IMF Willing to Renegotiate Ghana Agreement with President-elect Mahama Under Certain Conditions

The International Monetary Fund (IMF) has indicated a willingness to renegotiate Ghana’s $3 billion financing arrangement with the administration of President-elect John Dramani Mahama, provided that the essential reforms outlined in the programme are not compromised.

A spokesperson for the IMF stated in response to Bloomberg that these financing programmes are collaboratively developed with the government of the country involved. However, any changes to the terms of the agreement would need to ensure that the overarching economic goals of the reform programme remain attainable. The IMF’s main objective under the current extended-credit facility is to assist Ghana in stabilizing its macroeconomy, ensuring debt sustainability, and fostering long-term, inclusive growth.

Ghana sought the assistance of the IMF after it faced difficulties in servicing its growing debt. By the end of 2022, the country’s national debt had risen to nearly 100% of its gross domestic product (GDP), which exacerbated the economic crisis. This debt burden contributed to high inflation, which peaked at 54.1% two years ago. However, inflation has since eased to 23% as of November. Additionally, the Ghanaian currency, the cedi, has depreciated significantly over the past four years, losing about 60% of its value. In response, the Bank of Ghana raised interest rates to a two-decade high of 30%, though these were recently reduced to 27%.

The IMF’s financial programme for Ghana, which began in May 2023, sets out specific targets for the country’s fiscal management. One of the key objectives is for Ghana to achieve a primary budget surplus of 0.5% of GDP by the end of this year. The government must also reduce its debt-to-GDP ratio to 55% by 2028. These targets are central to the IMF’s strategy of stabilizing Ghana’s economy while addressing the nation’s unsustainable debt levels.

Following his victory in the recent presidential elections, Mahama has expressed his desire to renegotiate the IMF agreement. His stated objectives include smoothing out the repayment terms of restructured loans and easing the tax burden on businesses, particularly corporate taxes. Mahama has also emphasized his commitment to prioritizing economic stability over rapid growth once he assumes office on January 7, 2025. His administration plans to focus on restoring stability, which they believe will provide a solid foundation for future economic growth.

Barclays Plc, in a note to its clients, indicated that it does not expect Mahama’s government to abandon the IMF programme altogether. Instead, they anticipate that the NDC administration will seek to renegotiate certain terms to better align the programme with their own economic priorities. This could include adjustments to fiscal targets or the pace at which certain reforms are implemented. Such a renegotiation would likely focus on reconciling the IMF’s objectives with the economic strategy of the incoming administration.

If the IMF programme is renegotiated, the government will need to find a balance between addressing immediate economic challenges, such as debt management and inflation, while ensuring that the key objectives of the programme are not undermined. The IMF is clear that any changes made to the agreement must ensure that the economic reforms, which are vital for the long-term health of Ghana’s economy, continue to be achievable. This will involve careful negotiations to ensure that the revised terms will help Ghana stabilize its economy without sacrificing the fundamental goals of fiscal responsibility and sustainable growth.

The IMF has expressed its readiness to engage in discussions with the incoming Mahama administration to renegotiate the current programme. However, any such negotiations will require careful consideration to ensure that Ghana’s economic objectives, including debt reduction and macroeconomic stability, are not compromised in the process.