Gov’t set to operationalize Financial Stability Fund with initial GHS 9bn commitment

Government has made an initial commitment of GHS 9bn ($750 million) to the Financial Stability Fund (FSF) which is set to be operational soon and act as a buffer against any unintended shocks to the financial sector. The establishment of the Financial Stability Fund (FSF) is intended to promote macroeconomic stability and provide solvency and liquidity support to eligible financial sector institutions.

The creation of the FSF comes at a time when Ghana’s financial sector is facing significant challenges, including the impact of the domestic debt exchange programme (DDEP) on financial institutions. The DDEP, which was introduced in response to Ghana’s high levels of public debt, has resulted in mark-to-market losses on investments, higher impairments on investment securities and loans, and rising operating costs.

To mitigate the impact of the DDEP on the financial sector, the Ghanaian government has taken a number of measures. These include the establishment of the FSF, which will provide short-term liquidity to eligible financial institutions, and exclusive support for banks by the central bank. The government has also worked to complete all prior requirements to present Ghana’s programme to the International Monetary Fund (IMF) Executive Board for approval.

The establishment of the FSF has been welcomed by stakeholders in the financial sector, who see it as a much-needed measure to stabilize the sector. However, some have called for increased clarity on the modalities associated with the fund to ensure that it is used effectively.

Despite the challenges faced by Ghana’s financial sector, there are some signs of optimism. In December 2022, the government achieved a staff-level agreement with the IMF, which is expected to provide financing assurances required for the IMF programme. The government has also made substantial progress on the debt-exchange programme and its engagements with bilateral creditors.

Overall, the establishment of the FSF is a positive development for Ghana’s financial sector. While challenges remain, the government’s commitment to promoting macroeconomic stability and providing support to financial institutions is a step in the right direction. As Ghana continues to navigate a challenging economic environment, the success of the FSF will be crucial in ensuring the stability of the financial sector and the broader economy.

Source: norvanreports.com