BoG touts ‘positive’ IMF impact

First Deputy-Governor of the Central Bank, Millison Narh, has hailed impacts of the International Monetary Fund’s (IMF) US$914million three-year Extended Credit Facility as having restored confidence in the economy.

“The IMF programme’s outcome is positive and things are happening in the right direction,” he said at the opening of the second annual four-day ‘Risk Management in Banks and Implications for Capital’ programme in Accra.

Government, in 2014, petitioned the IMF for a possible bailout due to increasing inflation, high interest rates, declining real GDP growth, massive increase in the public debt stock, and huge and increasing central bank financing of government.

In early February 2015, after concluding most of the outstanding issues concerning its negotiations with the IMF, government signed for a US$940million three-year Extended Credit Facility that will end next year.

Since signing the facility, the Bretton Woods institution has thrice reposed confidence in progress being made by Ghana and released a total US$343.7million -- with the last one, US114.6million, coming in January 2016.

While agreeing that the IMF conditionalities are bitter pills to swallow, Mr. Narh said they are important as they have helped in rebalancing the economy and restoring it to the path of growth.

“As we speak, a lot of measures that were taken have yielded positive outcomes. Some of the measures had to be put in place in order to rebalance the economy,” he added.

According to him, the IMF intervention has helped reduce the high fiscal and current account deficits -- which are projected to drop even further.

In 2013 Ghana’s fiscal deficit rose to 12 percent, but 2015 statistics show that it has dropped to 6.7 percent with current account deficit declining from 10.6 percent to 7.8 percent over the same period.

“We are still in the process of ensuring a lower outcome for the two deficits as a result of measures we are taking,” he noted.

With rising deficits and challenging economic conditions, growth declined significantly from a high of 14 percent in 2011 to about 3.5 percent as of last year, but Mr. Narh explained that these are necessary outcomes of rebalancing the economy, because “we needed to achieve stability before growth can take off”.

He also attributed the decline in growth to a fall in commodity prices, however adding that with commodity prices recovering on the world market, revenues will go up and targets can be achieved over the medium- and long-term.

“Commodity prices are reversing positively. Cocoa price is now upward of US$3,000 per tonne and gold price has increased from US$1,100 to US$1,240 and above; and so we expect that if this should continue we will be able to maintain import cover for about three months going forward, and likely help with the foreign currency stability that we see on the FX market.

“Oil prices rose beyond US$100 per barrel in 2014 and sank as low as below US$30 per barrel last year, but is now recovering to about US$49 per barrel.”

The central bank has introduced new foreign exchange rules that will from July 1 this year require exporters to repatriate all export proceeds to the country, which alters several forex requirements of the central bank.

Also, it has directed mining companies to surrender all their foreign exchange directly to the banks, which hitherto was surrendered to the central bank. By these new rules the 60-day mandatory repatriation of export proceeds will no longer apply, and the repatriation period of export proceeds will now be aligned with the terms agreed between trading parties.

These, according to Mr. Narh, are part of measures to deepen the foreign exchange market and promote greater transparency in the determination of exchange rates as the central bank attempts to limit its role in the forex market.

It is expected that the new rules will help curb speculative activities, since players in the financial services sector will have knowledge about the inflow of foreign currencies into the market at any particular point in time; and the central bank’s intervention in the market will also be reduced with the new rules.

Touching on inflation, which is the main target of the central bank, Mr. Narh said by mid-2017 it should return to single-digit status.