The Bank of Ghana will continue tightening monetary policy until inflation is on a firmly declining path, the International Monetary Fund (IMF) has revealed.

According to the Fund, monetary and exchange rate policies under the programme will focus on reining in inflation and rebuilding foreign reserve buffers.

In a press statement after the Executive Board had approved Ghana’s $3 billion bailout package, it also said the central bank will also enhance exchange rate flexibility and limit foreign exchange interventions to rebuild external buffers.

“Monetary and exchange rate policies under the program will focus on reining in inflation and rebuilding foreign reserve buffers. The Bank of Ghana will continue tightening monetary policy until inflation is on a firmly declining path and will eliminate monetary financing of the budget”.

Furthermore, it said an ambitious structural reform agenda is being put in place to reinvigorate private sector-led growth by improving the business environment, governance, and productivity.

“Preserving financial sector stability is critical for the success of the program. Given the adverse impact of the domestic debt restructuring on balance sheets of financial institutions, the authorities will devise and implement a comprehensive strategy to rapidly rebuild financial institutions’ buffers and exit from temporary regulatory forbearance measures”, the Fund added.

Outlook and risks

The Fund said while growth is expected to decline this year because of the crisis and the planned fiscal consolidation, a resolution of the debt crisis and reforms should foster a recovery and reduce inflation over the medium term.

Key downside risks include slippages in programme execution, delays in restructuring debt, and a deterioration in the external environment.

Programme objectives and policies

The 3-year programme aims to restore macroeconomic stability and debt sustainability, while laying the foundations for higher and more inclusive growth.

Key policies include large and frontloaded fiscal consolidation to bring public finances back on a sustainable path, complemented by efforts to protect the vulnerable. The adjustment effort will be supported by ambitious structural reforms in the areas of tax policy, revenue administration, and public financial management, as well as steps to address weaknesses in the energy and cocoa sectors.

Again, there will be appropriate tight monetary and flexible exchange rate policies to bring inflation back to single digits and rebuild international reserves.