CASH INJECTION

Ghana 2016 | ECONOMY | FOCUS: IMF DEAL

In early 2015, the IMF committed $918 million to Ghana, a loan that is set to back growth and give the country some fiscal breathing space.

In early 2015, Ghana announced it had reached a deal with the IMF to the tune of almost $1 billion, a loan that is likely to ease fiscal pressure and restore investor confidence in the West African nation, which has seen growth slow in recent years as commodity prices tumble, including oil and gold, and its currency faces depreciation. Chronic electricity shortages have also compounded woes in the industrial and services sectors, already struggling to remain competitive and deal with falling demand domestically.

So although the IMF loan is aimed at the short-term stabilization of the Ghanaian economy, the financing package, according to the Fund, extends over three years and will fund a reform program aimed at accelerating growth and cutting poverty rates by restoring macroeconomic stability via tighter fiscal discipline and strengthened public finances (otherwise known as austerity), as well as slowing inflation—back in February, when the deal was first struck, the IMF said that the money would help inflation fall to between 11 and 12% by end-2015, down from 17% at end-2014, while growth, according to the Fund, will come in at 3.5%, slowly rising to between 5 and 6% by 2017.

The austerity measures imposed by the IMF include a 17% tax on petroleum, a freeze on new hires in the public sector, and an end to energy subsidies. Although frustrating for a population that had expected the discovery of oil to be a boon for public finances and, as a knock-on result, household spending power, the government is confident that its program to restore pacey growth will begin to take effect in 2016, driven by an increase in production in its offshore hydrocarbons sector. And on top of simply conforming with IMF austerity demands, Ghana is now committed to utilizing its newfound fiscal space to develop social safety nets, including the restoration of real incomes to the poor. Not seeking to cripple Ghana going forward, the IMF has also signed off on a plan that, while also seeking to expand revenue collection and slash the public sector wage bill as well as other expenditures, leaves space for priority state spending and the clearance of domestic arrears. The loan will partially be used to increase foreign reserves to buttress the currency and ease the budget gap, an issue that was more urgent before Ghana's June sale of $1 billion in 15-year Eurobonds, priced at a rumored 10.75%.
Ghana can now move forward with more confidence, although its long relationship with the IMF continues.