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GHANA: IMF support secured, but contingent liabilities persist

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On 13 April, the IMF Executive Board approved the disbursement of USD 1bn under the Rapid Credit Facility (RCF), which is by far the largest disbursement from this facility to any country during the Covid-19 crisis so far. The funds will enable the government to address Ghana’s short-term fiscal and balance of payments needs. However, contingent liabilities linked to state-owned enterprises (SOEs) in the cocoa and power sectors might soon come to the fore. As these sectors are critical in the political calculus regarding the December 2020 general elections, the government will be inclined to bail out SOEs if need be.

As noted previouslyGhana was among the first African countries to approach the IMF for emergency funding. As the country just exited an IMF Extended Credit Facility (ECF) in March 2019, which was marketed by both sides as a success, the Fund may be particularly inclined to help Ghana avoid sliding back into fiscal disarray. In fact, on 30 March, Finance Minister Ken Ofori-Atta had cut the 2020 GDP growth forecast from 6.8% to 1.5% and admitted that the anticipated fiscal deficit would widen from 4.7% to 7.8% of GDP, which would be above the 5% threshold set by the 2018 fiscal responsibility act.

However, the annual deficit might come in even higher than that if the government decided to bail out notoriously cash strapped SOEs that might be tipped over the edge during the imminent economic crisis.

For instance, the CEO of Ghana’s cocoa board (Cocobod), Joseph Boahen Aidoo has suggested that Cocobod might suffer a potential deficit in sales of USD 1bn this year due to the Covid-19-induced cocoa price decline. Cocobod is also stalling negotiations with international creditors to syndicate the loan for the 2020/21 crop season. Its finances have already been in poor shape, with an estimated deficit of GHS 1bn (USD 174mn or 0.3% of Ghana’s GDP) for 2019 and uncollateralized loans amounting to roughly GHS 6.5bn (USD 1.1bn) as of January 2019.

With the December election approaching, the government has a major incentive to bail out Cocobod, if need be. The cocoa sector employs about 800,000 rural families (and many more along the value chain), with about 70% of cocoa production coming from the Ashanti and Western regions. Ashanti is the vote bank of President Akufo-Addo’s New Patriotic Party (NPP), and the region has always voted overwhelmingly for the NPP (76% in 2016). Although more of a swing state, the story is similar for Western region (52% NPP vote share in 2016). Both states combined accounted for about 30% of registered voters in 2016.

A similar rationale would likely inform decision-making concerning the eight SOEs in the energy sector. Recall that rampant power outages were a key issue leading to then-president John Mahama’s electoral defeat in 2016. Recognizing the political importance of the energy issue, Akufo-Addo announced on 9 April that the government would cover the electricity bills of low-income consumers from April through to June in full, as well as 50% of all other customers’ bills. Already on 24 March, the government-owned Energy Sector Support Levy (ESLA) PLC had raised GHS 1.19bn (USD 211mn) to settle portions of the outstanding legacy debt within the energy sector via a 12-year bond.

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GHANA: IMF support secured, but contingent liabilities persist

On 13 April, the IMF Executive Board approved the disbursement of USD 1bn under the Rapid Credit Facility (RCF), which is by far the