How IMF’s visit to Ghana affects next monetary policy direction

The Bank of Ghana is rescheduling its Monetary Policy Committee meeting to October 7th in order to coincide with the debt sustainability assessment by the International Monetary Fund (IMF). This move is aimed at ensuring a more informed decision on the next policy rates. Courage Martey, Head of Insights at IC Group, sheds light on these developments. Ghana has been on a hiking path since the beginning of the year, with inflation on an upward trajectory. An emergency meeting was held in August due to the rising inflation, leading to significant increases in key monetary policy tools. Originally, the MPC meeting was supposed to take place this week with the policy rate announcement scheduled for the coming Monday. However, the visit of the IMF mission has prompted the rescheduling, as they collect data to update Ghana's debt sustainability analysis. This data will impact macroeconomic decisions and negotiations for funds. The IMF's inputs could influence the MPC's decision on whether to hike rates, by what margin, and which policy measures to implement. Leveraging the presence of the IMF team will be crucial in making informed decisions. The current state of the Ghanaian economy poses challenges, including double-digit inflation, increasing public debt, and a depreciating currency. The government is reportedly considering a debt restructuring plan, which has raised concerns among investors. If implemented, this restructuring could have significant consequences, particularly for local banks, insurance companies, and asset managers. The uncertainty surrounding the restructuring has already led to market jitters, with investors factoring in the potential risks and losses. The impact of the debt restructuring on various sectors highlights the need for careful consideration of the potential outcomes. Despite the upcoming IMF visit and discussions on debt sustainability, Ghana's debt stock remains high, exceeding 76% of GDP as of last year. The country is already at a high risk of debt distress, with limited room for maneuver. Previous debt sustainability analyses have pointed to the challenges Ghana faces in servicing its debts, especially with restricted market access. The IMF's control over debt recognition could further limit Ghana's debt space. The recent GDP growth rate for the second quarter of this year was impressive, but external factors like the Russia-Ukraine crisis could pose challenges to economic recovery. The full impact of these external shocks is yet to be seen, and their effects could dampen growth prospects. Monetary tightening measures and fiscal deficits also add to the complexity of navigating the economic landscape. The caution from the IMF to countries in Sub-Saharan Africa, including Nigeria, regarding rate tightening serves as a warning for potential recession risks. However, Ghana's unique dynamics may buffer it from the same fate, with growth likely to be held below potential levels. The aggressive moves by the U.S. and Europe to combat inflation differ from the situation in Ghana and Nigeria, where growth may be impacted but recession risks remain low.