Financial Stability Fund set for operationalisation with US$750 million

The Financial Stability Fund (FSF) is finally set to come into play with a US$750million disbursement from the Ministry of Finance.

The sum, which translates to approximately GH¢9billion – or 60 percent of the aspirational GH¢15billion, is expected to provide solvency and liquidity support to eligible financial sector institutions affected by – and who fully participated in – the domestic debt exchange programme (DDEP).

The FSF aims to strengthen the country’s financial system by promoting overall macroeconomic stability. It will provide short-term liquidity to eligible financial institutions and act as a buffer for any unintended shocks to the financial sector.

Speaking at a cooperation agreement signing ceremony between government and the United Nations (UN) in Accra, the Minister of State responsible for Finance, Dr. Amin Adams, noted that government is aware of the DDEP’s potential impact on the financial sector and is taking necessary measures to mitigate any negative outcomes.

“We are very much aware of the DDEP’s impact on the domestic financial sector, and steps are being taken to mitigate that impact by establishing the Ghana Financial Stability Fund to, among others, provide solvency and liquidity support to eligible financial sector institutions. Government is immediately committing US$750million to the solvency fund, and this includes US$250million as a loan from the World Bank,” Dr. Adams said as he called on other development partners to support efforts regarding the fund.

“We know that the DDEP will come with some challenges, but once it is well-managed it will bring more stability to the economy and enhance our debt-management capabilities as a country. The Ghana Financial Stability Fund will also give the needed assurance to development partners, foreign investors and stakeholders alike that the financial sector is stable and secure,” added Dr. Adams.

This development will come as a source of relief to stakeholders in the financial sector, as the local debt restructuring programme has taken a toll on the sector, with recent earning statements of banks showing the impact of mark-to-market losses on investments, higher impairments on investment securities, loans and rising operating costs.

Commenting on the development, a banking consultant, Dr. Richmond Atuahene, said it has come at a crucial time – adding that it will calm the nerves of non-bank financial institutions.

“While banks have had all the headlines, we must remember that the fund is meant to cater to a number of financial sector institutions, and these include fund managers and other capital market players which are also feeling the strain of recent happenings,” he said.

The former National Banking College lecturer however called for increased clarity on modalities associated with the Fund.

“At a time when there is wide mistrust in the space, those overseeing the Fund would do well by themselves and others to ensure that information about the Fund is communicated clearly,” he added.

At a press briefing after the most recent Monetary Policy Committee meeting, central bank Governor Dr. Ernest Addison indicated that the apex bank is ready to provide exclusive support for banks during this period.

Both arrangements form part of a wider set of measures instituted by the Financial Stability Council to minimise impacts of the DDEP and other factors on the financial sector.

Already, government has achieved a staff-level agreement with the International Monetary Fund (IMF) in December 2022, and has worked to complete all prior requirements to present Ghana’s programme to the IMF Executive Board for approval.

Government has also made substantial progress on the debt-exchange programme, and on its engagements with bilateral creditors to secure the necessary financing assurances required for the IMF programme.