At the beginning of 2023, Ghana's economy was rising from a slumber it stumbled into at the end of the 2022. The economic slumber was characterised by high inflation rate, a depreciating cedi, and a huge public debt stock that dragged the Government to the doors of the International Monetary Fund (IMF). The Government of Ghana after much publicised negotiations reached a Staff Level Agreement (SLA) with the International Monetary Fund (IMF) in December 2022, which spelt out measures that will put the fiscal on the path of consolidation. Consistent with the SLA was the 2023 Budget which frontloaded the consolidation efforts. According to the Bank of Ghana, the revenue enhanced measures such as the VAT increase of 2.5 per cent, complete removal of benchmark values on imports, and the review of the E-Levy were expected to improve the revenue outlook. On the expenditure side, the lower capping on transfers to earmarked funds from 25 to 17.5 per cent, and the reduction of budgetary allocation to goods and ser vices, as well as rationalisation of executive compensation were expected to reduce expenditures in 2023. The SLA is also contingent on the Domestic Debt Exchange Programme (DDEP) and external debt restructuring, which when concluded and the necessary financial commitment obtained, will pave way for the presentation of the SLA to the IMF Board for a programme. It is expected that these measures will help restore fiscal and debt sustainability in the near term as the Minister of finance is of the view that Ghana has 'turned the corner' after receiving the first tranche of support under the IMF programme. DDEP Following the announcement of a voluntary domestic debt exchange programme of GHS 137 billion on December 5, 2022, the government on January 16, 2023 (initial deadline for participation), decided to set a new expiration date of Tuesday, January 31, 2023. The extension was largely due to the low patronage of the programme which led the Government to engage and reach an agreement stakeholder groups suc h as the Ghana Association of Banks on January 23 and the Ghana Insurers Association (GIA) on January 26. This was based on the terms of access to the Ghana Financial Stability Fund and an operational framework that includes an agreement to pay five per cent coupon for 2023 and a single coupon rate for each of the 12 new bonds, resulting in an effective coupon rate of nine per cent. Despite reaching an agreement with the two financial sector players, the Government on January 31, announced that it had extended the deadline for participation from January 31, 2023, to Tuesday February 7, 2023. A day to the February 7 deadline, however, some members of the Pensioners Bondholders Forum on the preceding Monday began picketing at the Ministry of Finance, demanding exemption from the Government's Domestic Debt Exchange Programme (DDEP). They, among other things, appealed to government to not 'push pensioners into their early graves' and 'not make them destitute' as 'pensioners have paid their dues to the nation. ' While the picketing was ongoing, the Government extended the deadline to Friday, February 10, 2023, to provide an 'administrative window' to complete processes for people tendering their bonds. Their action which received support from senior citizens such as the former Chief Justice Sophia Akufo prompted Parliament to summon the Minister of Finance who appeared before the house to announce an exemption of pensioners bondholders from the DDEP programme. By then, about 16 per cent of bondholders in the category had signed up for the new bonds. DDEP closed on Friday February 10, 2023, with over 85 per cent participation of eligible bonds. In the coming months, there were delays in the payment of coupons, principals and interest on bonds which forced the pensioners to begin their second round of picketing at the Ministry of Finance premises on May 8, 2023. Early on, the forum had written to the Minister of Finance on March 30, 2023, demanding payment on outstanding coupons and principals by April 21, 2023 , an ultimatum further extended to April 28 to give the ministry ample time to make payments. As of March 30, 2023, there were 13 coupons and two principals in arrears with the earliest due amount being in arrears for 38 days. On June 22, members of the Pensioners Bondholders Forum initiated the third round of picketing at the Ministry of Finance set to be carried out on Thursdays and Fridays of every week until government honoured its obligation to bondholders. With obligations of pensioners bondholders fulfilled, the Government on July 14 launched a DDEP for eligible holders of dollar-denominated domestic notes and bonds with an August 4, 2023, deadline which was later extended to August 18, 2023 The Government sought to exchange approximately US$809 million for new four-year and five-year bonds with interest rates of 2.75% and 3.25%. At the end, it secured a total of US$741,734,252 at the end of the US dollar-denominated bonds exchange programme, representing 91 per cent of the approximately $809 mill ion pot. On July 31, 2023, it had started the process for the restructuring of S31 billion pension funds under DDEP following its engagement with the Trade Union Congress (TUC). The Government announced, on September 14, the reopening of a debt exchange programme for GHS12.9 billion domestic bonds that could not be tendered earlier in the February window. The exercise which ends on September 22, 2023, was targeting about GHS137.4 million Daakye Trust Plc, GHS1.1 billion ESLA Plc and GHS11.7 billion Republic of Ghana bonds. At the end of the exercise, the Government secured GHC3.9 billion from bond holders who participated in the programme. Monetary policy At the beginning of the year, the Monetary Policy Committee (MPC) of the Bank of Ghana (BOG) increased the Policy Rate by 100 basis points (1 per cent) from 27 per cent to 28 per cent, citing the need to drive inflation downwards at the end from January. 'In the interim, the MPC sees the need to remain vigilant and moderate liquidity in the system to underpin macroeconomic adjustments taking place to drive inflation on a downward path.' Dr Ernest Addisson, the Governor of the BOG, said at a press briefing In March, the MPC raised the lending rate by 150 basis points to 29.5 per cent from 28 per cent to tame inflation. Even though headline inflation had declined marginally for two consecutive months, it continued to remain relatively high compared to the medium-term target of 8 plus 2 or minus 2 per cent. The Committee in May maintained the Policy rate at 29.5 per cent due to price developments, pointing to a continued easing of inflationary pressures, with two additional consecutive declines in headline inflation. For the period of July, the policy rate was increased by 50 basis points to 30 per cent, citing risks to inflation driven by the second-round effects of food prices. The MPC, in the months of September and November, however maintained the policy rate at 30.0 per cent, citing lower inflation, a stable exchange rate and relatively strong econ omic growth. Inflation Commencing the year, Ghana Statistical Service (GSS) reported that Ghana recorded an inflation rate of 53.6 per cent from an initial rate of 54.1 per cent for December 2022 (the highest in twenty years). According to the Government Statistician, Professor Samuel Kobina, the reduction may be occasioned by the variation in exchange rate, although his outfit had not conducted a robust analysis. In the non-food inflation sector, furnishings and household equipment recorded the highest inflation rate of 71.7 per cent, which was followed by the food inflation sector, where fruit and vegetable juices recorded a rate of inflation of 88.3 per cent. The February inflation rate slowed to a rate of 52.8 per cent as compared to a rate of 53.6 per cent in January, which represented a 1.9 percent decrease. For the non-food inflation rate, transport recorded the highest rate at 70.3 per cent, while the food inflation sector (fruits and vegetable juices) recorded the highest rate at 92.5 per cent. The month of March also experienced a decline in the inflation rate as the February rate of 52.8 was reduced to 45 per cent, influenced by some deflation of items in both the food and non-alcoholic beverage groups and non-food inflation. The highest non-food inflation item was furnishing, household equipment, and routine household maintenance, which recorded a rate of 67.4 per cent, in contrast to the food inflation sector, where fruit and vegetables recorded the highest rate of 77.1 percent. The inflation rate continued to decline as it slowed to 41.2 per cent in April as compared to a rate of 45 per cent recorded in the previous month. The highest non-inflation item for the month was housing, water, electricity, gas, and other fuels at 59 per cent, while the food inflation sector, tea, and other plant products recorded the highest rate at 82.3 per cent. The increment in non-inflation was triggered by the increment in fuel prices in that month to a figure of 13 cedis per liter. May recorded an increase in the inflation rate, as it increased from 41.2 percent in April to 42.2 percent. The GSS attributed the rise in inflation for that month to a spike in food inflation during the period, which increased from 48.7 per cent in April to 51.8 per cent in May. June also witnessed yet another increase in the inflation rate to 42.5, which represented a 0.3 increase from the previous month. Consistent with the month of May, food inflation was the major overriding factor, contributing to the increase since it recorded 54.2 per cent. The inflation rate for the month of June also increased to 43.1 per cent, as the major drivers for the increase were food, particularly alcoholic beverages, which accounted for 54.5 per cent of the rate. The inflation rate for the month of August experienced a decline, as the GSS reported a rate of 40.1 per cent in contrast to 43.1 per cent for the previous month. The September inflation rate further declined to 38.1 per cent, which represented a 1.9 per cent decrease; however, food inflation contributed 49.4 per cent. The month of October witnessed a further reduction in the inflation rate, which was reduced to 35.2, the lowest the country had recorded in 13 months. In the month of November, the inflation rate significantly reduced to 26.4 per cent from an initial figure of 35.2 per cent in the previous month. The general inflation outcome for the year reflected a stable macroeconomic environment due to the stability of the Ghana Cedi and the engagement with the International Monetary Funds. The major driver of inflation for the year was food inflation as it accounted for a major increase in inflation for five months. In the 2024 budget presentation, the Government has forecast an inflation rate of 15 per cent for the 2024 financial year. IMF With domestic debt restructuring programme in full gear and the preliminary financial assurances from the Paris Club - official Creditors Committee, Ghana announced the receipt of the first tranche of $600 million of the $3 billion loan faci lity from the IMF. According to the BOG, the amount was to be used to help reduce interest payment on loans, debt levels, and budget deficit, as the Government seeks to restore macroeconomic stability and make the country's debt sustainable. On May 28 President Nana Addo Dankwa Akufo-Addo in a nation's address noted the programme would not immediately eliminate the present economic difficulties in the country but rather restore the confidence of Ghana's trading partners, creditors, and investors in the country's economy. Some Civil Society Organisations (CSO) such as the Institute of Economic Affairs (IEA) Ghana expressed concerns over the programme, indicating that the economic growth projections for Ghana under the programme were 'unambitiously low.' Furthermore, the Institute of Fiscal Studies (IFS), a policy think tank, asked the Government to pay attention to limitations of the current IMF programme and find ways to circumvent them. It warned that the programme had shortfalls that could be inimical to the country's economic development. On October 6, IMF and the Government reached a staff-level agreement on the first review of a $3 billion loan programme, paving the way for the disbursement of $600 million, a second tranche of $ 3 billion once it is approved by the IMF's executive board. However, Ghana and its official creditors needed to reach an agreement on a debt restructuring plan to get board approval for disbursement. Despite the optimism of Mr Ken Ofori Atta, Minister of Finance, who told Journalists in November that there was likely to be an agreement in the first week of December, no agreement has been reached by the end of the year. Ghana is seeking to get its official creditors to restructure about $5.4 billion which makes up about 27 per cent of the country's $20 billion external debt. The issues to be ironed out as at the end of the year were the comparability of treatment and the cut-off date, the date beyond which new loans would not be restructured. Turning the corner Following t hese developments, the Minister of Finance in his address to parliament during the presentation the 2024 Budget and economic statement said the country had turned the corner due to reasons such as a favourable ratings from credit rating agencies; declining inflation from 54.1 per cent in December 2022 to 35.2 per cent in October 2023 and an average of 3.2 per cent growth in the first two quarters of the year. Other reasons included a currency depreciation at a modest 6.4 per cent cumulatively from February to November, compared to 53.9 per cent over the same period in 2022. The performance of the Cedi is also a reflection of the fact that confidence is back, revenues have improved, and that the recovery is indeed real and is here to stay and the Banking industry has started to record and report a profit-after-tax growth of 43.8 per cent (GHS6.2 billion), the finance minister said. Source: Ghana News Agency