IMF Bailout: Analyst hints BoG may undertake second banking sector cleanup

The structural reforms under the programme comprises State Owned Enterprises (SoEs), Public Financial Management (PFM), Tax Reforms and Domestic Revenue Mobilisation, and Governance Reforms [corporate governance and other reforms] to support inclusive growth are the ve targeted areas that the IMF was looking at.

The International Monetary Fund approved Ghana’s request for a $3 billion bailout over three years to support the debt-ridden nation’s recovery.

Government through the central bank may conduct a second round of clean up in the nancial sector following the approval of the IMF programme, the Director of Operations at Dalex Finance, Joe Jackson, has suggested.

“We expect to see the central bank at work, helping, cajoling and may be conducting a second round of clean-up to ensure the health of the nancial sector.

So, in summary this is a bailout, emergency money, it is now that the hard work is starting and the e ort to restore us to nancial sustainability is about to happen,” he said during NorvanReports’ Twitter Space Conversation themed “Unpacking the IMF Approval and its E ects on the Economy”.

A regulatory crackdown on poor business practices and weak capital positions in Ghana’s banking sector resulted in a series of market exits since August 2017. The outcome was a smaller but more sustainable banking industry, though it came at a price. The Bank of Ghana (BoG) puts the total costs of its clean-up operation at some GHS10.98bn ($2.1bn), equivalent to just over 3% of the nation’s GDP in 2019.

Government in 2017 to January

2020, undertook a banking sector clean-up aimed at ensuring orderly exit of insolvent institutions to protect depositors' funds and also ensure the safety and soundness of the banking sector which was in a state of distress.

The clean-up saw a reduction in the number of banks from 34 to 23, whilst 347 micro nance institutions, 15 savings and loans and eight nance houses had their licences revoked.

And Mr. Jackson reckons a similar clean-up might recur to ensure to make the nancial sector viable.

According to Mr. Jackson, this was a bailout to ensure the country was saved from a generational economic meltdown which we may not recover.

He also indicated that it is going to be di cult for businesses to avoid the new taxes implemented by government particularly under the IMF programme.

For him, loopholes in the tax revenue generation are being plugged by the government on a daily basis, hence the di culty in businesses avoiding taxes particularly the Growth and Sustainability Levy that a ects the gross pro t of businesses.

The West African economy will receive an immediate disbursement of about $600 million, the IMF said in a statement on Wednesday following an Executive Board meeting.

Ghana, long seen as one of Africa's best run countries, has been struggling to recover from the combined e ects of the global Covid pandemic and the war in Ukraine.

Despite being one of the world's biggest producers of cocoa and the leading producer of gold in Africa, one of Ghana's basic problems is that it does not earn enough through exports to pay for everything it imports.

This is known as the balance of payments de cit and is partly what the IMF loan is designed to help with. But that is not all.

The programme is also expected to signi cantly slow the rate of in ation and ensure a stable local currency. All of this will bene t ordinary Ghanaians through stable prices of basic commodities including imported ones.

It has been considered risky to lend money to Ghana, but with the new IMF programme it should mean that the country can borrow again to implement its policies.