Ghana has made the difficult economic decisions required to get a bailout package from the International Monetary Fund (IMF) after bilateral creditors sign off on guarantees, according to Abebe Selassie, Director of the IMF’s Africa Department.
In order to fulfill IMF conditions for the $3 billion loan, the government has raised taxes and inflicted losses on domestic investors. Nonetheless, informal discussions with bilateral lenders have dragged on.
Ghana has “done all of the prior actions that were expected of them for the program,” Selassie said in an interview. “They’ve done a really, really difficult domestic debt restructuring exercise. The country now needs to get the resources required to support reserves.”
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Bilateral lenders, notably China, are now likely to create a committee in the coming days to begin official discussions with Ghana. First on the committee’s agenda will be a written commitment to provide relief to the West African nation, paving the way for the loan from the IMF.
“Provided we have the financing assurances, we would go to the board very quickly after that,” Selassie said. “So within the next three, four weeks. That’s the key hurdle for us.”
The negotiations are taking place under the Group of 20’s so-called Common Framework, which includes China and other nations in the Paris Club of sovereign creditors. China is responsible for $1.9 billion of Ghana’s bilateral debt. That is only a portion of the country’s national debt, which stood at 575.7 billion cedis ($50 billion) at the end of November.
Social Cost
On March 27, parliament passed a bill to raise an additional 4 billion cedis ($353 million) in revenue this year, five days after a surprise interest rate hike to a record 29.5%. This followed a prior 250 basis point increase in VAT to 15%.
Finance Minister Ken Ofori-Atta said in a presentation Thursday that fiscal policies and the restructuring of cedi-denominated loans will enable the West African economy reduce its public debt to 71% of GDP by 2028. The IMF has stated that it must be on on track to reach 55% by that year in order to qualify for assistance. Prior to the government’s involvement, it was expected to reach 109%.
“There’ll be burden-sharing all around,” Ofori-Atta said. “If you join us in this, you really will help us build a robust economy and come back and be able to resume our partnership with you and the markets.”
Ghanaians are suffering as a result of the modifications and recent tax rises. Millions of people, including Esther Annan, a street trader in Accra, have watched their living conditions plummet as inflation surges.
The mother of six took out a micro loan in January to fuel her cloth and bed-linen company, but has since skipped weekly payments as local demand has dwindled and interest rates have risen.
“I play cat-and-mouse games with the lenders because there is no money to pay them,” she said. “The interest on the loans has become so high.”
Getting Worse
According to Richmond Atuahene, an analyst with Salman Partners and Financial Consult Ltd. in Accra, local lenders, which were the most vulnerable to domestic debt, are now projected to slant loans to industries that can easily pay while those in need lose out.
The latest tax increases are “an additional cost and if industry can no longer bear it, it will be compelled to cut costs, including labor and output,” said Humphrey Kwesi Ayim-Darke, president of the Association of Ghana Industries. “Small and medium-sized companies, manufacturing and agriculture are going to be hardest hit because of their high risk premium historically.”
A slowdown in credit growth and an expected drop in consumer spending could decelerate economic expansion this year, according to three economists surveyed by Bloomberg.
“The downside risks to the government’s 2.8% real GDP growth target for this year have increased on the back of the tightened monetary policy stance,” Mark Bohlund, a senior credit research analyst with REDD Intelligence, said.
SOURCE: BBCNEWS
