An International Monetary Fund (IMF) deal would help improve Ghana's external and fiscal positions, restoring investor sentiment and easing pressure on the exchange rate.

According to Fitch Solutions, the government would make greater progress on fiscal reforms under an IMF deal.

“We believe that an IMF deal would improve Ghana's external and fiscal positions, restoring investor sentiment and easing pressure on the exchange rate”.

Ghana's fiscal metrics have deteriorated significantly since 2020, due to weak revenue inflows and high-interest expenditures, with its budget deficit narrowing only slightly to 8.6% of Gross Domestic Product (GDP) in 2022 (from 9.3% in 2021), much wider compared to the 10-year pre-pandemic average of a 4.9% deficit.

“Under an IMF programme, we expect the government would make greater progress on fiscal reforms as the authorities seek to meet the targets to regain market access”, it pointed out.

This, it added, would most likely include widening the tax base and reducing Ghana's bloated public wage bill (45.6% of domestic revenue), causing the budget deficit to narrow more substantially to 6.7% of GDP 2023.

In addition, the IMF funding would boost US dollar reserves, limiting risks to Ghana's short-to medium-term external position.

In the first quarter of 2022, capital and financial outflows increased by 188.7% year-on-year to $690 million, primarily driven by net portfolio outflows and were in addition to Ghana's current account deficit of 1.9% of GDP in quarter 1, 2022.

With Ghana being unable to tap international capital markets to finance the deficit, the country's foreign exchange reserves have fallen to $7.7 billion (3.4 months of import cover) in June 2022, from $9.8 billion in January 2022, which will continue to limit the Bank of Ghana (BoG)'s ability to defend the exchange rate over the coming months.

However, IMF funding would boost reserves and improve Ghana's external position in 2023, easing pressure on the exchange rate.