The firm pointed out that in 2016, when public expenditure exceeded budgetary allocations (another election year), the IMF board approved waivers for non-observance of performance criteria and extended the arrangement by one year.
Fitch Solutions, a UK-based firm, has stated that Ghana's International Monetary Fund (IMF) programme will not be suspended despite a higher-than-budgeted expenditure.
In its latest assessment titled "Positive Shift in Ghana's Political Risk Profile Following IMF Programme Approval," the firm highlighted the risk of the government failing to meet its IMF targets in 2024.
Over the past decade, total expenditure as a percentage of GDP has increased by an average of 3.0 percentage points during election years, indicating the likelihood of some fiscal slippage in 2024.
However, Fitch Solutions emphasized that exceeding the budgeted expenditure is unlikely to lead to a suspension of the IMF programme.
The firm pointed out that in 2016, when public expenditure exceeded budgetary allocations (another election year), the IMF board approved waivers for non-observance of performance criteria and extended the arrangement by one year.
Therefore, the anticipated fiscal slippage in 2024 is unlikely to result in a loss of investor confidence, which could weaken the cedi, drive up inflation, and potentially lead to social unrest.
Fitch Solutions believes that IMF assistance will improve economic conditions in Ghana and limit risks to social stability in the coming quarters. In May 2023, following the formation of an official creditor committee, the IMF approved Ghana's $3.0 billion Extended Credit Facility, resulting in an immediate $600 million disbursement, with an additional $600 million expected in the fourth quarter of 2023.
This IMF support will bolster the country's foreign exchange reserves, which had fallen to $5.2 billion in April (equivalent to 2.5 months of import cover), and help meet Ghana's external financing needs.
These developments have already improved sentiment towards Ghanaian assets, with the cedi strengthening by 8.0% in May 2023.
The strengthened currency will reduce imported inflation in the coming months, and Fitch Solutions expects consumer price growth to remain on a downward trajectory through 2023 and 2024, easing pressure on household finances.
Source : Tellusghana || Naa Lamley
