The International Monetary Fund (IMF) has approved a $3 billion bailout package for Ghana over the next three years, including an immediate disbursement of SDR 451.4 million (about $600 million), to support the West African nation's struggling economy.
The IMF package is aimed at boosting Ghana's foreign reserves, which have plummeted by nearly 50 percent since August 2021 as Ghana's central bank spent its foreign currency to defend the country's local currency, the cedi, which has become the world's best performer against the US dollar over the past six months, as investors speculated that the country was set to secure such funding.
"We are proud to be partners with Ghana in addressing the difficult economic and financial conditions the country is facing," IMF Managing Director Kristalina Georgieva said in a statement following an Executive Board meeting. "Today’s decision is also a major milestone for the G-20 Common Framework."
Meanwhile, the IMF said the Ghanaian authorities had taken "bold steps" to secure the loan, including accelerating fiscal adjustment and launching a major debt restructuring. However, this loan is not without its critics, as previous IMF loans, which are tied to austerity measures and structural reform requirements, have faced some opposition due to their perceived negative impact on ordinary Ghanaians.
Ghana is therefore expected to make tough fiscal decisions, including increasing taxes, in order to receive the other parts of the package, including a second $600 million disbursement in November and other equal installments of about $350 million every six months.
"Securing timely debt restructuring agreements with external creditors will be essential for the successful implementation of the new ECF [Extended Credit Facility] arrangement," the IMF said. "The adjustment effort will be supported by ambitious structural reforms in the areas of tax policy, revenue administration, and public financial management, as well as steps to address weaknesses in the energy and cocoa sectors."
The IMF added that the Ghanaian government should also pursue "appropriately tight monetary and flexible exchange rate policies" to help "bring inflation back to single digits and rebuild international reserves."
While the IMF package is a big relief for Ghana’s struggling economy, the country still has a long way to go to restore its financial stability. Ghana has taken a bold step by negotiating with China as part of its debt restructuring.
In recent years, the IMF has faced competition from China as African nations reject its austerity demands, experts say. Unlike the IMF, which demands that countries raise taxes and cut public spending in return for development loans, Beijing lends money for development projects with no such conditions.
According to a new report by the British charity Oxfam, 13 out of 15 IMF loans made during the second year of the COVID-19 pandemic required recipients to implement austerity measures, including raising taxes on food and fuel or cutting public spending, including on health care.
While bilateral creditors are signaling that they agree to help make Ghana’s debt sustainable is progress, it has yet to address the concerns of private investors, which constitute the bulk of Ghana's debtors. These creditors will need to accept a significant reduction in repayments or an extension of the debt payment period to pave the way for the successful implementation of the IMF program.
The government of Ghana is currently negotiating an additional $900 million loan from the World Bank over three years to support the country's budget.