IMF recognizes Ghana’s fiscal measures to address the impact of coronavirus

Business news for Friday, October 23, 2020

Source: 3 News

2020-10-23

The International Monetary Fund (IMF) has captured the reduction of the monetary policy rate of the central bank of Ghana by 150 basis points as one of the measures that the countries of sub-Saharan Africa are introducing to face the ravages of the coronavirus in the economy .

The IMF noted in its Regional Economic Outlook report that, amid limited fiscal space, some authorities have relied on monetary policy to help provide emergency support, with cumulative reductions in the monetary policy rate since January 2020 from up to 500 basis points (bps) in Zambia, 275 bps in South Africa, 250 bps in Namibia, 200 bps in Uganda and 150 bps in Ghana.

“They have also introduced facilities to inject liquidity into the banking system ranging from 0.5 percent of GDP in Angola to 3 percent of GDP in Zambia.

“In addition to lowering interest rates and providing additional liquidity, the monetary authorities in many countries have encouraged banks to work with their clients to help them weather the crisis, either through a temporary moratorium on loan payments (Botswana, Namibia, São Tomé and Príncipe,) or through a restructuring of existing obligations (Botswana, Eswatini, Ethiopia, Kenya, Namibia, Nigeria, Uganda).

“To the extent that such measures ensure that crisis-related risk remains on the balance sheets of the banking sector, they have often been accompanied by government loan guarantees, which bring some of that risk to the government balance sheet.

“South Africa, for example, has launched a new loan guarantee program for small and medium-sized enterprises of up to 4 percent of GDP, adding to the existing stock of guarantees on loans to state-owned companies of 11 percent of GDP. , together with other significant contingent liabilities. Government guarantees to banks (or companies or households) do not usually have an immediate impact on the fiscal deficit, but will create a contingent liability outside the budget, which increases public debt only when the guarantee is requested.

“Some authorities have also relaxed prudential restrictions, for example by easing capital requirements (Botswana, Ghana) or delaying the transition to Basel III (West African Economic and Monetary Union) rules. These measures can be helpful in mitigating the immediate impact of the crisis and increasing the effectiveness of stimulus efforts. “

But the authorities must strike a careful balance between supporting short-term activity and maintaining financial stability.

Undercapitalized banks would undermine the effectiveness of future stimulus efforts and compromise the financial sector’s ability to support investment and long-term growth.

In general, governments are doing their best to ease the burden on the private sector, but authorities must be aware of the limits of such emergency measures, given short-term resource constraints and the long-term risks associated with the overload of the balance sheets of the public and private sectors. observed the IMF.

They must also bear in mind the broader risk that, by repeatedly resorting to special emergency measures, they may undermine hard-won institutional norms and practices that will be essential to ensuring credibility and longer-term stability.