The IMF’s fifth review of Ghana’s $3billion bailout program is beginning this week, and ahead of the important review, a U.S.-based Ghanaian finance professor is revealing the critical areas the country will be tested on before exiting the program next year.
Prof. William Kwasi Peprah of Andrews University in the US says the IMF’s gaze is firmly fixed on one thing, which is ensuring fiscal repairs of the country’s economy before exiting the program.
In the fund’s estimation, Ghana’s economic survival heavily hinges on the government’s ability to free fiscal space through the prevention of arrears. The fund is also looking at the country’s ability to pay what it owes, especially mounting liabilities to suppliers and independent power producers (IPPs). If those debts aren’t tamed, the programme’s credibility collapses.
“Fiscal repair is very, very important,” Prof. Peprah stressed in an interview monitored by The High Street Journal.
The Fiscal Threat to the Banking Sector Stability
Prof. Peprah argued that it is unacceptable for the country’s Non-performing loans (NPLs) to hover around 20%. He describes it as “threatening to the survival of banking stability.” These high NPLs are mainly caused by the government’s accumulation of arrears without a repayment plan.
The banks that depend on government and supplier contracts could crumble under the weight of unpaid obligations. The chain reaction of the government’s delayed payments will result in businesses struggling to pay back bank loans, and lenders are left holding the bag. This, he says, is an issue the IMF will be very keen on during the 5th review.
“The fiscal repair is very, very, very important. Its impact, if it’s not done well, is going to worsen the non-performing loan issue we have in Ghana, and the banking sector will be affected,” Prof. Peprah indicated.
The Post-IMF Test
One of the IMF’s biggest fears, the finance professor argues, is Ghana completing the programme but stumbling back into debt traps immediately after the fund’s exit.
Due to this fear, Prof. Peprah indicated that the fund will want assurance that Ghana will not carry arrears into the post-IMF period.
“They are really focusing on how we can ensure that there is financial assurance just after Ghana exits the IMF programme. And that is the main aim. If this is not handled carefully, we may go back immediately to the IMF,” he noted.
This fear of the fund, if it’s really the case, is not unfounded. Ghana has already returned to the IMF multiple times over the last four decades. Without iron-clad fiscal discipline, history risks repeating itself.
The Audit Angle
There’s also a political undertone to the challenge of ensuring fiscal repairs of the economy. Just before the election, a lot of contracts were given, and Prof. Peprah notes that with the IMF scrutinizing every cedi, the government must prove that supplier claims are legitimate and that payments are being made in the right amounts.
An audit-first approach, he believes, is necessary, but it must be matched with proof that actual cash has been set aside.
“Once they meet the IMF, they must explain to them that the reason why they have not been able to do this is because of the audit. However, the government must prove to the IMF that they have made some cash available so that just after the audit, they will be in a position to be able to pay them,” the finance professor indicated.
The Impact
The US-based Ghanaian finance professor says the fifth review, which happens to be the last, may be the most critical yet. It’s not just about short-term progress; it’s about laying a foundation that ensures Ghana doesn’t revert back to the IMF after the programme’s expiry, as history has shown.
To him, given Ghana’s consistent “love affair” with the IMF, he has always believed that the country needed more than three years for this program. He maintains that a longer period than the three years would have enabled the IMF to police Ghana’s economy and undertake the structural reforms needed to transform the economy.
For Ghanaian citizens and businesses, if fiscal repairs fail, banks could tighten lending, jobs could be lost, and businesses may collapse under unpaid government contracts.
But if the government passes this IMF test, the benefits could be tangible: stabilized banks, cleared debts, a more reliable power supply, and renewed investor confidence.
