Gov’t may be seeking ‘IMF programme flexibility’ – S&P

S&P Global Ratings has hinted that the government may seek flexibility in its programs.

The agency raised the nation's foreign currency credit rating to CCC+. This change followed recent steps to finalize commercial debt restructuring.

However, S&P noted risks like spending overruns during election years. They also mentioned "constrained policy flexibility," raising speculation about possible adjustments in IMF conditions.

The finance ministry denied any talks of renegotiation. Yet, S&P's language suggests President John Mahama's administration might explore more flexible terms.

Despite fiscal challenges in 2024, the government remains committed to its existing program. The report states that they aim to meet and exceed their objectives.

The focus may shift towards easing social spending restrictions and adjusting reform timelines. The goal is to conclude the program by 2026.

In a mid-April press briefing, Finance Minister Cassiel Ato Forson rejected claims of renegotiation. He emphasized that the government is fully committed to implementing the program.

He added that the fourth IMF review aims to keep the program on track. However, S&P's report indicates that post-election economic realities may require adjustments.

The Mahama administration faces large expenditure arrears and high inflation pressures. These factors could lead them to seek more leeway within IMF guidelines.

IMF Mission Chief Stéphane Roudet stated discussions did not cover extensions or renegotiations. The focus remains on ensuring the program stays on track.

With over a year left, the government has not ruled out adjustments. Mr. Forson assured that any decisions will be communicated early.

S&P’s outlook is cautiously optimistic after recent credit upgrades. This reflects progress in external debt restructuring and improved liquidity due to a current account surplus in 2024.

Gold exports and remittances have boosted foreign exchange reserves to US$4.6 billion. However, fiscal risks persist with significant arrears reported for 2024.

S&P expects fiscal consolidation will be slower than anticipated by the government. Interest payments still consume a quarter of revenue, while inflation stands at 21.2%.

The administration has initiated reforms like amending the Public Financial Management Act and creating an independent fiscal council. However, executing these reforms may face public pressure for relief amid sensitive political issues.

S&P forecasts an improvement in debt trajectory from 71.4% of GDP in 2024 to 47.4% by 2028. Still, they warn that poor fiscal performance could trigger a downgrade within 12-18 months.

The IMF program has disbursed US$2.36 billion so far and ends in May 2026. With GDP growth rebounding at 5.7% in 2024, the government sees this as a chance to balance meeting IMF targets with domestic needs.