Ghana’s authorities announced [Friday, July 1] that they will approach the IMF for a funded programme. Bojosi Morule argues the following:
- We view today’s news as significantly positive as concessional funding will likely reduce the weighted average cost of debt and associated risk premia, helping to resolve one of Ghana’s key fiscal challenges.
- Given that debt metrics have only mildly deteriorated since the IMF’s last Article IV (July 2021) where it assessed public debt as sustainable albeit with a high risk of distress, we think the IMF may not advocate for a debt restructuring as a pre-condition for entering into a programme.
- In terms of programme size, we view US$2-2.5bn as likely given our estimate of financing needs and Ghana’s IMF quota.
- We expect conditionality to focus on credible fiscal consolidation efforts as well as addressing contingent liabilities (notably in the energy sector).
- The move is positive for the credit outlook (the yield on Ghanaian eurobonds fell sharply post the announcement), although the implication for the Cedi is less clear given the current inflation rate and the fact that the IMF may argue for more currency flexibility (making meaningful FX appreciation unlikely).