The Ministry of Finance and Bank of Ghana (BoG), together with the International Monetary Fund (IMF), are formulating a robust strategy to revive the country’s financial sector that will be unveilled by end of June this year.

This represents a major component of proposed structural reforms under the US$3billion Extended Credit Facility (ECF) provided by the Fund; and the initiative seeks to strengthen Ghana’s financial sector, instil market confidence, and promote increased lending to the private sector.

The IMF is urging fiscal and monetary authorities to complete the necessary steps, including providing capital support to qualifying institutions and implementing measures to strengthen the financial sector exchange promptly.

In a Staff Report published following the formal announcement of an Executive Board-level approval of the ECF, the IMF stressed the importance of timely action, stating: “Any capital support to qualifying institutions and other steps necessary to strengthen the financial sector exchange will be completed in a timely manner. To bolster the sector’s resilience, enhance market confidence and encourage lending to the private sector, we will develop a strategy by end-June 2023 for strengthening the financial sector and rebuilding financial sector buffers, to be accomplished by end of the programme”.

As part of the proposed reforms, each of the nation’s 23 commercial banks will be obligated to submit reliable and time-sensitive plans to replenish capital buffers, aligning with the specified timelines outlined in the financial sector strategy. These plans will undergo evaluation by the central bank and be finalised by banks for approval by the Bank of Ghana (BoG) before end of September 2023, signifying a crucial milestone in the structural reform process.

Speaking about the expectations for financial institutions, the statement mentioned: “Taking a forward-looking perspective and in line with our supervisory framework, individual banks will be expected to submit their credible time-bound plans to rebuild capital buffers on a phased basis in line with timelines set out in our financial sector strategy. These plans will be reviewed by the BoG and finalised by banks for BoG approval by end-September 2023”.

Apart from banks, the regulator will also require special deposit-taking institutions (SDIs), non-bank financial institutions (NBFIs), and other regulated financial entities like securities firms and insurance firms to submit time-bound plans for recapitalization, and ensure strict adherence to those plans.

The progress of these institutions in meeting their recapitalisation targets and timelines will be closely monitored by the relevant regulatory bodies, ensuring accountability and compliance, the Bretton Woods institution noted.

To further ensure stability of the banking system, the BoG will conduct additional stress-tests to closely monitor vulnerabilities and guide discussions regarding adjustments to the financial sector strategy.

The Fund’s proposed reforms have received mixed reactions among analysts. Supporters argue that strengthening the financial sector will enhance investor confidence and stimulate economic growth. However, critics express concern about the potential burden on financial institutions and the overall economy

Nevertheless, all eyes will be on additional details regarding the GH¢15billion Financial Stability Fund. Already, the Finance Ministry has announced its readiness to disburse a total of US$750million, equivalent to approximately GH¢9billion and representing 60 percent of the targetted total.

This is particularly aimed at offering solvency and liquidity assistance to eligible financial sector institutions that were impacted by and actively took part in the domestic debt exchange programme (DDEP).

The lender’s ECF programme, coupled with these proposed structural reforms, is expected to provide a solid foundation for the nation’s financial sector; thus ensuring its resilience and ability to support sustainable development and economic progress.

As the deadline approaches for development of the financial sector strategy, stakeholders across the country eagerly await further updates on the progress and implementation of these reforms – recognising their potential to shape the country’s future financial landscape.