Written by Moses Mozart Dzawu | From Bloomberg News
An International Monetary Fund team agreed to lend Ghana almost $1 billion to help boost foreign-exchange reserves and bolster Africa’s worst-performing currency.
The agreement includes a three-year loan program of 660 million Special Drawing Rights, or $933 million, Joel Toujas- Bernate, head of the mission, said in an interview on Thursday in Accra, the capital. The plan will be presented to the IMF’s board for approval in April, with the first payment of about $100 million to be made shortly after, he said.
President John Dramani Mahama was forced to turn to the IMF after ballooning government debt and falling export revenue triggered a 31 percent plunge in the currency against the dollar in the past year. The IMF loan terms will require the government to cut back on spending, especially on civil servants’ salaries, which account for almost 70 percent of tax revenue.
“The program aims at ambitious fiscal consolidation over the three years, which will be based on expenditure restraint, especially with regard to the wage bill,” Toujas-Bernate said. “It has been one of the factors behind the large fiscal imbalances that we have seen in the last few years.”
Ghana is seeking to narrow the fiscal deficit to 6.5 percent of gross domestic product this year, down from an average of about 10 percent in the past three years. Finance Minister Seth Terkper pledged in his budget speech in November to put a freeze on hiring, boost tax revenue, partly by raising fuel taxes, and improve the management of public funds and debt.
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“The economic impact of the agreement will depend on the government’s ability to tackle its wide fiscal deficit,” John Ashbourne, Africa economist at London-based Capital Economics, said in an e-mailed note. Narrowing the shortfall “will be politically difficult, and require a greater degree of fiscal discipline than President John Dramani Mahama’s government has shown so far.”
The IMF said the government may miss its fiscal deficit target this year because of lower oil-export revenue. The shortfall will probably reach about 7.5 percent of GDP, with a plan to bring that down to between 3.5 percent and 4 percent by 2017, Toujas-Bernate said. Public debt is set to fall to below 60 percent of GDP over the program period, he said.
“This is an ambitious fiscal consolidation program,” he said. It’s needed to “stabilize the macroeconomic situation and also put the public debt on a more sustainable path.”
The IMF wants the government to improve management of the public-sector wage bill, including an audit of the payroll database and security system to ensure that irregularities and ghost workers are eliminated.
The independence of the central bank also needs to be strengthened, Toujas-Bernate told reporters at a press conference announcing the agreement. The Bank of Ghana must reduce financing of the budget deficit to 5 percent of revenue this year, from 6.6 percent last year. The target for 2016 is zero percent, he said.
The IMF loan will have a zero interest rate with repayment over 10 years, according to Toujas-Bernate. The funds will be disbursed to the central bank, which will use it to boost foreign-currency reserves, which stood at $4.9 billion in January.
The IMF’s assistance will help to draw about $1 billion in additional budgetary aid from international donors over the three years, Toujas-Bernate said.
Most of Ghana’s debt was cleared in 2005 as part of a global relief campaign for poor nations. Since then, Ghana has ramped up borrowing, including selling dollar bonds to tap rising demand from foreign investors searching for high-yielding debt.
Yields on the Eurobond due January 2026 fell 12 basis points, or 0.12 percentage point, to 8.48 percent on Thursday in Accra. The currency strengthened 0.1 percent to 3.515 per dollar by 6:42 a.m. on Friday.
The spending curbs and power shortages may restrict economic growth in the West African nation to about 3.5 percent this year, according to the IMF. The economy may expand between 4 percent and 5 percent in 2016, Toujas-Bernate said.