The International Monetary Fund (IMF) has lauded the Bank of Ghana’s (BoG) swiftness in the resolution of issues pertaining to two insolvent indigenous banks – UT Bank and Capital Bank, saying that such actions are needed to rescue the country’s fragile banking system.
The Executive Board of the Fund, commenting on the state of the country’s economy after its completion of the fourth review of the ongoing IMF programme, singled out for praise the purchase and assumption transaction which saw GCB Bank take over the two distressed banks.
The statement issued by the Washington-based lender said: “Directors commended the progress made in the strengthening the banking system, in particular through the approval of time-bound recapitalization plans for undercapitalized banks and the recent resolution of two insolvent banks.”
The purchase and assumption transaction with GCB Bank, according to the central bank, became necessary due to severe impairment of the capital of the two banks forcing the industry regulator to step in to prevent their collapse as well as protect depositors’ funds.
While the central bank announced the resolution of the two banks, it also revealed that a time-bound recapitalisation roadmap has been agreed with a number of banks facing similar challenges to that encountered by the two former banks.
Despite the Fund commending the central bank over the adoption of the roadmap, it called on the bank, to as a matter of urgency, strengthen its supervisory and regulatory framework to address liquidity risks and rising levels of non-performing loans.
The ongoing deceleration in inflation also excited the Fund; encouraging the Bank of Ghana (BoG) to remain vigilant and take action to bring it back to target should there be a sway.
Inflation has declined from 17.2 percent in September last year to 11.9 percent as at July, 2017.
They also called for measures to further strengthen the credibility of the inflation targeting framework, which would benefit from efforts in the development of the foreign exchange market and continuation of BoG’s policy on zero financing of the government.
Corrective measures
After approving a request by government to have the US$918 million Extended Credit Facility (ECF) extended by a year, the Fund spoke of a number of corrective measures that the country needs to put in place to have the programme brought back on track.
For instance, the Fund cited the urgent measures needed to address revenue shortfalls witnessed in the first half of the year, while reiterating expenditure control measures to contain current spending and prevent the recurrence of domestic arrears accumulation.
The Fund also welcomed the wide?ranging reforms in revenue administration and public financial management, noting that these will be essential to make consolidation gains sustainable over the medium term and create fiscal space for priority spending programmes.
Addressing the shortcomings in spending controls will be essential to deliver lasting adjustment and anchor the credibility of government’s budget policies, the Fund argued.
“Directors emphasized the need to tackle energy sector inefficiencies, particularly improving the management of the state?owned enterprises (SOEs). They also advised that ongoing debt restructuring efforts are helpful but are no substitute to stemming the SOEs’ financial losses,” the Fund said.