Ghana’s IMF deal and the bumpy journey of Paris Club debt relief
International Monetary Fund (IMF) Board approval for Ghana’s $3 billion bailout package cannot be pinned down to a specified date.
This is because, even if the Paris Club members sets up a Creditor Committee on Ghana this week after discussions with a Ghanaian delegation led by Ken Ofori-Atta, the duration for the Committee to complete its work is not certain.
Paris Club creditors financing assurances to IMF
Paris Club creditors are expected to provide financing assurances to support the approval by the IMF Executive Board.
Ghana ought to be guided by previous cases, where forming a creditor committee took a couple of months.
Creditor committee for Chad took 15 months
For example, the creditor committee for Chad was formed on April 15, 2021 and it met virtually 15 months later on September 13 and 27, 2022, in presence of the IMF staff and the World Bank staff.
Interestingly, the creditor committee examined the latest developments on the macroeconomic and financial situation of Chad and noted that no debt relief from official bilateral creditors was needed given the surge in oil prices at the time after the approval of the IMF upper credit tranche (UCT) programme by the Executive Board on December 10, 2021.
Sri Lanka’s IMF request took almost 1 year
It took Sri Lanka almost one year to secure approval for $2.9bn (£2.3bn) bailout yesterday, March 20, 2023.
Creditor Committee for Ethiopia took nearly 1 year
The creditor committee on Ethiopia first met On September 16, 2021,
The creditor committee met virtually again on July 19, 2022 and in August 2022, agreed to provide debt relief.
Unnamed IMF official hints of one month for Ghana
But, Ghana can only hope for a speedy process as hinted by an unnamed IMF official who in January said the Paris Club members are all ready to do so for Ghana and hoped it could be done in a month.
The official said Ghana’s case was less complex than Zambia, whose case the official said was progressing after struggling since it became the first African country to default after the pandemic.
Zambia applied in February 2021
In February 2021 Zambia officially applied for a debt treatment under the common framework agreed by the Group of 20 (G20) major economies and the Paris Club.
Zambia’s Creditor committee formed on June 16, 2022
The creditor committee for Zambia was formed on June 16, 2022, in application of “Common Framework for Debt Treatments beyond the DSSI.
World Bank and IMF officials keep pressing Zambia’s creditors to accelerate negotiations on reducing the country’s official debt burden but an agreement is only expected this year.
When Ghana can submit report to IMF Board
Even if the Creditor Committee completes its work in record time of one month, it means Ghana can only submit the report to the Executive Board of IMF in May.
Date Executive Board of IMF can meet on Ghana
After submission, how long it will take the IMF Board to meet and approve Ghana’s deal is not known.
On revenue measures, Income Tax (Amendment) Bill, Excise Duty & Excise Tax Stamp (Amendment) Bills as well as the Growth and Sustainability Levy Bill, are outstanding in Parliament.
The consideration and approval of these fiscal measures by Parliament are critical to securing IMF Board approval.
IMF Board approval is expected to restore macro-economic stability, ensure debt sustainability as well as provide critical social protection for the benefit of Ghanaians.
Ghana and the International Monetary Fund (IMF) have reached staff-level agreement on economic policies and reforms to be supported by a new three-year arrangement under the Extended Credit Facility (ECF) of about $3 billion.
The passage of the Bills will enable government to complete four out of five agreed Prior Actions in the Staff Level Agreement.
Agreed prior actions fulfilled
Tariff adjustment by the Public Utilities Regulatory Commission (PURC), Publication of the Auditor-General’s Report on COVID-19 Spending, and onboarding of Ghana Education Trust Fund (GETFund), District Assemblies Common Fund (DACF) and Road Fund on the Ghana integrated financial management information system (GIFMIS) have all been completed.
COVID-19, Russia-Ukraine war, soaring energy and food prices, higher interest rates, a strong dollar and a global slowdown negatively affected the economy.
The international and domestic bond markets are shut for the financing of government’s programmes, forcing government to rely on the Treasury Bills and concessional loans as the primary sources of financing for the 2023 fiscal year.
Government therefore needs Parliament to support its financing requests to ensure a smooth recovery from the economic challenges.
Debt Service Suspension Initiative
The Debt Service Suspension Initiative (DSSI) was a historic and exceptional measure taken jointly by the G20 and the Paris Club on April 15, 2020 to offer support to 73 eligible low-income countries as they weathered the Covid-19 crisis.
Tanzania benefitted from debt service due suspension
Tanzania benefitted from an extension of the time-bound suspension of debt service due from January 1 to June 30 2021.
Pakistan benefitted from debt service due suspension
Pakistan also benefitted from an extension of the time-bound suspension of debt service due from July 1 to December 31 2021.
Cabo Verde benefitted from debt service due suspension
Cabo Verde also benefitted from an extension of the time-bound suspension of debt service due from July 1 to December 31 2021.
Burkina Faso benefitted from debt service due suspension
Burkina Faso also benefitted from an extension of the time-bound suspension of debt service due from July 1 to December 31 2021.
Nepal benefitted from debt service due suspension
Nepal also benefitted from an extension of the time-bound suspension of debt service due from July 1 to December 31 2021.
Kyrgyz Republic benefitted from debt service due suspension
Kyrgyz Republic benefitted from an extension of the time-bound suspension of debt service due from July 1 to December 31 2021.
Suriname got Paris Club creditors financing assurances for IMF
Paris Club creditors provided financing assurances to support the approval Suriname’s request by the IMF Executive Board
Zambia benefitted from debt service due suspension
Zambia benefitted from an extension of the time-bound suspension of debt service due from July 1 to December 31 2021.
Mozambique benefitted from debt service due suspension
Mozambique benefitted from an extension of the time-bound suspension of debt service due from July 1 to December 31 2021.
From May 1, 2020 to December 31, 2021, Paris Club creditors suspended around $4.6 Bn of debt service due by 42 low income countries that signed an agreement with the Paris Club.
Paris Club treated $614bn debt since 1956
Since the Paris Club was formed in 1956, it has reached 478 agreements with 102 different debtor countries and the debt treated in the framework of Paris Club agreements amounts to $614 billion.
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