IMF recommends close monitoring of COCOBOD by Finance Ministry

The International Monetary Fund is recommending the close monitoring of the Ghana Cocoa Board (COCOBOD) by the Ministry of Finance due to its high leverage and significant exposure to market risks.

According to the Fund, COCOBOD’s financial performance has deteriorated markedly since 2020.

“While the entity benefited in earlier years from favorable global cocoa prices and producer price controls, underlying vulnerabilities—including high operating costs, significant foreign-exchange exposure, and reliance on forward sales—persisted. In 2023, COCOBOD recorded a sharp reversal driven by a substantial decline in cocoa output, a steep increase in producer prices, and adverse hedging outcomes, as forward contracts were executed at prices below prevailing international market levels amid sharp global price increases, it disclosed in its Technical Assistant Report on the theme “Advancing SOEs Fiscal Risks Management, Financial Oversight, Governance and Investment Implementation".

In its analysis of Ghana’s State-Owned Enterprises (SOEs), the Bretton Woods institution said unfavorable market conditions and adverse hedging positions weakened COCOBOD’s balance sheet, heightening fiscal risks and underscoring the need to strengthen the entity’s risk management policies.

The total liabilities of the company increased from GH¢14.7 billion in 2020 to GH¢28.5 billion in 2022, resulting in payables dominating COCOBOD’s liability structure.

According to the IMF, the turnaround in the company’s profitability in 2023 had a positive impact on its leverage with a reduction in total liabilities of GH¢4 billion and a slightly improved fiscal risk outlook.

Nevertheless, the debt to assets ratio continues to hover around 90%, indicating a considerable risk from solvency perspective.

Also, the company profitability and its solvency are subject to significant risks due to any potential volatility in market conditions, such as cocoa price and supply.

This is due to its business nature as an operator and regulator in a commodity market.

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DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.