IMF Ready To Help Address Economic Challenges

Seth Terkper PixA team of experts from the International Monetary Fund (IMF) is expected in the country next month to start talks on salvaging the ailing economy.

This follows a government directive last week to its economic management team to initiate talks with the IMF and other development partners for a stabilisation growth programme.

Subsequently, a formal request has been forwarded by Ghana to the IMF.

Mr. Min Zhu, IMF Deputy Managing Director, confirmed last Friday that the Fund had received a request from Ghana to initiate discussions on an economic programme that could be supported by the IMF.

He said the IMF was ready to assist the country to address its current economic challenges.

Macroeconomic challenges have continued to intensify this year as government funding costs raised steeply, while 182-day treasury bill yields have jumped above 25 per cent, from 19 per cent.

In addition, interest costs now account for one-fifth of government expenditure, high yields have seen auctions of five- and seven-year bonds cancelled, while a shortage of local currency liquidity has resulted in banks and non-bank financial institutions cutting holdings of government securities – one reason the central bank funded US$1 billion (or 85 per cent) of the budget deficit during the first five months of 2014.

This has complicated liquidity management and added to inflationary pressures and cedi weakness. The cedi has plummeted 30 per cent since the beginning of the year.

Challenges in the forex market have also intensified with a gap opening between the rate at which the Bank of Ghana supplies dollars to the market (GH¢/USD3.03), and the interbank rate (GH¢/USD3.43). This gap has widened to GH¢40 since May, from GH¢10. Parallel exchange markets are creating distortions in the domestic economy and exacerbating the shortage of dollars.

Gross international reserves too have continued to fall, to US$4.5 billion or 2.2 months of current external payments (CXP) in June from US$5.6 billion at end-2013. Stripping out swap facilities, reserves cover only 1.5 months of CXP.

Last week the Minister of Finance, Seth Terkper, explained that the government’s main objective for opting for an IMF programme was to stabilise the cedi to achieve a more predictable economy for investors.

He said that the IMF bailout will help consolidate Ghana’s lower middle-income status, stressing that the ultimate objective was to stabilise the cedi in order that domestic prices would be brought under control.

As Ghana struggle to put at bay its challenges, investor confidence in the country continues to wane, making the country an unattractive investment destination.

But according to Mr. Terkper, “when you stabilise the cedi, you are also looking at a situation where investors do see a more predictable economy as they bring their investments into the economy. So there are benefits in this for both consumers and the business community.”

Economist and Investment Consultant, Kwame Pianim, also described the government’s decision to apply for a bailout from the IMF as “a stabilising anchor’’ which would re-position the economy for growth and macro-economic stability.

According to Pianim, the decision to go back to the IMF only suggests the country is faced with a structural problem that had not been addressed; the issue now is the lack of policy credibility.

The Association of Ghana Industries (AGI) has welcomed the decision to seek assistance from the IMF, hoping that the discussions would help restore fiscal discipline and result in an improvement in the business climate.

An AGI Barometer for the second quarter, 2014 recorded the worst ever business confidence index of 22.42 down from 90.13 in the first quarter.

Fitch Ratings said last week that an IMF programme that supports fiscal consolidation and addresses macroeconomic imbalances in Ghana could stabilise the outlook on the country’s ‘B’/Negative sovereign rating.

“However, an IMF programme is not a foregone conclusion, nor is its effective implementation. A lasting reduction in exchange rate and funding pressures is unlikely until a programme is agreed and a credible deficit reduction strategy is implemented,” the rating agency said in a statement.

Ghana has also been planning a Eurobond issue for as much as US$1.5 billion, and according Fitch, a successful issue might strengthen the government’s hand and lengthen the negotiations.

“A Eurobond issue and the upcoming US$2 billion syndicated loan to the Ghana Cocoa Board to finance the purchase of this year’s cocoa crop may alleviate short term pressure on foreign exchange reserves,” it said.

By Times Reporter










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