IMF monies diverted from BOP to 2018 budget support
By Toma Imirhe
In a marked departure from the
original strategy for Ghana’s three year Extended Credit Facility, being
provided by the International Monetary Fund, the US$200 million or so the
country will receive as disbursements following its successful combined 5th
and 6th programme performance reviews, is to go into financing of
the 2018 budget deficit rather than Balance of Payments support. This is a
major change in that the entire US$918 million Ghana is receiving over three
years under the programme was meant to be balance of payments support aimed at
boosting the country’s gross foreign reserves and thus raising confidence among
the international financial and trading communities as to its ability to met
its foreign exchange bills and obligations. Indeed, this is why all the
disbursements under the programme are made to the Bank of Ghana, which manages
the country’s international reserves,
rather than to government itself, and indeed all of the previous US$500
million or so received hitherto have been used for that purpose.
However, faced with increasing fiscal
pressures from high debt servicing costs incurred in financing its annual
fiscal deficits, government, in the third quarter of 2017 successfully
convinced the IMF to allow it use part of the disbursements to finance its 2018
budget deficit and thus lower its financing costs considerably.
With the successful issuance of US$2 billion in Eurobonds in early May this
year, government and its central bank have agreed that the country’s gross
international reserves are now large enough to comfortably accommodate its BoP
position and so the latest IMF disbursement can be used for 2018 budgetary
support instead. The latest Eurobond issuance
comprising US$1 billion in 10 year bonds at 7.26% and US$1 billion in 30
year bonds at 8.26% - has taken Ghana’s Gross International Reserves to US$8.1
billion, enough to cover some 4.4 months of imports which is well above the 3.5
months import cover target for this year.
The latest IMF disbursement,
equivalent to about GHc884 million will
now form part of the GHc2.9 billion planned for as the foreign sourced
component of the GHc10.9 billion needed to finance the projected 4.5% of Gross Domestic Product fiscal deficit
for 2018. The other GHc8 billion is being secured from domestic sources
although this includes the foreign exchange proceeds of medium and long term
bonds denominated in cedis but bought up by foreign investors.
With US$750 million out of the latest
Eurobond issuance, equivalent to about GHc3.3 billion being allocated for
2018 budget support as well, this means
the foreign sourced component of this year’s budget deficit is fully financed,
and indeed government will have extra financing in its coffers of well over
GHc1 billion.
Importantly, the Governor of the Bank
of Ghana, Dr Ernest Addison is in full agreement with the revised strategy for
using the latest IMF disbursement, pointing out that while government can have
access to increased cedi resources for its budgetary spending, the foreign
exchange itself still forms part of Ghana’s increasingly comfortable gross
international reserves.
This now gives government the option of
reducing the proportion of its budget deficit that will be financed from
domestic sources [projected at 73% in the 2018 budget itself] and replacing
part of it with foreign financing at lower interest rates [but bigger foreign
exchange exposure]; or refinancing more than originally planned of the
relatively expensive Eurobond debt issued by the Mahama administration.
Instructively, this is what government claims it wants to do with the other
US$1.25 billion in proceeds from the latest Eurobond issuance.
A
third option, albeit an unlikely one, would be to increase this year’s deficit
beyond the targeted 4.5% of GDP, in order to accelerate its capital expenditure
programme, which was derailed last year by public expenditure cuts forced by a
9% revenue shortfall. Government has come under severe criticism for its
restrained capital expenditure despite having drawn up ambitious development
plans that require substantial, but as yet unavailable, public spending.
However government has so far opted to hold back on much of its capital
expenditure plans rather than exceed its fiscal deficit targets.
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