Barely a year after Ghana successfully completed a three year Extended Credit Facility programme (which eventually lasted four years) with the International Monetary Fund, the arrival of the global coronavirus pandemic in Ghana has forced government to return to the Bretton Woods institution for help.
On Tuesday, the IMF’s African Department director, Abebe Aemro Selassie released a terse two sentence statement entitled “Ghana requests Rapid Credit Facility Disbursement to help fight coronavirus.”
The statement revealed that “Last week the IMF received Ghana’s request for a disbursement under the Rapid Credit Facility to help the country address the economic impact of the COVID-19 pandemic. We are working hard to evaluate the authorities request and bring it forward for Executive Board consideration as soon as possible.”
Importantly though, unlike other IMF facilities, the RCF does not come with an array of demand management conditionalities, which require belt tightening by households and businesses, and which have therefore made the Fund’s programmes unpopular in Ghana.
While neither government nor the IMF itself has revealed how much Ghana has applied for, the conventional wisdom is that it is at least US$100 million, this being the hitherto unbudgeted amount government has voted to tackle the viral outbreak.
But while many Ghanaians see the resort to a RCF as inevitable under the current unusual circumstances, government’s critics argue it made a mistake in exiting the ECF programme at the time it did, because it had not built sufficient fiscal buffers against economic shocks going forward.
Indeed, Seth Terkper, immediate past Finance Minister, has been arguing against leaving the ECF programme – which the IMF itself had tried to convince government to continue with for this very reason – until sufficient buffers have been built. Now he points out that this lack of sufficient financial buffers is forcing Ghana back to the very institution whose economic assistance programme it hurriedly left less than a year ago.
The Rapid Credit Facility (RCF) provides rapid concessional financial assistance with limited conditionality to low-income countries (LICs) facing an urgent balance of payments need. The RCF places emphasis on the country’s poverty reduction and growth objectives but it can provide support in a wide variety of circumstances, including shocks, natural disasters, and emergencies (such as the coronavirus outbreak) resulting from fragility. The RCF also provides policy support and may help catalyze foreign aid.
The RCF is available where a full-fledged economic program is either not necessary (for instance because of the transitory and limited nature of the shock) or not feasible (for instance because of capacity constraints or domestic fragilities).
Financial assistance under the RCF is provided as an outright loan disbursement. While RCF financing takes the form of a one-off disbursement., there is scope for repeat use. A repeat use of the RCF is possible within any three-year period if the balance of payments need is caused primarily by a sudden and exogenous shock or the country has established a track record of adequate macroeconomic policies. However, no more than two disbursements may be made in any twelve-month period. Repeat use of the RCF may facilitate eventual transition to an ECF arrangement.
Financing under the RCF carries a zero interest rate, has a grace period of 5½ years, and a final maturity of 10 years.