Minister for Finance-Mr Seth Terkper, International Monetary Fund (IMF), Joel Toujas-Bernate-IMF Mission Chief for Ghana, Volta River Authority (VRA), Bank of Ghana (BoG), Electricity Company of Ghana (ECG). IMF mission chief Joel Toujas-Bernate.
What, Why & When:
The IMF mission to Ghana for the 3rd review of the country's bailout programme with the Bretton Wood institution ended on Friday, 2nd September, 2016i. Afterwards Ghanaian Finance Minister Seth Terkper was quoted in the press describing progress made so far as satisfactory and indicative of the government's commitment to the bailout programme: A USD918 million three-year Extended Credit Facility (ECF) launched in April, 2015.
The mission among other things focused on updating the macroeconomic projections and also accessing the financial difficulties faced by State Owned Enterprises (SOEs) in the energy sector especially the Volta River Authority (VRA), which owed approximately USD1.5 billion to about 13 banks as at July this year. See Update (18 July): VRA Engulfed in Debt.
Government has agreed to pay GHC 2.2 billion (USD555 million) of the debts with an initial payment of GHC 250 million in the coming days. Joy Business reported. According to Terpker, as at 31st August, 2016, the energy levies imposed at the beginning of the year had generated GHC 350 million (USD88.2 million) which will be used to defray the debt in the energy sector.ii
Despite Terkper's description of events, concerns have been raised by the IMF about the passage of Bank of Ghana (BoG) amendment law, which pegs central bank financing of central government deficit at 5%.iii This is against the IMF's proposal of zero percent BoG financing of the government deficit. While the government/parliamentary view is that some room for maneuver is correct and necessary, the fund is concerned about the typical cycle of election related overspend.
The visit by the IMF team to Ghana shows commitment of both parties to continuing with the bailout programme. Since the IMF were broadly positive in the press statement, the IMF board is expected to approve Ghana's 3rd review when it meets later this month, paving the way for the disbursement of about US$ 116 million to the country. That said, the board, which will consider the staff report later this month, may well push against the amended BoG act. This might call for a renegotiation on that conditionality and/or other government commitments to keep the programme running.
Currently, plans by the government to address energy sector delinquency and its broader implications for the economy on 1) regularising SOE debts, and 2) reorganisation of power sector institutions themselves e.g. Electricity Company of Ghana (ECG) privatization. The first point should reduce non-performing loans in the banking sector and strengthen the industry if properly adhered to. On the second, Electricity Company of Ghana (ECG) workers have kicked against plans by the government to give the company out on concession to a private companyiv and litigation has been launched by members of one of the smaller opposition parties to halt the processv.
Finally, whereas previous election cycles e.g. 2008 and 2012 most recently, have been followed by marked increases in the size of the deficit, the ongoing programme and the current review makes that parameters will be respected.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.