Ghana: Request for Disbursement under the Rapid Credit Facility—Press Release; Staff Report; and Statement by the Executive Director for Ghana
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International Monetary Fund. African Dept.
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Publication Date:
16 Apr 2020
eISBN:
9781513540870
Language:
English
Keywords:
ISCR; CR; financing; Ghana; government financing Needs; government; government financing; financing gap; Ghanaian authorities; Ghana's situation; authorities' effort; financing needs; COVID-19; Energy sector; International reserves; Financial sector; Credit; Global; excl. oil; financial support; net financing; exceptional financing
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Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Ghana

Abstract

Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Ghana

Context

1. The spread of COVID-19 is still limited in Ghana, but the risk of a large outbreak is rising. (Text Figure). In response to the unfolding pandemic, the authorities have announced: (i) a US$100 million allocation earmarked to health spending; (ii) a partial lockdown, sweeping social-distancing measures and travel restrictions; (iii) a $166 million Coronavirus Alleviation Program (CAP) to support the economy; (iv) a financing strategy to mitigate the economic fallout that combines drawdowns on oil funds and exceptional financing from the Fund and the World Bank; and (v) an interest rate cut plus liquidity injection in the banking system.

Cumulative number of confirmed COVID-19 cases

(log scale, as of March 30, 2020)

Citation: IMF Staff Country Reports 2020, 110; 10.5089/9781513540870.002.A001

Source: Johns Hopkins Coronavirus Resource Center and IMF calculations.

Impact of the COVID-19 Pandemic and Medium-Term Outlook

Ghana: Key Macroeconomk Indicators, 2018–21

article image
Sources Ghanaian authorities; and Fund staff estimates and projections.

A. Impact

2. Macroeconomic and financing conditions were favorable before the COVID-19 pandemic shock. The authorities achieved broad macroeconomic stabilization, high growth, and inflation close to the midpoint of the Bank of Ghana (BOG) target band (Text Table). Despite risks, the outlook remained positive, as reflected in strong investor interest in the February Eurobond issuance of US$3 billion. At the beginning of the year, the Cedi appreciated strongly, driven by offshore inflows and rating agencies upgrades. As a result, external buffers improved, with gross international reserves (excluding oil funds) reaching US$8.3 billion or about 4 months of imports by end-February.

3. However, the economic environment has deteriorated rapidly in recent weeks:

  • Commodity prices for Ghana’s three main exports have been volatile. Oil prices have more than halved since early January. Cocoa prices rose earlier in the year due to concerns about global supply but have since dropped about 10 percent year-to-date. Prices of gold—Ghana’s largest export—have increased strongly due to the flight to safety.

  • Financing conditions have tightened, with Eurobond spreads peaking at 1,355 basis points in late March—a four-year high. However, yields on domestic debt have so far remained broadly stable.

  • The Cedi began depreciating in late February, due to the global risk-off sentiment, capital outflows, and reduced export revenues, and by late March had erased its gains for the year.

Cumulative portfolio flows

(Millio US$ since the start of the episode)

Citation: IMF Staff Country Reports 2020, 110; 10.5089/9781513540870.002.A001

Source: Haver Analytics and IMF calculations.

4. External factors, the domestic outbreak, and government containment measures are expected to affect the macro outlook for 2020:

  • Growth is projected to fall to 1.5 percent, compared to December 2019 Art. IV projection of 5.8 percent, driven by lower oil production, weak global aggregate demand, global supply chain disruptions, and a steep decline in international travel, trade and retail and hospitality services (Text Figure). Containment measures, including the partial lockdown, and voluntary social distancing are expected to temporarily disrupt service and manufacturing activities. Mining production is also likely to be affected, but to a lesser degree given the higher gold prices over the forecast horizon and the restart of operations at the Obuasi mine.

  • Inflation is expected to rise but remain below the upper band of the central bank target, as pressures from global supply chain disruptions and depreciation are partially offset by lower fuel and food prices.

  • The current account deficit is projected to widen to 4.5 percent of GDP because of the expected decline in Ghana’s oil exports by more than US$2 billion, mainly due to the fall in oil prices, and lower tourism revenues and remittances. Higher gold prices and lower profit repatriations and intra-company payments will hedge some of the negative impact. Imports are expected to decline due to lower domestic demand and global supply disruptions.

  • Gross international reserves are projected to decline to 2.7 months of imports by end-year assuming exceptional financial support of about US$1.3 billion by the IMF and other IFIs.

  • The government deficit is projected to reach 9.5 percent of GDP, or 6.4 percent of GDP in the government measure excluding energy and financial sector costs. Compared to the 2019 Article IV baseline, revenues are expected to be lower by 2.2 percent of GDP, because of lower oil revenue and weaker tax collections from the growth slowdown, including because of expected lower tax compliance. COVID-19 spending is expected to amount to 0.4 percent of GDP, composed of higher health and social expenditures (0.2 percent of GDP), and the CAP fiscal stimulus package (0.2 percent of GDP). Additional depositor compensation (1.3 percent of GDP) in the context of financial sector restructuring (unrelated to COVID) is mostly financed through a 5-year zero-coupon bullet bond, only increasing net financing needs by 0.3 percentage points of GDP.

  • Gross government financing needs are expected to be higher by 6.1 percentage points of GDP relative to the 2019 Article IV baseline.

Ghana; Revisions to 2020 GDP Growth Projection

(percent)

Citation: IMF Staff Country Reports 2020, 110; 10.5089/9781513540870.002.A001

Source: IMF staff calculations.

Ghana. 2020 Financing needs and sources

article image
Source: IMF staff

B. Medium-Term Outlook and Risks

5. Medium-term prospects remain favorable. The medium-term outlook is unchanged from the 2019 Article IV consultation. The increase in government deficit is expected to be temporary, as most spending increase would be one-off (including for financial sector restructuring) and revenues should return to trend once growth rebounds next year, in line with a projected recovery in global growth and commodity prices. Similarly, the increase in debt does not affect the DSA risk rating, currently at high risk of debt distress, given that debt service indicators are affected only marginally (Annex I). The outlook continues to be predicated on continued market access once global financial conditions normalize.

6. However, risks are to the downside. Should these risks materialize simultaneously, it could prove difficult to define a feasible fiscal adjustment to stabilize the debt ratio and contain rollover risks. This underscores the importance of a sound approach to policies in each of these areas, as discussed in the next sections.

  • A more extensive and prolonged domestic COVID-19 outbreak would have severe human consequences and lead to a steep economic contraction in 2020 and lower recovery in 2021. Food insecurity would rise with disrupted trade and markets, and poverty would worsen. Globally, a slower-than-expected recovery could lead to further declines in oil and cocoa prices and a reversal of gold price increases.

  • Rollover risks may be exacerbated by the higher financing needs in 2020, worsening investor confidence, and recent monetary policy easing (Figure 1). Non-resident investors hold about one-quarter of domestic government debt.

  • Existing and new contingent liabilities could materialize. Energy sector costs could increase if the authorities do not implement their Energy Sector Reform Program. Financial sector cleanup costs may also increase, both because of existing risks—recapitalization of a troubled state-owned bank and fragilities in the non-bank sector—and potential new challenges, including an increase in non-performing loans due to the growth slowdown.

Figure 1.
Figure 1.

External and Domestic Debt Developments

Citation: IMF Staff Country Reports 2020, 110; 10.5089/9781513540870.002.A001

Source: Bloomberg L.P., Central Securities Depository, Ghanaian authorities and IMF calculations.

Addressing the Impact of the Pandemic

A. Leveraging Fiscal Policy to Fight the Pandemic

7. The authorities have been proactive in tackling the COVID-19 shock and stand ready to scale their health response (Box 1). The authorities are committed to ramp up measures in public health depending on the evolution of the pandemic.

8. On March 30, the authorities announced the CAP to support affected households and firms. The program, which is being developed, consists in a stimulus package worth GHc 1 billion (US$166 million) for the promotion of selected industries (e.g., pharmaceutical sector supplying COVID-19 drugs and equipment), the support of SMEs and employment, and the creation of guarantees and first-loss instruments. Moreover, the tax filing deadline was extended from April to June. In line with staff recommendations, the fiscal measures in the CAP and other interventions are timely, targeted to support the most affected households and firms, and temporary to allow the fiscal stance to improve as the economy recovers. The authorities stand ready to introduce further health and economic measures in line with the evolution of the pandemic. Staff proposed further measures such as an expansion of targeted relief and support for SMEs, vulnerable households, and informal sector, scaling up of cash transfer programs, further prioritization of health spending, and clearance of existing arrears and avoidance of new ones to alleviate cash flow constraints.

Health Policy Response to the COVID-19 Pandemic

  • The COVID-19 outbreak is still relatively limited in Ghana. As of April 5, there were 214 confirmed cases and five deaths.

  • The authorities have taken early steps to enhance Ghana’s preparedness. Ghana was among 13 African countries identified as top priority by WHO for being at risk of a COVID-19 outbreak. COVID-19 testing was established initially at the Noguchi Memorial Institute for Medical Research (NMIMR) in Accra, with support from the WHO, CDC and US Naval Medical Research Unit 3 (NAMRU-3) and then extended to the Kumasi Centre for Collaborative Research (KCCR), with support from the Bernard Nocht Institute. The government has focused on distributing personal protective equipment (PPE), coordination activities, and health declaration forms. The WHO, the World Bank, DFID, and other partners are supporting the government’s efforts.

  • The President committed US$100 million to support preparedness and response funded by the World Bank. The initial preparedness budget was set at US$6.5 million, with US$2.8 million already spent. In addition, the government, in collaboration with development partners, is considering directing existing and new funding to finance the health response.

  • The government has adopted sweeping social distancing measures and travel restrictions. On March 16, the government decreed: (i) suspension of all public gatherings exceeding 25 for four weeks; (ii) closure of all universities and schools until further notice; (iii) mandatory 14-day self-quarantine for Ghanaian resident who has been to a country with at least 200 confirmed cases of COVID-19 within the last 14 days; and (iv) no testing without symptoms, except for close contacts. On March 23, Ghana closed its borders to travellers and on March 30 introduced a partial lockdown centered around major urban areas.

9. The government is creating fiscal space to accommodate COVID-19 related spending. The fiscal response is constrained by Ghana’s limited fiscal space. The government therefore plans cutting spending in goods and services, transfers, and capital investment (also reflecting the lower absorption capacity of the economy due to the pandemic), for a total of at least GHc 1.1 billion (0.3 percent of GDP). Also, the government has agreed with investors to postpone interest payment on non-marketable domestic bonds held by public institutions to fund the financial sector clean-up for about GHc 1.2 billion (0.3 percent of GDP). The government stands ready to take additional measures, including further cuts to non-priority expenditures, if needed.

10. The Ministry of Finance is exploring additional sources to close the financing gap. Besides the disbursement under the RCF of about US$1 billion, which would support the budget, the authorities are discussing exceptional financing from the World Bank in the order of US$300 million and have requested additional financing from the African Development Bank. They intend drawing on the Oil Stabilization fund for a total amount of about US$218 million in accordance with the provisions of the Petroleum Revenue Management Act and have proposed to Parliament to amend the law to grant access to the Heritage Fund of US$591 million. Should no further donor funding materialize, they plan to raise the remaining US$1.1 billion on the domestic debt market. The authorities will also continue exploring opportunities for liability management operations in the domestic market to manage the profile of financing needs.

11. The authorities will work within their public financial management framework to anchor the fiscal response to the shock. The government is considering suspending the fiscal rule in accordance with the Fiscal Responsibility Act, 2018 which allows for rule suspension for a public health epidemic or an unanticipated severe economic shock. The Act also stipulates that government present to Parliament, within 30 days of suspending the fiscal rule, plans to restore public finances after the emergency. COVID-19- related funds should be channeled through the budget following the strict application of budgetary procedures and controls, including audits.

B. Using Monetary and Exchange Rate Policies to Dampen the Shocks

12. The central bank is taking bold steps to mitigate the impact of the COVID-19 shock. On March 18, the Monetary Policy Committee (MPC) cut its key policy rate by 150 basis points to 14.5 percent, the first change since January 2019. The MPC also announced several measures to mitigate the impact of the pandemic shock, including lower reserve and capital requirements, revised provisioning and classification rules for specific loan categories, and steps to facilitate and lower the cost of mobile payments (Box 2). The committee also signaled it would continue to monitor the economic impact of COVID-19 and decide on additional measures if necessary.

Ghana. Fiscal impact of COVID-19

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The program includes i) a support to affected firms including tourism and hospitality firms, ii} delays in bill payment for affected firms and households, iii} a support to SMEs involved in the production of materials against the COVID-19, iv) a support to local pharmaceutical industries involved in the productionof medication against COVID-19, and v) a partnership with telecommunication firms to provide internet data at cheaper price to households including students.

Measures Announced at the March 18 MPC Meeting

  • Lower the policy rate by 150 basis points to 14.5 percent.

  • Lower the primary reserve requirement from 10 to 8 percent to provide liquidity to banks.

  • Lower the Capital Conservation Buffer from 3 to 1.5 percent to boost bank lending.

  • Change provisioning requirements for some loans from 10 to 5 percent.

  • Reclassify as “Current” loans whose repayments that are past due for Microfinance Institutions for up to 30 days, similar to what is already done for other SDIs.

  • Increase mobile money transaction and wallet limits, waive fees for small transactions, and easier registration for basic mobile money accounts.

13. The pandemic represents a combined demand and supply shock that requires close coordination of monetary, exchange rate and macroprudential policies. The BOG remains committed to maintaining a prudent monetary policy stance to anchor inflation around the target band and mitigate pressures from capital outflows. While there is some room to manage excessive volatility to avoid disorderly market conditions, the BOG intends to preserve external buffers and continue to allow for exchange rate flexibility if pressures persist.

C. Addressing Challenges to Financial Stability

14. Banking sector performance and liquidity has improved following the recent cleanup. However, vulnerabilities remain, including a still relatively high share of non-performing loans, recapitalization needs of a large state-owned bank, and cross-sectoral exposures deriving from the mixed performance of non-bank institutions. In this context, the BOG could consider exceptional measures to address the impact of the crisis, such as temporarily lowering capital conservation buffers to zero percent, while avoiding further revisions to loan classification and provisioning standards.

15. The BOG has scaled up liquidity support to the banking sector. The BOG has taken steps to prevent banks from declaring or paying dividends for 2019 using the additional liquidity released by the MPC measures, and extended the deadline for banks and payment service providers to meet higher minimum capital requirements from June to December 2020. Staff suggested that, if needed, the BOG could consider stepping up open market operations and further cutting reserve requirements, and providing Emergency Liquidity Assistance (ELA) within the BOG’s collateral framework, possibly allowing collateral normally not accepted for monetary policy operations. In extreme conditions, liquidity support could also be provided to non-banks. However, such support should be targeted, temporary, driven by financial stability considerations, and should also be backstopped by the government.

16. The authorities’ response is being complemented by actions taken by commercial banks. Banks have committed to lowering interest rates on credit to the private sector by about 2 percent, on average, and have created a GHc 3 billion credit facility for key industries, including pharmaceuticals, hospitality, services and manufacturing. In addition, they have agreed to a 6-month moratorium on principal payments in the airline and hospitality industries, and to review credit to other industries on a case-by-case basis.

Fund Support and Capacity to Repay

17. The impact of the pandemic creates an urgent balance of payments need and the authorities are requesting a disbursement under the RCF equivalent to 100 percent of quota (SDR 738 million or about US$1 billion). The authorities are also requesting that this financing be made available in its entirety as budget support.1 The disbursement will help address the urgent fiscal needs, which directly contribute to the balance of payments gap, and provide additional foreign exchange to avoid a sharp drop in international reserves. The urgent balance of payments need triggered by the COVID-19 pandemic is caused primarily by sudden exogenous shocks and is expected to resolve within the next 12 months without major policy adjustments.2

18. Ghana’s capacity to repay is adequate. Including the proposed disbursement under the RCF, the total amount of outstanding credit from the Fund would amount to SDR 1.512 billion (205 percent of quota and 39.2 percent of gross international reserves). While repayments to the Fund are projected to rise over the medium-term, peaking at SDR 238.9 million in 2026, they would still remain at 1.1 percent of exports and 5.2 percent of foreign exchange reserves. Ghana’s track record of servicing debts to the Fund, improvement in macroeconomic stability, and commitment to fiscal discipline over the medium-term suggest that repayment risks are contained.

19. Exceptional financing from the IMF and other multilateral institutions would not change Ghana’s risk of debt distress rating (Annex I). Government debt is expected to rise from 63.2 percent of GDP at end-2019 to 68.7 percent of GDP at end-2020, driven by a wider fiscal deficit and lower GDP, but the medium-term debt path remains largely similar to the 2019 Article IV DSA. Liquidity indicators, particularly debt service to revenue ratios, follow a similar trajectory with a 15 percentage points increase in 2020 and slower normalization over the medium term, suggesting higher liquidity risk. As outlined above, the outlook is subject to significant risks.

20. Under the IMF’s safeguards policy, the RCF disbursement envisages an update of the previous assessment, which was completed in April 2015. The latest Safeguards Monitoring Report (March 2018) concluded that the BOG made some progress in addressing the recommendations of the 2015 safeguards assessment, including continuation of quality external audits, improved disclosures in its financial statements, and established procedures to monitor credit to government. However, several of the 2018 recommendations are still outstanding. The BOG’s legal framework has not been strengthened to prohibit monetary financing of the government and safeguard the BOG’s autonomy, even though the prohibition is for the moment ensured by the MOU between MOF and BOG that expires at the end of this year.

Staff Appraisal

21. The COVID-19 pandemic is already having a strong impact on Ghana’s economy. Growth is projected to slow down, financial conditions have tightened, and the exchange rate is coming under pressure. Exports and tax revenue will be lower than expected just a few months ago, leading to the emergence of large external and fiscal financing gaps.

22. The authorities are acting proactively to contain the spread of COVID-19 and mitigate its economic impact. Following the first cases of COVID-19, the government committed funding for additional health expenditures and launched the Coronavirus Alleviation Program to support the most affected households and firms. If the crisis deepens, the government may need to scale up its response, ensuring that support measures remain timely, temporary, and targeted so as to safeguard fairness and public finances.

23. The Bank of Ghana has taken steps to ensure adequate domestic liquidity and mitigate the economic impact of the pandemic. Addressing the pandemic shock requires a multi-pronged approach combining monetary, exchange rate and macroprudential policies, in addition to acting as a lender of last resort. It will be important to keep measures temporary and targeted, and to preserve exchange rate flexibility and external buffers.

24. The crisis amplifies existing risks. The situation is rapidly evolving, and economic assessment and projections as well as policy decisions are affected by unprecedented uncertainty regarding the evolution of the pandemic both in Ghana and globally, and its economic effects. It is important for the authorities to implement their plans rigorously and stand ready to introduce additional measures, if necessary, while preserving macroeconomic stability.

25. Staff supports the authorities’ request for a disbursement under the Rapid Credit Facility in the amount of SDR 738 million (100 percent of quota). Given the large fiscal financing gap, staff also supports the request that the disbursement be made directly in the form of budget support. The disbursement under the RCF would allow to close the fiscal financing gap together with other expected exceptional financing from other multilateral institutions, savings from government expenditure switching and cuts, withdrawals from the oil fund, and additional domestic debt issuances.

Table 1.

Ghana: Selected Economic Indicators, 2018–25

article image
Sources: Ghanaian authorities; and Furd staff estimates and projections.

The CPI was rebased in September 2019. The historical figures reflect assumptions by IMF staff, and will be revised once an official historical linked series is available.

Including public enterprises.

Excludes discrepancy.

Includes Energy Sector Levy Act bond.

Table 2a.

Ghana: Summary of Budgetary Central Government Operations, 2018–21

(GFS 2001, Cash basis, Percent of GDP)

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Sources: Ghanaian authorities; and IMF staff estimates and projections.

Revenues in staff’s presentation differ from those of the authorities as staff reports revenues net of retentions of the revenue agency.

Payments of cash arrears and promissory notes to statutory funds.

Includes onlending to SoEs using the proceeds from issuance of the Energy Sector Levy Act bond.

Table 2b.

Ghana: Summary of Budgetary Central Government Operations, 2018–21

(GFS 2001, Cash basis, Millions of GHc)

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Sources: Ghanaian authorities; and IMF staff estimates and projections.

Revenues in this presentation differs from the authorities’ as staff reports revenues net of retentions of the revenue agency.

Payments of cash arrears and promissory notes to statutory funds.

Includes onlending to SoEs using the proceeds from issuance of the Energy Sector Levy Act bond.

Table 3.

Ghana: Monetary Survey, 2018–21

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Sources: Ghanaian authorities; and Fund staff estimates and projections.

Include public enterprises and local governments.

Including valuation and Open Market Operations (OMO).

Excludes foreign currency deposits.

Includes foreign currency deposits.

Table 4.

Ghana: Balance of Payments, 2018–21

article image
Sources: Ghanaian authorities; and Fund staff estimates and projections.

The Fund’s disbursements to be used for budget support are included after 2017.

Includes foreign encumbered assets and oil funds.

Excludes foreign encumbered assets and oil funds.

Table 5.

Ghana: External Financing Requirements and Sources, 2018–20

(Millions of U.S. Dollars, unless otherwise indicated)

article image
Sources: Ghanaian authorities and IMF staff estimates and projections.

Including repayments to IMF.

Including transactions associated with BoG’s short-term liabilities for a reserve management purpose.

Table 6.

Ghana: Indicators of Capacity to the Repay the IMF, 2020–33

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Sources: IMF staff estimates and projections.

Total debt service includes IMF repayments.

Annex I. Public and External Sector Debt Sustainability Analysis

Approved By: Marcelo Estevão (IDA) and Mark Flanagan (IMF)

Ghana Joint Bank-Fund Debt Sustainability Analysis

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External and overall debt are at high risk of debt distress but remain sustainable. The shocks from COVID-19 epidemic (collapse of oil prices, decline in trade, and lower non-commodity growth) are expected to deepen current account and fiscal deficits over the medium term resulting in a higher debt path compared to the November 2019 DSA.

1. The end of exceptional spending items (COVID-19-related spending, financial sector restructuring) and the government’s commitment to the fiscal rule underpin the downward path of debt from 2022. Ghana enters the crisis relatively well prepared. External buffers have been strengthened with better-than-expected outturn in 2019 due to higher gold export receipts and remittances, and a $3bn Eurobond issue in early 2020. Contingent risks have been alleviated thanks to progress on the financial sector clean-up and the launch of the energy sector reform program. Gold prices (Ghana’s main export) boosted by the global flight to safety and the pre-sale of most of 2020 cocoa harvest mitigate the impact of the shock this year.

2. The standard stress tests have been augmented to reflect a possible scenario with a stronger outbreak and protracted national lock-down. The growth shock has been increased to two standard deviations and exchange rate depreciation has been increased to 40 percent. Under these extreme shocks, debt still remains sustainable. Debt-service indicators are not on an explosive path. Furthermore, the DSA shocks likely exaggerate the impact on these indicators over the medium-long run given that, once the COVID emergency is solved and the elections are over, stressors such as risk premia, low commodity prices, and weak domestic revenues would improve significantly. The inclusion of the contingent liability stress test at 5 percent of GDP should also be adequate to cover additional financial sector costs from the impact of COVID-19.

3. Nevertheless, even under the baseline, risks to the outlook remain important. Risks depend primarily on the depth and duration of the COVID-19 and oil price shock. Fiscal costs including pandemic response and measures to support economic activity could exceed those envisioned in the baseline and extend into 2021. A deeper global slowdown could have a greater impact on oil prices, private transfers and investment and further weaken the exchange rate. A more prolonged crisis could create additional liquidity risks into 2021. Stress tests show that, of these risks, exchange rate depreciation, export and commodity prices shocks are associated might have the greatest impact on debt sustainability.

Table 1.

Ghana: External Debt Sustainability Framework, Baseline Scenario, 2017–2040

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r – g – p(1 +g) + Etx (1 +r)]/(1 + g+p+gp) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, p = growth rate of GDP deflator in U.S. dollar terms, £=nominal appreciation of the local currency, and a= share of local currency-denominated external debt in total external debt. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 2.

Ghana: Public Sector Debt Sustainability Framework, Baseline Scenario, 2017–2040

(In percent of GDP, unless otherwise indicated)

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Sources Country authorities; and staff estimates and projections 1/ Coverage of debt: The central government, central bank, government-guaranteed debt. Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Figure 1.
Figure 1.

Ghana: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2020–2030

Citation: IMF Staff Country Reports 2020, 110; 10.5089/9781513540870.002.A001

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
Figure 2.
Figure 2.

Ghana: Indicators of Public Debt Under Alternative Scenarios, 2020–2030

Citation: IMF Staff Country Reports 2020, 110; 10.5089/9781513540870.002.A001

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Table 3.

Ghana: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–2030

(In percent)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold.

Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includes official and private transfers and FDI.

Table 4.

Ghana: Sensitivity Analysis for Key Indicators of Public Debt, 2020–2030

in percent

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the benchmark.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

Appendix I. Letter of Intent

Accra, April 6, 2020

Ms. Kristalina Georgieva

Managing Director

International Monetary Fund (IMF)

Washington, D.C. 20431

Dear Ms. Georgieva,

1. The Government of Ghana hereby requests approval of financial support from the IMF under the Rapid Credit Facility (RCF), in an amount of SDR 738 million (100 percent of Ghana’s quota), to mitigate the adverse impact of the COVID-19 pandemic on the Ghanaian economy. We also request that the full amount of this disbursement be made available immediately upon approval by the IMF Executive Board, and that the disbursement be made to the Ministry of Finance’s account at the Bank of Ghana (BoG) to provide immediate budget support.

2. In April 2019, Ghana successfully completed a four-year ECF arrangement through which significant progress towards macroeconomic stability was achieved, with strong growth, single-digit inflation, lower government deficits, and an improved external position. The government has made great strides in implementing the “Ghana Beyond Aid” reform agenda to consolidate reforms and deliver a resilient, inclusive and diversified economy that provides opportunities, jobs, and prosperity for all Ghanaians.

3. However, the COVID-19 pandemic spreading rapidly across the world is placing all economies under severe stress and Ghana is no exception. The pandemic has potential to cause large human suffering and loss of life in Ghana, especially among the most vulnerable, and is already having a significant and widespread economic impact. These effects are already being felt through lower commodity prices, particularly oil and gas; sharp declines in tourism, trade and foreign investment; and supply chain disruptions affecting manufacturing, retail and pharmaceuticals. To contain the spread of the pandemic in Ghana, the Government has taken decisive measures including introducing a partial lockdown of the Greater Accra and Kumasi Metropolitan area, closure of schools and universities, and public gatherings of churches, mosques, and entertainment facilities. This will undoubtedly exert additional strain on public finances and amplify the economic disruption. Our preliminary assessment suggests that GDP growth will slow down to 1.5 percent this year, compared to the 6.8 percent we envisaged just a few months ago in the 2020 Budget.

4. As a result, our external position is expected to worsen. The current account deficit is projected to widen to 4.5 percent of GDP, reflecting lower exports (particularly oil and cocoa) and higher emergency imports, including of medical goods and equipment to fight the pandemic. Remittances and foreign direct investment are projected to fall substantially. Despite a strong start of the year, pressure on the exchange rate has increased in recent weeks due to global uncertainty. While part of the shock will be absorbed through a combination of exchange rate adjustment and international reserve erosion, we still expect an external financing gap of at least US$1.3 billion.

5. The COVID-19 crisis is also having a substantial impact on the budget. Lower growth and the sharp decline in oil prices is affecting tax revenues, which are projected to fall short of target by 2.2 percent of GDP. The estimated cost of our pandemic emergency response plan, including additional health and social spending and the Coronavirus Alleviation Program (“COVID-19 Alleviation Programme” or “CAP”) to deliver a fiscal stimulus targeted at the most affected sectors, is at least US$260 million (0.4 percent of GDP) in 2020. These factors will push the government deficit (excluding energy and financial sector costs) to 6.6 percent of GDP in 2020 (6.4 percent of GDP in Fund staff’s projections), compared to the 4.7 percent of GDP targeted by the 2020 Budget. Over the medium-term, the government of Ghana remains fully committed to the transformation agenda of “Ghana Beyond Aid.” The Government will pursue policies consistent with rapid economic transformation and shared prosperity consistent with the SDGs. This will result in strong growth, rapid poverty reduction, debt sustainability and sustainable macroeconomic stability, whiles maintaining a strong commitment to fiscal discipline and rectitude in line with the 2018 Fiscal Responsibility Act.

6. We estimate that the government will require an additional US$2.6 billion (4.1 percent of GDP) in 2020 to close the fiscal financing gap resulting from the shock. This will be achieved through a combination of additional financial support from multilateral and bilateral partners, as well as financing from domestic sources, and withdrawing US$219 million from the Ghana Stabilization Fund. We have approached development partners and so far we have received commitments from the World Bank (including US$300 million in emergency financing) and the African Development Bank (initial US$15 million) to help address the COVID-19 emergency situation confronting the nation. We are developing a contingency plan should the need emerge to further scale up COVID-19-related government spending (including financial sector support measures to help shore up economic activities), financed by spending adjustment, cuts to non-priority expenditures, and additional exceptional funding from our partners.

7. The Bank of Ghana is committed to maintaining a prudent monetary policy stance to maintain inflation expectations anchored around the target band and mitigate any pressures for increased capital outflows. As a preemptive measure in view of the slowdown of economic activity, the Monetary Policy Committee, cut its key policy rate by 150 basis points on March 18. The Bank of Ghana also might temporarily increase FX sales to avoid excessive volatility and contain temporary pressures on inflation, while maintaining adequate external buffers. In addition, the Bank of Ghana stands ready to provide liquidity support to the banking sector, as market conditions may require.

8. The requested RCF disbursement will rapidly help close the immediate balance of payments and fiscal financing need resulting from the COVID-19 shock and fund the CAP. Moreover, a Fund disbursement under the RCF will help catalyze support from development partners and buttress international and domestic investors’ confidence in Ghana’s sound economic fundamentals.

9. Our capacity to repay the Fund remains strong. Including the disbursement under the RCF, our repayments to the Fund will increase over the medium-term, but repayment ratios to GDP and exports of goods and services will remain manageable, peaking at 0.4 percent and 1.2 percent in 2026, respectively. We will continue meeting on a timely basis our financial obligations to the IMF. Moreover, our external and public debt sustainability indicators will not change significantly because of the additional financing to cope with the current crisis.

10. The Government of Ghana is convinced that the policies and measures set forth herein are adequate to address the immediate needs resulting from the COVID-19 pandemic. However, the Government is committed to take any additional measures that prove necessary to that end. The government undertakes not to introduce measures or policies that would compound Ghana’s balance of payments difficulties, to provide the IMF with any information required to monitor the implementation of measures, and to not impose new or intensify existing restrictions on the making of payments and transfers for international transactions, trade restrictions for balance-of payments purposes, or multiple currency practices, or to enter into bilateral payments agreements which are inconsistent with Article VIII of the IMF’s Articles of Agreement. Moreover, the Bank of Ghana is committed to undergo a safeguards assessment update by the IMF as envisaged under the Fund’s Safeguards Policy. The Ministry of Finance and the Bank of Ghana are finalizing a Memorandum of Understanding on their respective roles and responsibilities for servicing financial obligations to the Fund.

11. In line with our commitment to transparency in government operations, we agree to the publication of all the documents submitted to the Executive Board in relation to this request.

Sincerely yours,

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1

Given that the financing under the RCF will be used in its entirety to provide budget support, the Ministry of Finance and the Bank of Ghana are finalizing a Memorandum of Understanding on their respective roles and responsibilities for servicing financial obligations to the Fund.

2

Ghana is assessed as not having prospective market access, in light of disruptions to global financial flows. On that basis, Ghana does not qualify as a presumed blender and may access PRGT resources exclusively.

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Cover IMF Staff Country Reports
Ghana: Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Ghana
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2020: Issue 110
Publisher:
International Monetary Fund
ISBN:
9781513540870
ISSN:
1934-7685
Pages:
38
DOI:
https://doi.org/10.5089/9781513540870.002
  • View in gallery

    Cumulative number of confirmed COVID-19 cases

    (log scale, as of March 30, 2020)

  • View in gallery

    Cumulative portfolio flows

    (Millio US$ since the start of the episode)

  • View in gallery

    Ghana; Revisions to 2020 GDP Growth Projection

    (percent)

  • <sup><xref ref-type="fig" rid="RA01fig01">Figure 1.</xref></sup>
    View in gallery
    Figure 1.

    External and Domestic Debt Developments

  • Figure 1.
    View in gallery
    Figure 1.

    Ghana: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2020–2030

  • Figure 2.
    View in gallery
    Figure 2.

    Ghana: Indicators of Public Debt Under Alternative Scenarios, 2020–2030

Cumulative number of confirmed COVID-19 cases

(log scale, as of March 30, 2020)

Cumulative portfolio flows

(Millio US$ since the start of the episode)

Ghana; Revisions to 2020 GDP Growth Projection

(percent)
Figure 1.

External and Domestic Debt Developments
Figure 1.

Ghana: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2020–2030
Figure 2.

Ghana: Indicators of Public Debt Under Alternative Scenarios, 2020–2030