Why The IMF – A Necessary Evil?


In recent events, the Ghanaian government has chosen to pursue an International Monetary Fund (IMF) program after its initial decision to stay away from the program. This decision comes after it has been hinted that the E-levy initiative will be unable to meet its revenue target to help boost the economy. 

From the recent discussions and analysis, the E-levy was supposed to serve as a government’s fiscal strategy which will offer a path to debt sustainability, but the inability of the policy to yield its intended results leaves Ghana vulnerable to slippage risk.  This risk limits Ghana’s access to the international market at the back of low Investor confidence.

In 2021, Ghana issued $3 billion in Eurobonds. The government had plans to issue a further $1 billion on the international markets same year but abandoned the plans because of the market volatility as at that year. In this period, investor confidence could be termed as appreciably strong.

Currently the nation is facing inflationary challenges due to exchange rate, food, and non-food price hikes. This manifests into high interest rate and a drop in bond prices, which continuously create dips in investor confidence. 

We believe the E-Levy was a policy implemented to improve Ghana’s credit rating and boost investor confidence due to its estimated cash flow abilities. However, this goal is challenged, and the government has been left in a fix. This necessitates the government to pursue the IMF program; a program they did not want to pursue due to conditionalities and IMFs historical relations with African countries.

The IMF classifies Ghana as being at high risk of debt distress and its support would bolster investor confidence and could help Ghana regain access to international debt markets like they did in 2021. Macroeconomic stresses and pressures on liquidity is likely to intensify if Ghana does not seek timely support from the IMF.

An untimely support from them will make these investors continue losing confidence and sell down their bond investments. This further translates into negative currency performance and causes a rise in government’s borrowing costs. 

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