Interview: Ken Ofori-Atta

What are the key effects of the IMF’s extended credit facility on the economy over the medium term?

KEN OFORI-ATTA: The extended credit facility aims to facilitate large and front-loaded fiscal consolidation to re-establish public finances on a sustainable path. Fiscal consolidation will be executed by mobilising more domestic revenue and improving the efficiency of public spending. To restore debt sustainability, domestic and external debt restructuring is expected to lower public debt to GDP to 55% and the ratio of external debt service to revenue to 18% over the medium term.

The debt sustainability and fiscal consolidation agenda over the medium term includes the restoration of macroeconomic stability, with inflation expected to return to 8% plus or minus two percentage points by 2025. The primary balance should improve to 1.5% over the same period, with improved gross international reserves to cover at least three months of goods and services imports and exchange rate stability. Growth is also expected to rebound to 5% by 2026 from a projected growth rate of 1.5% for 2023.

How does the Domestic Debt Exchange Programme (DDEP) impact the stability of the financial sector?

OFORI-ATTA: The DDEP restructured total eligible government bonds of about GHS97.8bn ($8.9bn), out of which GHS83bn ($7.5bn) was successfully tendered and restructured with 12 new bonds. The financial sector played a significant role in the success of the programme, surrendering about 73.1% of eligible bonds. The government and the Ghana Cocoa Board launched an exchange programme for holders of cocoa bills at GHS8.1bn ($735m) and domestically issued US dollar-denominated bonds at $809m. The government has negotiated with pension funds, holding an estimated GHS29.2bn ($2.7bn) in a separate agreement to ensure the completion of the domestic debt treatment process.

While the DDEP restructuring has been successful, the financial sector has been negatively impacted by the debt treatment, based on the audited financial results for 2022 published by banks and ex-post prudential assessments by regulators. Stress tests conducted by the relevant authorities in November 2022 estimated liquidity and solvency risks for banks, specialised deposit-taking institutions, insurance firms, asset managers, collective investment schemes, pension fund trustees and regulated pension schemes. The analysis indicated an estimated capital shortfall for the financial sector at the time at around GHS23.8bn ($2.2bn), and a liquidity gap of GHS1.6bn ($145.3m).

The government, with support from the IMF and World Bank, has agreed to implement reforms to strengthen the financial sector, and remove constraints to credit growth and the development of capital markets. Policymakers are also establishing the Ghana Financial Stability Fund to address solvency and liquidity concerns of financial institutions impacted by the DDEP. The first phase of the fund is expected to raise $750m, with $250m coming from the World Bank.

In what ways can public-private partnerships (PPPs) enhance the resilience of the economy?

OFORI-ATTA: PPPs bring the private sector into open and accountable long-term relationships with the public sector, characterised by the equitable allocation of risk, access to private sector managerial expertise, sustainable funding and the transfer of innovative ideas in order to secure better public services.

At the end of 2022 there were 23 PPP projects in Ghana in the pre-investment phase with an initial investment cost of $24.2bn, compared to $23.4bn for 27 projects in 2021. In terms of projects in the investment phase, there were 15 in 2022, up from 13 in 2021. These projects were related to ports, national identification cards, water desalination and traffic law enforcement. The total initial investment end for the PPP projects in the investment phase at the end of 2022 was estimated at $2.78bn, compared to $2.75bn the previous year.