Ghana’s parliament has taken a step toward passing a law on central bank reform that could breach a key tenet of its $918 million aid deal with the International Monetary Fund (IMF), parliamentary and finance sources told Reuters.
The parliamentary finance committee has recommended a change to the Bank of Ghana (BoG) Amendment Bill to allow central bank financing of the budget deficit up to 5 percent of the previous year’s total revenue, the committee’s chairman said.
Current law allows the Bank to finance the deficit up to 10 percent but the IMF wants the funding eliminated as part of Ghana’s austerity program to restore economic balance and boost sustainable growth.
Until 2014, Ghana had one of Africa’s fastest-growing economies based on its exports of gold, cocoa and oil. Growth has slumped sharply since and any threat to the IMF program will hit the confidence of domestic and foreign investors.
“The finance committee is of the view that the zero financing provision as contained in the Bill should be amended to a 5 percent limit and that is what we are recommending,” chairman James Klutse Avedzi told Reuters.
If the bill passes with the 5 percent amendment it would likely make it harder for the Fund’s Board to approve disbursement of the next tranche of balance of payment support.
The Fund said in a document issued in Dec. 2015 that Ghana should: “Submit to Parliament a revised Law that strengthens the functional autonomy of BoG (and) sets a zero limit on monetary financing to the government and public institutions.
One economist close to the process said it is “absolutely central” to the whole IMF deal.
The finance committee’s amendment comes in the context of an apparent delay on a decision by the IMF Board on whether to disburse the next tranche of aid to Ghana following the third staff review of the program in May.
The Board will now complete its review after that recess and only if the government undertakes certain steps, including passage of the law to back zero central bank financing, said the Fund’s Ghana representative Natalia Koliadina.
“The completion of prior actions is not unusual in Fund programs and, while their implementation takes time, they need to be met before the board meeting,” she said in an email to Reuters, adding that the program is “broadly on track.”
“Subject to this work being completed and prior actions met IMF staff will finalize the preparation of the required documentation for the Executive Board’s consideration of the review,” she said.
The uncertainty is more acute because Ghana will hold an election in December when President John Mahama is expected to face a close race against opposition leader Nana Akufo-Addo. Parliament rises on July 29, thus the bill must pass by then.
Parliamentary sources said the central bank wants the amendment but MPs in the ruling party say it could tie the government’s hands in the run-up to the election.
A senior opposition MP told Reuters that the IMF’s restriction on deficit financing is unfair because it impinges on national sovereignty.