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Ghana Secures $3 Billion IMF Deal to Revive Economy and Tackle Debt Crisis

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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.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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FG’s Debt Financing Soars, Hits $854.36m in May Alone

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The Federal Government’s expenditure on debt financing rose to $854.36 million in May alone, according to data released by the Central Bank of Nigeria (CBN).

This figure marks the highest single-month spending on debt servicing recorded in the past year, raising alarms about the sustainability of the country’s borrowing practices.

The data from the CBN’s International Payments Report revealed a sharp escalation in debt servicing expenditure, with May’s figure representing a significant surge compared to previous months.

The $854.36 million spent in May is nearly four times higher than the amount disbursed for debt servicing in April and reflects a 286.49% increase from the same period in 2023.

The exponential rise in debt financing expenditure comes despite the Nigerian government’s claims of shifting its borrowing focus towards the domestic market.

Such a substantial outlay on debt servicing raises questions about the government’s ability to manage its fiscal responsibilities while maintaining economic stability and growth.

Analysts have voiced concerns over Nigeria’s increasing reliance on external borrowing, which poses risks to the country’s long-term financial health.

Fitch Ratings previously projected Nigeria’s external debt servicing to escalate to $5.2 billion next year, highlighting the urgency for prudent financial management and strategic debt reduction measures.

The Federal Government’s mounting debt burden has prompted calls for transparency and accountability in fiscal policies.

Stakeholders emphasize the need for effective debt management strategies to mitigate the adverse effects of escalating debt levels on the economy.

Despite assurances from government officials regarding plans to raise additional funds from concessional lenders and international financial institutions, including the World Bank, concerns persist over the sustainability of Nigeria’s borrowing trajectory.

The recent announcement by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, regarding an impending $2.25 billion World Bank package underscores the government’s reliance on external financing to meet its financial obligations.

As Nigeria grapples with the economic challenges exacerbated by the COVID-19 pandemic and fluctuating global oil prices, achieving fiscal stability remains paramount.

Efforts to diversify revenue sources, enhance transparency in public expenditure, and implement prudent debt management practices are crucial for safeguarding Nigeria’s financial future and fostering sustainable economic growth.

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Nigerian Banks Adjust Lending Rates Amid Central Bank’s MPR Hike

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Commercial and merchant banks across the country have adjusted their lending rates in response to the Central Bank of Nigeria’s (CBN) recent decision to raise the Monetary Policy Rate (MPR).

This move comes as a direct reaction to the CBN’s efforts to curb inflation and stabilize the economy.

Effective May 2024, the MPR saw a substantial increase of 750 basis points, bringing it to 26.25 percent, up from 18.75 percent in July 2023.

This significant hike has prompted a wave of rate adjustments across 25 out of 31 lending financial institutions, which now offer maximum borrowing interest rates above the MPR for various sectors of the economy.

Conversely, six lenders provide loans at rates below the benchmark interest rate.

Access Bank, for instance, has set its maximum lending rate at 28.50 percent for customers in agriculture, forestry, and manufacturing, while prime customers can borrow at 22 percent.

Citi Bank offers similar maximum interest rates of 28 percent for the same sectors, with a 21.50 percent rate for prime borrowers.

Coronation Merchant Bank presents one of the highest rates, with loans available at 30 percent for both prime and maximum customers, though it offers a lower rate of 9 percent to prime customers in mining, quarrying, and manufacturing.

Ecobank has adjusted its maximum lending rate to 30 percent, while its prime rate is 26.75 percent.

The highest lending rates are observed at Stanbic IBTC Bank, where maximum rates reach up to 50 percent, though prime rates vary between 8 percent and 27 percent.

Meanwhile, FCMB offers loans at a maximum rate of 40 percent and a prime rate of 22.50 percent, reflecting the wide range of adjustments made by different financial institutions.

FBN Quest Merchant Bank and Unity Bank provide more moderate rates for specific sectors. FBN Quest offers a 9 percent rate to prime customers in agriculture and forestry, with a maximum rate of 30 percent in the manufacturing sector.

Unity Bank, on the other hand, has lending rates ranging from 9 percent to 30 percent, with a maximum rate of 38 percent.

The adjustments in lending rates are not limited to these institutions. Fidelity Bank, for example, now offers loans at 27 percent for its prime customers, with a maximum rate of 30 percent, while First Bank of Nigeria has set its lending rate at 25 percent for prime customers, and 32 percent at the maximum.

However, prime customers in the manufacturing sector can secure loans at a lower rate of 15 percent.

These rate changes reflect the broader strategy of Nigerian banks to align with the CBN’s monetary policy, ensuring they manage their lending portfolios effectively amid economic fluctuations.

The adjustment in lending rates is expected to have widespread implications for borrowers across various sectors, influencing borrowing costs and potentially impacting economic activities.

As the financial services sector adapts to the new MPR, stakeholders and analysts will closely monitor the effects of these changes on the economy.

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Federal Government Spends $1.12 Billion on Foreign Debt Servicing in Q1 2024

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The Federal Government has disclosed that it pays $1.12 billion to service foreign debts in the first quarter of 2024 alone.

This amount shows the escalating burden of external debt on the nation’s fiscal health.

Data gleaned from the international payment segment of the Central Bank of Nigeria website reveals a steady upward trajectory in debt service payments, both over the past few years and within the first quarter of 2024.

When this is compared to the same period in 2023, debt servicing rose by 39.7 percent in Q1, 2024.

The breakdown of the debt service payments paints a picture of fluctuating yet consistently high expenditure.

January 2024 commenced with an imposing debt servicing obligation of $560.52 million, a stark contrast to the $112.35 million recorded in January 2023.

While February 2024 witnessed a moderation in debt servicing payments to $283.22 million and March 2024 saw a further decrease to $276.17 million.

Alarmingly, approximately 70 percent of Nigeria’s dollar payments were allocated to service external debts during the first quarter of 2024.

Out of the total outflows amounting to $1.61 billion, a substantial $1.12 billion was directed towards debt servicing, significantly surpassing the corresponding figure of 49 percent in Q1 2023.

The depletion of foreign exchange reserves, which experienced a recent one-month dip streak has been attributed primarily to debt repayments and other financial obligations rather than efforts to defend the naira, according to CBN Governor Yemi Cardoso.

The World Bank has expressed profound concern over the escalating debt service burdens facing developing countries globally, emphasizing the urgent need for coordinated action to avert a widespread financial crisis.

With record-level debt and soaring interest rates, many developing nations, including Nigeria, face an increasingly precarious economic path, fraught with challenges regarding resource allocation and financial stability.

The Debt Management Office (DMO) has previously disclosed that Nigeria incurred a debt service of $3.5 billion for its external loans in 2023, marking a 55 percent increase from the previous year.

This worrisome trend underscores the pressing need for robust fiscal management and prudent debt repayment strategies to safeguard Nigeria’s financial stability and foster sustainable economic growth.

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