Finance Minister, Seth Tekper
Finance Minister, Seth Tekper

The President John Mahama-led government has eventually outsmarted the International Monetary Fund(IMF) and had their way on the critical issue of the Central Bank’s financing of government, after whipping Parliament to breach the key condition in the IMF’s agreement with Ghana on a 3-year bailout that is meant to revive the crisis hit Ghanaian economy.

It would be recalled that in 2014, the government after several denials, sought a Bailout from the IMF in a last ditch attempt to save the economy which was on a fast slide. The Bailout agreement which the government reached with the IMF clearly stipulated zero (0) Central Bank financing of government in recognition of the fact that the unbridled borrowing from the Bank of Ghana especially in 2012 and 2013 was a key factor in Ghana’s economic malaise.

The government fully agreed with this condition and further pledged to introduce a Bank of Ghana Amendment Bill in Parliament to make the policy of zero (0) financing, law in 2016. As a cushioning measure, the IMF agreed to allow 5% Central Bank financing of the government in 2015, as prelude to zero financing which was due to take effect this year, 2016.

However, with elections approaching and a desire to still keep the Bank of Ghana as a major financier of the government, the government has effectively pulled a smart one on the IMF and effectively breaking the deal it has with the IMF.

Without stating openly that it was intent on flouting the agreement, it presented the Bank of Ghana Amendment Bill to Parliament, which included the required zero financing provisions but then quietly went behind the IMF to whip Members of Parliament, especially the majority in Parliament, to reject that particular provision and rather amend the provision to allow the Central Bank financing of the government’s budget deficit up to a ceiling of 5 percent of the previous year’s total revenue instead of the agreed zero financing.

Cunningly, during the discussion of the Bill at one of the Committee meetings in Akosombo, Mr. Terkper kept quiet throughout the period the IMF Resident Representative was present.

However, as soon as the Resident Representative of the IMF left the chamber, Seth Terkper rose to make a passionate plea to MPs to reject the zero ceiling in the very Bill he had presented to Parliament.

Below are the relevant sections/clauses of the Ghana – IMF Agreement which stipulated zero financing from 2016 onward.

“64. To prepare for the implementation of the zero financing from Bank of Ghana to the budget starting January 2016, the ministry of finance will enhance it cash planning and management capacity, possibly with IMF technical assistance.”

“74…..This new MoU also formalizes that from 2016 onwards, a zero financing of government from the BoG will be in effect in anticipation of the amendment of the BoG Act, consistent with a modern IT framework.”
“31. The authorities’ objective to bring inflation back into single digit territory will be supported by restoring the effectiveness of the Inflation-Targeting (IT) framework. To this end:

• Central bank financing of the central government and state-owned enterprises will be progressively eliminated. A memorandum of understanding between the Ministry of Finance and BoG limits central bank’s financing to 5 percent of previous year’s revenue in 2015, while the adoption of a new Bank of Ghana Act will bring the financing to zero from 2016 onwards (MEFP ¶74/84).”

Bank of Ghana Act - Submit to Parliament a revised Law that: strengthens the functional autonomy of BOG; sets a zero limit on monetary financing to the government and public institutions; establishes appointment durations for Governor and Board members; sets rules for emergency lending to banks in distress; and ensures compliance with IFRS (as described in MEFP ¶85).”

This big blow to the IMF Bailout programme comes as Ghana is brazenly seeking a new 1 billion dollar Eurobond on the international markets despite many cautions from analysts and economists on the dangers in the government’s unquenched thirst to raise Ghana’s already high debt levels and the high rate the Bond could come at.

On Wednesday, the respected Bloomberg news, cast doubts on Ghana’s Eurobond prospects and the general outlook for the Economy writing “As the West African nation markets its fifth sale of dollar securities in nine years, its bonds are faltering as investors fret about the government’s commitment to fiscal targets in an election year.

Ghana’s $1 billion of bonds due 2023 have tumbled, pushing yields up by 75 basis points since July 22 to 10.4 percent on Tuesday, compared with a 48 basis-point drop to 6.8 percent in average yields of 17 sub-Saharan African nations.”

Bloomberg further quoted global finance analysts who all gave negative reviews of the current quest to borrow a billion dollars.

“The cost of floating the bond looks prohibitively expensive,” Celeste Fauconnier, Nema Ramkhelawan-Bhana and Neville Mandimika, analysts at Johannesburg-based RMB, said in a note on Tuesday according to Bloomberg.

“The risk of debt distress remains high. We do not believe the faith in the market is strong enough” to prevent an expensive transaction, the RMB analysts said.

Source: New Crusading Guide