A team from the International Monetary Fund (IMF), led by Joël Toujas-Bernaté, concluded its visit in Ghana aimed at taking stock of the 2016 economic developments and the outlook for 2017.
The team engaged the Government in a dialogue about its economic plans, and discussed prospects for programmed engagement with the IMF. Mr. Toujas- Bernaté, said, “Ghana’s economy continues to face challenges. While the estimated economic growth of 3.6% in 2016 exceeded our target of 3.3%, the decline in inflation has been slower than expected. The current account deficit narrowed to 6.5% of the Gross Domestic Product, contributing to a small build-up of foreign exchange reserves,” he said.
He further indicated that the country missed its fiscal deficit target of 5¼ % owing to poor oil and non-oil revenue performance. “In 2016, the overall fiscal deficit (on a cash basis) deteriorated to an estimated 9% of the GDP, instead of declining to 5¼ % of GDP as envisaged under the IMF-supported program. The large deviation was mainly due to poor oil and non-oil revenue performance and large expenditure overruns. As a result, the Government debt-to-GDP ratio increased further close to 74% of the GDP at the end of the year 2016.
Bold policies to restore Fiscal Discipline
The International Monetary Fund said the fiscal slippages observed last year will require Government to take strong measures to support the debt sustainability strategy. “The new Government has expressed its intent to continue with the current program with the IMF. Officials outlined bold policies to restore fiscal discipline and debt sustainability and also to support growth and private sector development. The large fiscal slippages observed last year will, indeed, require strong efforts of fiscal consolidation to support debt sustainability. The new government’s intentions to reduce tax exemptions, improve tax compliance and review the widespread earmarking of revenues should help in this regard.” The IMF, however, welcomed the new Government’s commitment to ensure transparent and accountable governance which will keep public spending under control. “Significant public spending commitments that bypassed public finance management (PFM) systems were reported. We welcome the new Government’s intention to conduct a full audit of outstanding obligations, its commitment to transparency and its readiness to take strong remedial actions to ensure the integrity of the PFM systems going forward. The large financial imbalances of state-owned enterprises in the energy sector also need to be addressed with urgency to avoid the build-up of contingent liabilities for the new government. We welcome the new government’s commitments to encourage its departments and agencies to implement growth-enhancing reforms in a fiscally sustainable manner.”
Tight Monetary Policy required
Still, the fund urged the central bank to continue maintaining a tight monetary policy to mitigate the inflationary pressures. “Bank of Ghana’s (BOG) monetary policy has been instrumental in mitigating inflationary pressures in 2016. Adequate tight monetary policy will again be important for containing possible further pressures in 2017. We welcome BOG’s continued roll-out of the Roadmap for the banking sector and look forward to the actions that can strengthen banks’ balance sheets and contribute to a gradual reduction of the level of nonperforming loans,” the IMF said. The IMF approved a three-year arrangement under the Extended Credit Facility (ECF) for Ghana in an amount equivalent to US$918 million in support of the authorities’ medium-term economic reform programme. The programme is aimed at restoring debt sustainability and macro-economic stability to foster a return to high growth and job creation, while protecting social spending.
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As part of the arrangement, government was expected to ensure zero percent financing from the Central Bank, remove subsidies in some areas and cut down on expenditure.
Ghana committed to IMF deal
The Finance Minister, Mr Ken Ofori-Atta, said that the Government has decided to fully complete the International Monetary Fund programme. He explained that the Government’s commitment to the programme followed a series of cross-sectional discussions held with key stakeholders. “Our partnership with the IMF so far has been well and there have been several discussions and some commitments and we have promised to successfully complete the programme in the stipulated period,” he said. The Minister said under the guidance of the Vice-President, Dr Mahamudu Bawumia, and Senior Minister, Mr Yaw Osafo-Maafo, the Government would ensure that Ghanaians benefited from the programme.
He concluded that the Government would restore fiscal policy credibility and transparency, as well as policy clarity, in the formulation of the 2017 budget and economic policy. “We have already had several discussions with various heads of ministries, departments and agencies (MDAs) to review their policies and ensure consistency with the government’s medium-term policy strategy, but there were several challenges in their books.”