The International Monetary Fund (IMF) has deepened the country’s interest payments burden on its loans with another hike in interest rates on its Special Drawing Rights (SDR).
At the interest rate of 2.99%, Ghana was estimated to make total interest payments of $89.7m (SDR 67.2m) on the anticipated $3bn ECF credit facility from the IMF.
However, based on the recent increment in the SDR interest rate to 3.15%, estimated interest payments on the anticipated $3bn ECF credit facility now stand at $94.5m (SDR 70.8m).
The increase in interest rate of the Fund’s SDR lending could be the result of the spillover effect of the high interest rates environment witnessed in 2022 on the back of rising inflation rate as Central Banks aggressively hiked policy rates to reverse the upward trajectory of inflation.
It could also be in anticipation of a policy rate hike of 0.25% on February 1, 2023 by the US Federal Reserve.
The increment in interest rates on SDR lending implies higher interest payments for IMF related loans.
Ghana is currently seeking a three-year $3bn (SDR 2.25bn) ECF credit facility from the IMF.
Ghana, will hence be borrowing from the IMF at a much costly interest rate.
Already, the country has challenges in trying to make interest payments as its tax revenues are inadequate to service its debts.
Currently, Ghana is indebted to the Fund by some SDR 1.34bn ($1.01bn).
Special Drawing Rights (SDRs) can be described as an international reserve asset created by the IMF to supplement the official reserves of its member countries.
SDR allocations play a role in providing liquidity and supplementing member countries’ official reserves, as was the case with the 2009 allocations due to the global financial crises and is also the case amid the Covid-19 pandemic when the Fund made a historic allocation of 456 billion SDR ($650 billion).
The value of the SDR is based on a basket of five currencies—the Chinese renminbi, the Euro, the Japanese yen, the Pound sterling, and the U.S. dollar.
SDR allocation is a form of concessional loan provided by the IMF to member countries below market interest rate at 2.99 percent and long-dated loan repayment periods.