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On 17 May, the IMF announced that its Executive Board approved the long-awaited USD3.00 billion 3-year Extended Credit Facility (ECF) for Ghana.

Leading finance market analyst group, Cordros Capital says “We note that the approval comes after the Ghanaian government met all the pre-conditions and requirements, particularly receiving financial assurances from its bilateral creditors, including China and the Paris Club. “Besides, we highlight that the approval will enable the IMF to immediately disburse USD600.00 million as the first tranche to the government. The IMF stated that the program will help Ghana overcome immediate policy and financing challenges, including through its catalytic effect in mobilising external financing from development partners and providing a framework for the successful completion of the ongoing debt restructuring.

“That said, we understand that the second tranche (USD600.00 million) of the funds will be disbursed in November after the IMF has conducted a successful review of the utilisation of the first tranche under the programme. Notably, one of the key things we understand that the IMF would like to see during the review is Ghana’s success in securing a deal with private and other official bilateral creditors on debt restructuring needed to bring the debt metrics to the IMF’s targets in present value terms. After the second tranche in November, we highlight that the rest of the funds will be disbursed in equal tranches of USD360.00 million after the IMF has further completed its semi-annual reviews of the ECF.

However, whiel agreeing that “The IMF’s Bailout Approval is Largely Positive for the Economy,” Cordros Capital added that “Given that the negative sentiments which have clouded the Ghanaian economy over the past year are primarily due to the concerns around solutions to Ghana’s debt crisis, a final IMF bailout approval is positive in bringing back bullish sentiments, which would have a positive ripple effect on the economy:

“Currency is likely to maintain its appreciation trend in the near term: We believe that the IMF’s board approval will immediately boost domestic investor confidence, likely supporting the local currency which was on the back foot against the USD in the heat of the acute crisis. Accordingly, if the market sentiments remain positive, we would expect the GHS/USD to maintain its appreciation path in the near term, potentially trading below the GHS10.00/USD mark. Notably, since falling to a low of GHS13.11/USD at the interbank market on 17 November 2022, the cedi has appreciated significantly by 21.0%, trading at GHS10.84/USD as of 18 May.

“Headline inflation to moderate more than previous expectations: In our Q1-23 macroeconomic update, we stated that domestic prices are likely to continue decelerating over the rest of the year, primarily due to the high statistical base effects from the prior year. However, with the IMF’s bailout, we expect the positive sentiments and local currency appreciation to further add to the large base effects, potentially delivering a faster deceleration in prices over the short term. “Accordingly, we revise our 2023E average and year-end inflation forecasts to 36.56% y/y (previously: 41.86% y/y) and 21.02% y/y (previously: 27.24% y/y), respectively. Nonetheless, we highlight possible risks to near-term price pressures, including a higher electricity tariff. Notably, the Public Utilities Regulatory Commission (PURC) recently announced an 18.4% increase in the average end-user tariff effective from 01 June.

“Bond prices to rally if market sentiments remain positive: Barring any further significant negative signal in the near term, we expect market sentiments to remain positive after the country receives the first tranche of the bailout. These bullish sentiments are expected to translate into a rally on sovereign debt, albeit slowly. Ghana’s Eurobond yields have fallen by 262bps w/w as of 18 May, primarily due to sentiments arising from expectations of a board approval this week.