Our views on the IMF assessment and the authorities’ commitment 

• The strong show of renewed resolve to programme reforms was a crucial deal maker: The IMF’s preliminary estimate of new arrears showed a sharp deterioration in the primary balance to a deficit equivalent to 3.25% of GDP in FY2024, instead of the target surplus of 0.5%. Although the provisional primary deficit appears slightly lower than the authorities’ initial estimate of 3.9%, the Fund further noted the ongoing audit of the arrears to firm up the size of the fiscal slippage in 2024. In our view, this suggests that the final primary deficit for FY2024 could rise above the IMF’s provisional estimate of 3.25% and close-in on the authorities’ initial estimate of 3.9% deficit.On the delayed structural reforms, we believe the Fund’s assessment refers to the non-implementation of a planned utility tariff hike in 4Q2024 (ostensibly due to election pressure), little progress on recapitalizing public banks (with the December 2024 deadline for non-negative Capital Adequacy Ratio for National Investment Bank likely missed), and the expected cleansing of the taxpayer registry (which was a missed target for end-June 2024).

  Ordinarily, the non-observance of the IMF programme Quantitative Performance Criteria and Structural Benchmarks would present a stumbling block to securing a Staff-Level Agreement and Executive Board approval for the next facility disbursement. However, we believe the strong show of renewed commitment to fiscal adjustment and structural reforms, expressed via the ongoing restraint on public spending with a target adjustment of 5.4% of GDP was a crucial deal maker for the SLA. The IMF appears satisfied with the target primary surplus of 1.5% for 2025 as it restores the fiscal adjustment to its original path (pre-2024 slippage), with enhanced fiscal rule as the new anchor. Additionally, the recently announced utility tariff hike (+14.75% for electricity and +4.02% for water) revives the delayed reforms in the energy sector while the GHS 450.0mn earmarked in the 2025 budget to commence the recapitalization of public banks (ADB and NIB) eases the Fund’s concerns. Following the recently hawkish tilt in the monetary policy stance, the IMF Staff also expressed optimism that the complementary fiscal consolidation measures will revive disinflation, reducing inflation to the Fund’s projected 11.5% for end-2025 (IC Insights: 12.8% | GOG: 11.9%). Against this backdrop, we expect the Ghanaian authorities to request for waiver of non-observance of Performance Criteria while we anticipate a favourable consideration by the IMF Board to trigger the release of USD 370.0mn by our projected June 2025.

• Bilateral execution of agreed MoU underway but good-faith efforts required in negotiation with other commercial creditors: The IMF confirmed Ghana’s commitment to completing the comprehensive debt restructuring, while noting that bilateral execution of the Memorandum of Understanding with the Official Creditor Committee is being finalized. Per the Staff report post-Board approval of the 3rd review, we expect the bilateral execution of the MoU to be completed by June 2025, unless process delayed in late 2024. Similar to the Eurobond negotiations completed in 2024, the IMF requires “good-faith” effort in negotiation with the other commercial creditors whose combined loan to Ghana is estimated at USD 2.7bn. In view of this, an agreement with other commercial creditors will not be a prior condition for the expected Board approval of the SLA and resultant disbursement of the USD 370.0mn.