the vulnerable, preserve financial stability, and lay the foundation for strong and inclusive recovery and growth.
However, the staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances by Ghana’s partners and creditors.
Mr. Enoch Okomfo Okonah, an economic analyst, has stated that securing a deal with the International Monetary Fund might not be the best solution to tackle the structural challenges confronting the nation.
Instead, he underlined the need for government to prioritise import substitution, saying that remained the surest and realistic intervention to address the country’s fiscal challenges to stabilise the economy.
Speaking in an interview with the Ghana News Agency (GNA) in Sunyani, Mr Okonah, the Chief Executive Officer of DUMAT Africa, a policy think-tank said, “that notwithstanding our deal with the IMF may be protracted due to initial resistance from the labour unions”.
This could delay the final approval by the Executive Board of the IMF, a situation which could have dire consequences on the nation, and subsequently dwindle investor confidence too.
DUMAT Africa focuses on economic policy, governance, labour, and related issues.
Mr. Okonah indicated the nation’s economic challenges required a collective and concerted approach to tackle and called for divergent views from the business community, academia, and government critics.
In his view, there is no amount of talk that can change the African narrative except hard work is put in to change the status quo if Africa is to tell her own story.
He cited the case of China as a perfect example of how a country can earn respect in the comity of nations. “I hear a lot about the need to change the narrative and tell our own good stories. As the saying goes, ‘nothing succeeds as success.’
“If we work at it, if we stop being beggars and spend Africa’s money inside the continent, Africa will not need to ask for respect from anyone. We would get the respect we deserve,” he told a gathering involving some of his peers at the just-ended US-African Leaders’ summit in Washington DC.
He cited how over 30 years ago, an American Ivy League varsity offered Mandarin for years without takers, yet today the course has packed halls. “It is not because of ease but because position of China has changed.
“Thirty years, twenty years ago, China was no where near where it is today, China does not ask anyone for respect now, she does not need it. Let us make our continent the prosperous and joyful place it should be and the respect will follow,” he concluded to applause.
His call for Africa to stop begging the West in the same speech has drawn lot of chatter especially on social media with a group of people calling him out for making such a statement in a week Ghana received bailout from the International Monetary Fund.
Professor Ebo Turkson believes it will be prudent for the government to invest the monies into productive sectors of the economy to spur growth.
Speaking on the Kumasi-based OTEC 102.9 FM’s breakfast show “Nyansapo”, on Wednesday, December 14, 2022, Professor Turkson said the government needs to channel the monies into sectors that will become profitable to keep revenue streams flowing to take care of the country’s needs.
He has therefore warned government not to use any of the IMF money to pay public sector workers.
Ghana IMF Deal
Ghana has agreed a $3bn loan with the IMF, moving the nation closer to a deal with creditors that would stabilize its economy and finances after a year of turmoil.
The loan, which would provide funding for three years, is a staff-level agreement between the fund and Ghanaian authorities. It must now be approved by IMF management and its executive board. Stéphane Roudet, the IMF’s head of mission to Ghana, said on Tuesday at a press briefing that the board would only approve the loan if Ghana restructures its debt with its private sector and foreign government creditors.
The Deputy Ranking Member of Parliament’s Finance Committee, Isaac Adongo, has said that despite the government’s announcement of the $3 billion contract with the International Monetary Fund (IMF), nothing meaningful has been accomplished as of yet.
The legislator for Bolgatanga Central Constituency said, the government can only be excited about the IMF deal on Staff-Level Agreement if the relevant stakeholders/bondholders agree to sign up for the Debt Exchange Programme.
Some stakeholders such as the Trades Union Congress (TUC), Ghana Registered Nurses Association (GRNMA), Ghana Medical Association (GMA), National Association of Graduate Teachers (NAGRAT), Ghana Securities Industry Association (GSIA), amongst others, had kicked against the move by government to touch their pension funds.
Reacting to the IMF deal on Eyewitness News, Mr. Adongo said, the difficult part is not the pronouncements by the government on the deal, but achieving debt sustainability is the most important thing.
Isaac Adongo said, “nothing has been achieved on the Debt Exchange Programme. This is nothing more than an outline of a Memorandum of Understanding (MoU). The MoU is saying that we do agree that given your circumstances, you need to get debt sustainability, and that has not been achieved”.
He observed that no Ghanaian has signed up for the Debt Exchange Programme, advising the government to work hard to get all stakeholders to sign up for the programme.
“To date, not even a single bondholder has signed to the Debt Exchange Programme, so there’s really nothing that has been achieved on Debt Exchange Programme. Nothing concrete has been achieved. The most difficult part is how we get Ghanaians and non-resident holders to sign up for government’s policy on the Debt Exchange programme.
“The banks are quietly disagreeing, Ghana Securities Industry Association say they disagree and won’t sign up to the programme in its current form, Trade Unions are saying that their pensions are already perilously low, and so they don’t want to further aggravate the pensions difficulties of their workers, and so they disagree”.
He said government should ensure that the debt sustainability is achieved in a way acceptable to both government and stakeholders.
“The difficult part is not the pronouncements that we agree to achieve debt sustainability, but how do you achieve debt sustainability in a way that stakeholders are able to work in path with you, a policy acceptable by both parties. That’s the most difficult part government must deal with,” Mr. Adongo said.
The Finance Minister, Ken Ofori-Atta at a joint press conference with the IMF officials on December 13, 2023, said, “against the backdrop of Staff Programmes, Ghana is indeed blessed to conclude our Staff Level Agreement within 5 months. This is historic in recent times relative to what we witnessed with Zambia, Chad and Ethiopia”.
The Minister added, “Ghana stands ready to complete all Prior Actions before the end-March 2023 but more importantly, Ghana is committed to the IMF Programme as a whole. The SLA is only one aspect of the approval process. More is yet to be done to secure IMF Management and Board approval. We hope that Ghanaians will continue to support all efforts to restore macroeconomic stability and promote robust and inclusive growth”.
“We are confident as a resilient people, and we shall rally to support this great enterprise, to restore macroeconomic stability and promote robust and inclusive growth. The world is looking at us, and I know we can do it,” Mr. Ofori-Atta stressed.
The IMF in a press release on December 13 said it had reached an agreement with Ghana for US$3 billion under an Extended Credit Facility (ECF).
Ken Ofori-Atta in his remarks noted; “Since the announcement on 1st July, 2022 to formally engage the IMF for an IMF-supported Programme, there have been three rounds of negotiations with the IMF interspersed with a number of virtual meetings in-between to ensure both the GoG and the IMF teams work around the clock to get the SLA by end Dec 2022.”
“Against the backdrop of Staff Programmes, Ghana is indeed blessed to conclude our SLA within 5 months. This is historic in recent times relative to what we witnessed with Zambia, Chad and Ethiopia,” he added.
Read Ken Ofori-Atta’s remarks below:
1. Appreciation:
i. I will like to first of all thank the almighty God for providing the needed guidance to the GoG and the Fund to get us where we are today.
ii. I will also like thank HE the President for his leadership and direction throughout thi3s period;
iii. Let me also express appreciation to the IMF in general and in particular the IMF MD and management, Stephane Roudet, IMF Mission Chief to Ghana and Leo Medina, and the indomitable spirit of the team for their commitment to Ghana during these challenging times;
iv. In addition, I will like to express appreciation to key stakeholders including Cabinet, Parliament, FBOs, CSOs, and members of Academia, for their invaluable contributions to the preparation of the Post-Covid-19 Programme for Economic Growth (PC-PEG) which has underpinned the IMF Programme negotiations; and
v. Last but not the least I will like to express my sincere appreciation to the staff of MoF and BoG’s leadership under Governor Addison and the trusted Deputies for their hardwork and sacrifices throughout this entire process.
2. Context
i. A lot of work has gone on behind the scenes for almost 6 months when Government formally announced its intention to engage the IMF for an IMF-supported programme, to enable us reach this Staff Level Agreement (SLA) today which paves the way for the IMF’s Management and Executive Board to approve Ghana’s programme request early next year.
ii. Since the announcement on 1st July, 2022 to formally engage the IMF for an IMF-supported Programme, there have been three rounds of negotiations with the IMF interspersed with a number of virtual meetings in-between to ensure both the GoG and the IMF teams work around the clock to get the SLA by end Dec 2022.
iii. Against the backdrop of Staff Programmes, Ghana is indeed blessed to conclude our SLA within 5 months. This is historic in recent times relative to what we witnessed with Zambia, Chad and Ethiopia.
3. The IMF Programme
i. The GoG and the IMF teams have worked tirelessly to agree on key aspects of the IMF Programme at the Staff Level.
ii. Key deliverables over the period include:
a) Preparation of the Post-COVID-19 Programme for Economic Growth (PC-PEG);
b) A Medium-term macroeconomic framework;
c) Debt Sustainability Analysis (DSA) and Debt Management Strategy;
d) Structural reforms to address structural bottlenecks, improve competitiveness and promote efficiency and effectiveness;
e) A Memorandum of Economic and Financial Policies (MEFP); and
f) An Agreement on Prior Actions which are expected to be completed before the Fund goes to the Board.
iii. Ghana stands ready to complete all Prior Actions before the end-March 2023 but more importantly, Ghana is committed to the IMF Programme as a whole.
4. The SLA is only one aspect of the approval process. More is yet to be done to secure IMF Management and Board approval. That notwithstanding:
i. Key fiscal measures, structural reforms, and the medium-term macro-fiscal framework in the 2023 Budget are aligned with the IMF-supported Programme. It is therefore crucial that we receive support from all stakeholders including:
a) Parliament to ensure that the 2023 budget including all revenue measures are passed; and
b) Creditors to ensure a successful debt operation
Truly, the eventual conclusion of the program will assist us in our efforts to restore stability, tackle inflation, and strengthen our currency.
That is why the various ingredients of the program should be supported by all Ghanaians and all stakeholders.
We can only get to the IMF Board if we get sufficient commitment from our creditors in support of the debt operation.
i. The 2023 Budget is anchored on increasing domestic revenue mobilization effort by 1.2 percentage points of GDP. On the expenditure side, the 2023 Budget proposes to reduce expenditures (on commitment basis) by about 2 percentage points of GDP from 2022 to 2023. Primary expenditures are expected to be reduced through a reduction in allocation on the Use of Good and Services and Domestically Financed Captial expenditure on a commitment basis.
ii. These fiscal adjustments alone are not enough to address the country’s economic challenges, hence the ongoing debt restructuring aimed at restoring debt sustainability in the medium-term.
iii. The 2023 Budget contains important social protection measures to support the most vulnerable including measures that seek to gradually increase the number of beneficiary households as well as the value cash transfers under the LEAP.
Other social protection programmes which will be prioritised under the programmes include the NHIS, the Capitation Grant, and the School Feeding Programme.
5. Concluding Remarks:
iv. We are optimistic that the 2023 Budget adjustment strikes the right balance between determination and pragmatism.
v. Already, the economy is responding positively to the news of GoG and the IMF reaching an SLA and we are eager to leverage this momentum to the very moment when the IMF Executive Board approves the Programme request. We are already seeing significant improvements in the exchange rate with the Ghana cedi recovering against major currencies.
vi. We hope that Ghanaians will continue to support all efforts to restore macroeconomic stability and promote robust and inclusive growth.
vii. We are confident as a resilient people, and we shall rally to support this great enterprise, to restore macroeconomic stability and promote robust and inclusive growth. The world is looking at us, and I know we can do it.
viii. To God indeed be the glory for the great thing he hath done within 5 months. I am certain that God who began the good work will continue until it is finally finished – Greater things He will do. For we shall gather the harvest with joy.
ix. These indeed are both times for a Joseph recovery and a Nehemiah rebuilding
x. Let us continue with courage, the spirit of love for each other and self-discipline to go through this together.
On the other side, the local currency, the Cedi, declined against the major trading currencies, which caused enterprises to struggle or, in some cases, fail as they tried to stay in business.
The government took certain steps to strengthen the Cedi so that it could compete with other major trading currencies, particularly the US dollar, but these actions were only temporary because the Cedi continued to fluctuate.
Transport fares have also witnessed an upward adjustment which have subsequently led to an increase in the price of goods and services, the business community have also bemoaned the high import duty and other taxes.
But in all things, believers of the gospel – the bible – will say the creator of all things deserves praise as he makes a way when there seems to be no way.
Inasmuch as government had earlier said it wouldn’t go to the IMF for help though there were signals that the economy had become weak and many things had to be fixed, it made a U-turn to seek help.
With several consultations, back and forth, the Bretton Woods institution has reached a staff-level agreement with Ghana for a $3-billion extended credit facility.
At a press conference in Accra on Tuesday, December 13, 2022, the Minister of Finance, Ken Ofori-Atta, attributed this success chalked in the IMF deal to God Almighty.
He said, “Indeed, to God be the glory, for these great things He has done within five months…I am certain that He who began a good work will continue until it is finally finished.”
“Greater things I believe He will do and let us all gather the harvest with joy. These indeed are both times for a Joseph recovery and also a Nehemiah rebuilding,” the finance minister stated.
The International Monetary Fund (IMF) on Tuesday, December 13, 2022, announced that it has reached a staff-level agreement with Ghana on economic policies and reforms to be supported by a new three-year arrangement under the Extended Credit Facility (ECF) of about US$3 billion.
According to the IMF, the authorities’ strong reform programme is aimed at restoring macroeconomic stability of Ghana’s economy.
An IMF team led by its Mission Chief for Ghana, Stéphane Roudet, said Ghanaian authorities have launched a comprehensive debt operation by way of restoring the country’s public debt sustainability.
According to GhanaWeb Business sources, the briefing would reveal a specific resolution to months of negotiations as the government looks to the IMF for a bailout program.
The IMF Mission Team, which recently visited the nation, is anticipated to report that it and the Ghanaian government have reached a staff-level agreement for a fund program.
Prior to the announcement, the sources emphasized that there were still a few important issues that needed to be “ironed out” before today’s formal announcement. This was as of yesterday [December 12].
The Stephane Roudet-led IMF team has been in town since December 1, with the main mission of following up on engagements with government on its Economic Recovery Program.
Stéphane Roudet, the IMF’s Ghana Mission Chief, said in a statement posted on the website of the Fund: “I am pleased to announce that the IMF team reached staff-level agreement with the Ghanaian authorities on a three-year program supported by an arrangement under the Extended Credit Facility (ECF) in the amount of SDR 2.242 billion, or roughly US$3 billion.
The economic agenda intends to establish the groundwork for higher and more inclusive growth while restoring macroeconomic stability and debt sustainability.
“The Ghanaian authorities have committed to a wide-ranging economic reform program, which builds on the government’s Post-COVID-19 Program for Economic Growth (PC-PEG) and tackles the deep challenges facing the country,” the statement read in part.
“Key reforms aim to ensure the sustainability of public finances while protecting the vulnerable. The fiscal strategy relies on frontloaded measures to increase domestic resource mobilization and streamline expenditure. In addition, the authorities have committed to strengthening social safety nets, including reinforcing the existing targeted cash-transfer program for vulnerable households and improving the coverage and efficiency of social spending,” it added.
“Structural reforms will be introduced to underpin the fiscal strategy and ensure a durable consolidation. These include developing a medium-term plan to generate additional revenue and advancing reforms to bolster tax compliance. This will help create space for growth-enhancing measures and social spending. Efforts will also be made to strengthen public expenditure commitment controls, improve fiscal transparency (including the reporting and monitoring of arrears), improve the management of public enterprises, and tackle structural challenges in the energy and cocoa sectors. The authorities are also committed to further bolstering governance and accountability.
“To support the objective of restoring public debt sustainability, the authorities have announced a comprehensive debt restructuring. Sufficient assurances and progress on this front will be needed before the proposed Fund-supported program can be presented to the IMF Executive Board for approval.
“Reducing inflation, enhancing resilience to external shocks, and improving market confidence are also important program priorities. Accordingly, the Bank of Ghana will continue to strengthen its monetary policy framework and promote exchange rate flexibility to rebuild external buffers. As part of the authorities’ debt strategy, a domestic debt exchange has been launched. The authorities are committed to taking the necessary mitigation measures to ensure financial sector stability is preserved.
“IMF staff held meetings with Vice President Bawumia, Finance Minister Ofori-Atta, and Bank of Ghana Governor Addison, and their teams, as well as representatives from various government agencies. The IMF team has also continued to engage with other stakeholders. Staff would like to express their gratitude to the Ghanaian authorities, Parliament’s Finance Committee and all the private sector, trade union, and civil society representatives for their open and constructive engagement over the past few months.”
* The authorities’ strong reform program aims at restoring macroeconomic stability and debt sustainability while protecting the vulnerable, preserving financial stability, and laying the foundation for strong and inclusive recovery. To support the objective of restoring public debt sustainability, the authorities have launched a comprehensive debt operation.
* In addition to a frontloaded fiscal consolidation and measures to reduce inflation and rebuild external buffers, the program envisages wide-ranging reforms to address structural weaknesses and enhance resilience to shocks.
Accra, Ghana: An International Monetary Fund (IMF) team led by Mr. Stéphane Roudet, Mission Chief for Ghana, visited Accra during December 1 – 13, 2022, to discuss with the Ghanaian authorities IMF support for their policy and reform plans.
At the end of the mission, Mr. Roudet issued the following statement:
I am pleased to announce that the IMF team reached staff-level agreement with the Ghanaian authorities on a three-year program supported by an arrangement under the Extended Credit Facility (ECF) in the amount of SDR 2.242 billion or about US$3 billion. The economic program aims to restore macroeconomic stability and debt sustainability while laying the foundation for stronger and more inclusive growth. The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances by Ghana’s partners and creditors.
“Key reforms aim to ensure the sustainability of public finances while protecting the vulnerable. The fiscal strategy relies on frontloaded measures to increase domestic resource mobilization and streamline expenditure. In addition, the authorities have committed to strengthening social safety nets, including reinforcing the existing targeted cash-transfer program for vulnerable households and improving the coverage and efficiency of social spending.
“Structural reforms will be introduced to underpin the fiscal strategy and ensure a durable consolidation. These include developing a medium-term plan to generate additional revenue and advancing reforms to bolster tax compliance. This will help create space for growth-enhancing measures and social spending. Efforts will also be made to strengthen public expenditure commitment controls, improve fiscal transparency (including the reporting and monitoring of arrears), improve the management of public enterprises, and tackle structural challenges in the energy and cocoa sectors. The authorities are also committed to further bolstering governance and accountability.
“To support the objective of restoring public debt sustainability, the authorities have announced a comprehensive debt restructuring. Sufficient assurances and progress on this front will be needed before the proposed Fund-supported program can be presented to the IMF Executive Board for approval.
“Reducing inflation, enhancing resilience to external shocks, and improving market confidence are also important program priorities. Accordingly, the Bank of Ghana will continue to strengthen its monetary policy framework and promote exchange rate flexibility to rebuild external buffers. As part of the authorities’ debt strategy, a domestic debt exchange has been launched. The authorities are committed to taking the necessary mitigation measures to ensure financial sector stability is preserved.
“IMF staff held meetings with Vice President Bawumia, Finance Minister Ofori-Atta, and Bank of Ghana Governor Addison, and their teams, as well as representatives from various government agencies. The IMF team has also continued to engage with other stakeholders. Staff would like to express their gratitude to the Ghanaian authorities, Parliament’s Finance Committee and all the private sector, trade union, and civil society representatives for their open and constructive engagement over the past few months.”
The International Monetary Fund (IMF), on Monday, December 12, 2022, reached a Staff-Level Agreement with the government on economic policies and reforms after a six-month engagement.
The Staff-Level Agreement, which is reached between a country requesting for Fund and the IMF Mission, is subject to the approval of the IMF Management and Executive Board and receipt of the necessary financing assurances before loans are granted.
However, Management and Executive Board’s approval is conditioned on the completion of a debt restructuring exercise to bring debt stock to sustainable levels.
In a statement, the Bretton Woods institution disclosed that, all other things being equal, Ghana will be supported by a three-year arrangement under the Extended Credit Facility (ECF) of about $3 billion.
The Reform Program, it says, aims at restoring macroeconomic stability and debt sustainability while protecting the vulnerable, preserving financial stability, and laying the foundation for strong and inclusive recovery.
The programme also envisages wide-ranging reforms to address structural weaknesses and enhance resilience to shocks.
According to IMF, these reforms include developing a medium-term plan to generate additional revenue and advancing reforms to bolster tax compliance.
“ The Ghanaian authorities have committed to a wide-ranging economic reform program, which builds on the government’s Post-COVID-19 Program for Economic Growth (PC-PEG) and tackles the deep challenges facing the country.”
“Key reforms aim to ensure the sustainability of public finances while protecting the vulnerable. The fiscal strategy relies on frontloaded measures to increase domestic resource mobilization and streamline expenditure. In addition, the authorities have committed to strengthening social safety nets, including reinforcing the existing targeted cash-transfer program for vulnerable households and improving the coverage and efficiency of social spending,” part of the statement added.
The IMF noted that the structural reforms will strengthen public expenditure commitment controls, improve fiscal transparency (including the reporting and monitoring of arrears), improve the management of public enterprises, and tackle structural challenges in the energy and cocoa sectors.
It further added that “the authorities are also committed to further bolstering governance and accountability”.
Already, the government has launched a comprehensive debt operation in order to support the objective of restoring public debt sustainability,
This includes the recently implemented Domestic Debt Exchange programme.
Debt Exchange Programme
As part of the conditions to receive support from the IMF, the Akufo-Addo government introduced a debt restructuring programme to salvage Ghana’s dwindling economy.
The Debt restructuring Programme entails a government or institution refinancing its current debt commitments in order to avoid defaulting on its obligations or declaring bankruptcy.
Under the new programme which took effect on Tuesday, December 1, 2022, domestic bondholders are required to exchange their current bonds for a new set of four bonds maturing in 2027, 2029, 2032 and 2037.
This means that bondholders will not be able to receive any interest in 2023.
Announcing the program, Finance Minister, Ken Ofori-Atta noted that the domestic debt exchange is part of a more comprehensive agenda to restore debt and financial sustainability.
Background
Opposing suggestions for an IMF programme to bail Ghana out of its economic woes, the Akufo-Addo government in July 2022, made a U-turn and commenced official engagement with the IMF.
Not long after its decision, an IMF staff team led by Carlo Sdralevich visited Accra to assess the current economic situation and discuss the broad lines of the government’s Enhanced Domestic Programme that could be supported by a Fund lending arrangement.
The IMF team met with Vice President Bawumia, Finance Minister Ofori-Atta, and the Governor of the Bank of Ghana.
Dr. Ernest Addison. The team also met with the Parliament’s Finance Committee, Civil Society Organizations (CSO), and development partners, including UNICEF and the World Bank, to engage on social spending.
The IMF/World Bank and the government undertook a debt sustainability analysis (DSA) to inform the programme negotiations and affirmed the assertion that Ghana’s economic crisis has been exacerbated as a result of the COVID-19 pandemic and the Russia-Ukraine war.
