IMF report highlights Ghana’s efforts to address financial sector legacy issues

The International Monetary Fund (IMF) has acknowledged Ghana’s Ministry of Finance (MoF) for initiating measures to address legacy issues in the financial sector.

According to the IMF Country Report No. 24/334, these actions align with the Ghana Financial Sector Strengthening Strategy, which aims to bolster Savings and Loans Institutions (SDIs) to promote inclusive growth.

“The MoF has started addressing the financial sector legacy issues, consistent with the Ghana Financial Sector Strengthening Strategy, which, among other things, calls for the strengthening of the SDI sector to support inclusive growth,” the report noted in part.

The document highlights ongoing weaknesses within SDIs and Non-Bank Financial Institutions (NBFIs), emphasising the importance of resolving these problems. A World Bank-backed financial sector support initiative, targeting undercapitalised banks and SDIs, is currently awaiting parliamentary approval.

The government’s solvency support plan aims to minimise costs, manage risks, and ensure an orderly and early exit by the government. The IMF report further reveals that “the government is committed to implementing in 2025 a comprehensive and cost-effective strategy to address legacy issues in SDIs and to renew focus similarly on other legacy NBFIs, with government financial support as needed to mitigate risks to financial stability.”

The report adds that any government payouts will involve a burden-sharing model to reduce fiscal strain.

The necessity for continuity in these efforts is underscored despite the exit of the Nana Akufo-Addo administration, which entered into the $3 billion ECF agreement with the IMF on May 13, 2023, marking the 17th time Ghana has sought assistance from the Fund.

Accordingly, analysts expect the new government to proceed with the commitments under the IMF program due to the importance of SDIs and NBFIs to financial stability and restoring trust and confidence in the financial sector.

Some BoG-regulated institutions that survived the 2017-2019 financial sector cleanup are currently distressed, affecting their ability to meet the obligations of thousands of customers, comprising individuals and institutions.

Critics, including President-Elect John Mahama, have voiced concerns over the central bank’s handling of the financial sector cleanup. Mahama has argued that the approach involved excessive bailout funds and led to significant job losses.

As Ghana moves forward, stakeholders will closely monitor how the new administration aligns with the ongoing financial sector reforms to secure stability and restore public confidence.