Ghana Secures $3 Billion IMF Deal to Revive Economy and Tackle Debt Crisis
In a significant development aimed at reviving its struggling economy and addressing a mounting debt crisis, Ghana has successfully secured a $3 billion deal with the International Monetary Fund (IMF).
The agreement, approved by the IMF’s Executive Board, comes in the form of a 36-month arrangement under the Extended Credit Facility (ECF).
Ghana’s economic challenges have been further exacerbated by substantial external shocks in recent years, resulting in fiscal and debt vulnerabilities. These factors have led to a loss of access to international markets, limited domestic financing options, and a reliance on monetary financing by the government.
The subsequent decline in international reserves, depreciation of the local currency (Cedi), rising inflation, and dwindling investor confidence have all contributed to an acute crisis situation.
Recognizing the urgency of the situation, Ghana’s authorities have taken bold steps to address these deep-rooted challenges. The government’s Post COVID-19 Program for Economic Growth (PC-PEG) forms the foundation of the IMF-supported program. The PC-PEG aims to restore macroeconomic stability, ensure debt sustainability, and implement comprehensive reforms that foster resilience and drive stronger and more inclusive growth.
The approval of the IMF deal enables Ghana to receive an immediate disbursement of approximately $600 million, providing much-needed liquidity to the country’s struggling economy. Moreover, the agreement paves the way for further external financing from development partners, mobilized through the IMF’s catalytic effect. This additional support will be instrumental in facilitating the successful implementation of Ghana’s ongoing debt restructuring efforts.
Key policy measures outlined in the program include a substantial and frontloaded fiscal consolidation to put public finances back on a sustainable trajectory. These efforts will be complemented by initiatives aimed at protecting vulnerable segments of the population. The program also emphasizes ambitious structural reforms in areas such as tax policy, revenue administration, and public financial management. Moreover, specific attention will be given to addressing weaknesses in vital sectors like energy and cocoa.
To ensure macroeconomic stability, the program advocates for appropriately tight monetary policies and flexible exchange rate measures. These measures aim to bring inflation back to single digits and rebuild international reserves, bolstering the country’s economic fundamentals. Furthermore, the program places a strong emphasis on preserving financial stability, encouraging private investment, and fostering sustainable growth.
Managing Director of the IMF, Ms. Kristalina Georgieva, commended Ghana’s comprehensive reform program in response to the economic and financial crisis. She highlighted that fiscal consolidation is a core element of the program, with enhanced revenue generation and streamlined expenditure. These measures create room for increased social and development spending in the medium term. Additionally, the Ghanaian government has embarked on a comprehensive debt restructuring exercise, targeting both domestic and external debt, to put the country on a sustainable debt path. Collaboration among all stakeholders involved is deemed crucial for its success.
Ghana’s successful negotiation of the $3 billion IMF deal is a significant milestone that lays the groundwork for economic recovery and long-term stability. The program’s focus on macroeconomic stability, debt sustainability, and structural reforms promises to revitalize the private sector, enhance governance, and boost productivity. With the continued support of development partners and effective implementation of the authorities’ program, Ghana is poised to overcome its immediate policy and financing challenges and set the stage for a resilient and inclusive future.
Buhari Seeks $800m World Bank Loan for National Social Safety Net Programme
Nigeria’s President Muhammadu Buhari has requested a fresh $800 million loan from the World Bank to fund the National Social Safety Net Programme.
The loan will be used to expand the coverage of shock-responsive safety net support among poor and vulnerable Nigerians.
In a letter read out by the President of the Senate, Ahmad Lawan, Buhari noted that the loan had been approved by the Federal Executive Council and urged the Senate to give it expeditious consideration. He explained that the programme was designed to assist poor and low-income households in coping with the costs of meeting basic needs.
Under the programme, the Federal Government of Nigeria will transfer N5,000 per month to 10.2 million poor and low-income households for a period of six months, with a multiplier effect on about 60 million individuals. The transfers will be made directly to beneficiaries’ accounts and mobile wallets to ensure transparency and accountability.
This loan request comes as Nigeria’s borrowing from the World Bank reached $14.34 billion as of March 31, 2023, an increase from the $13.93 billion debt recorded by the Debt Management Office as of December 31, 2022. The loan, if approved, will add to Nigeria’s debt from the World Bank in the first quarter of 2023.
The International Bank for Reconstruction and Development (IBRD) lends to governments of middle-income and creditworthy low-income countries, while the International Development Association (IDA) provides concessionary loans and grants to governments of the poorest countries. The loan request will now be considered by the National Assembly.
Nigeria’s World Bank Debt Increases by Over 120% Under Buhari’s Regime
Nigeria’s external debt to the World Bank has increased by more than 120% under President Muhammadu Buhari’s administration, according to data released by the Debt Management Office (DMO).
The figures show that the country’s World Bank debt has risen from $6.67 billion in 2015 to $14.25 billion in June 2021, indicating a significant increase of over 120%.
The World Bank is a major international financial institution that provides loans and grants to developing countries for various developmental projects, including infrastructure, health, education, and agriculture. Nigeria has been one of the biggest beneficiaries of World Bank loans over the years, receiving several billion dollars in funding for various projects.
However, the significant increase in Nigeria’s World Bank debt under Buhari’s regime has raised concerns about the country’s ability to repay its debts.
Nigeria’s debt-to-GDP ratio has also risen from 12.1% in 2015 to 23.3% in 2020, indicating a worrying trend of rising debt levels.
The DMO has defended Nigeria’s rising debt levels, stating that the funds are being used to finance critical infrastructure projects across the country, which will help to boost economic growth and development in the long run. However, critics have argued that the government needs to do more to increase its revenue base and reduce its reliance on loans.
The increasing debt levels in Nigeria are also a cause for concern for investors and international financial institutions, who are closely monitoring the country’s economic situation.
The World Bank has warned that Nigeria’s debt sustainability outlook remains vulnerable, and the government needs to take urgent action to address the issue.
Nigeria’s Public Debt Stock Worsened by Constant Fiscal Deficit, Says World Bank
The World Bank’s recently released Macro Poverty Outlook for Nigeria has highlighted the nation’s constant fiscal deficit as a major contributor to its public debt stock.
The report revealed that in 2022, 96.3% of the government’s revenue was spent on servicing debt. This was compounded by low non-oil revenues and high-interest payments, which created significant fiscal pressure.
As a result, Nigeria’s public debt stock exceeded 38% of GDP, with the debt service to revenue ratio rising from 83.2% in 2021 to 96.3% in 2022.
The bank also identified the redesign of the naira by the Central Bank of Nigeria (CBN) as a contributing factor to the country’s economic growth and poverty reduction challenges. It projected that about 13 million Nigerians would fall below the national poverty line between 2019 and 2025.
The report further noted that Nigeria’s economic environment had deteriorated, leading to millions of Nigerians living in poverty.
The decline in macroeconomic stability was attributed to the monetization of the fiscal deficit, declining oil production, exchange rate distortions, and costly fuel subsidies.
The World Bank called for macro-fiscal reforms to address Nigeria’s persistently high inflation, declining forex reserves, and rising fiscal pressures.
It also recommended the implementation of structural economic changes to promote private investment, efficient public spending, and social development outcomes to boost productivity.
The report emphasized that Nigeria’s population growth continued to outpace poverty reduction, leading to more people falling below the poverty line.
Therefore, the World Bank urged the Nigerian government to take immediate action to implement reforms that would promote economic growth, reduce poverty, and improve the welfare of its citizens.
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