Press Release: IMF Completes In Principle Second Review Under Ghana's PRGF Arrangement and Reviews Noncomplying Disbursement

July 9, 2004

The Executive Board of the International Monetary Fund (IMF) today completed in principle the second review of Ghana's economic performance under a Poverty Reduction and Growth Facility (PRGF) arrangement. This opens the way for release of a further SDR 26.35 million (about US$39 million), bringing the total amount drawn under the arrangement to SDR 79.05 million (about US$117 million). This decision will become effective following the World Bank's review of Ghana's annual progress report on the Poverty Reduction Strategy Paper (PRSP), scheduled on July 13, 2004.

In completing this review, the Executive Board waived the nonobservance of the quantitative performance criterion on the banking sector credit to the Tema Oil Refinery and two structural performance criteria on the adjustment of petroleum prices, and electricity and water tariffs.

The Board further reviewed the annual progress report of Ghana's Poverty Reduction Strategy Paper (PRSP) and concluded that it provides a sound basis for continued access to Fund concessional financial assistance and for reaching the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.

The Board also reviewed matters related to the noncomplying disbursement to Ghana in an amount equivalent to SDR 26.35 million (about US$39 million) that was made on December 17, 2003, following the completion by the Executive Board of the first review under Ghana's PRGF arrangement (see Press Release No. 03/222). The non-complying disbursement arose as a result of misreporting on the observance of a prior action for the completion of the first review, which required that electricity and water tariffs be raised in line with the program's automatic adjustment formulas, based on calculated values through September 2003. In October 2003, the Public Utilities Regulatory Commission approved a tariff increase for Ghana Water Company Limited (GWCL). On that basis, the authorities indicated that water tariffs had been raised, and that the prior action had been observed. Subsequently, however, GWCL informed Fund staff that they had not raised water tariffs, and hence it was determined that the prior action had not in fact been observed. The Board decided to waive the nonobservance of the prior action in view of the prompt corrective action taken by the authorities when the misreporting was discovered.

Ghana's three-year PRGF arrangement was approved on May 9, 2003 (See Press Release No. 03/66) for SDR 184.5 million (about US$273 million).

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.

Following the Executive Board's discussion on Ghana, Takatoshi Kato, Deputy Managing Director and Acting Chairman, said:

"The Ghanaian authorities are to be commended for the successful implementation of macroeconomic policies, which together with an improvement in the terms of trade, has provided a favorable economic climate for rising business confidence, strong growth, and more recently, significantly declining inflation.

"The authorities have made significant progress toward achieving their medium-term fiscal objectives, owing in part to improved expenditure discipline. Fiscal consolidation avoided the need for net domestic financing of the budget last year, and this led to a decline of the domestic debt-to-GDP ratio, contributing to a sharp fall in interest rates.

"The government's decision to leave petroleum prices unchanged ahead of the election in December 2004 creates a source of vulnerability for the budget, even though the authorities have taken adequate measures to address the anticipated costs of the resulting subsidies to petroleum producers, while protecting poverty-related expenditures. Nevertheless, it will be critically important for the authorities to follow through on the commitment to replace the current pricing regime with a new regime, which will absolve the government from making pricing decisions, and to implement it, as announced, by February 15, 2005.

"The authorities' resolve to improve the performance of public sector enterprises is welcome, and should help to raise their efficiency and reduce quasi-fiscal costs. A key element in this strategy will be the maintenance of cost-recovery pricing by public utilities.

"To ensure continued progress in fostering sustainable growth and reducing poverty, it will be important to resist political pressures to relax fiscal discipline ahead of the election and to maintain sound monetary policies and continue strengthening the financial sector. In addition, the authorities need to press ahead with wide-ranging structural reforms to diversify the economy and improve the economic and regulatory environment for private sector development.

Since reaching the decision point in February 2002 under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative, Ghana has made satisfactory progress in the implementation of its Poverty Reduction Strategy, and has successfully maintained macroeconomic stability. Ghana has also met all but one of the floating completion point triggers under the enhanced HIPC Initiative, and has committed itself to meeting that last requirement. This paves the way for Ghana to reach the HIPC completion point, which will result in irrevocable debt relief for Ghana equivalent to US$2.2 billion, in net present value terms. To ensure full relief under the enhanced HIPC Initiative, all creditors should provide their prescribed share of contributions required under the HIPC Initiative.

"The Executive Board regretted the authorities' failure to ensure the accuracy of information relating to a prior action to bring electricity and water tariffs in line with the program's automatic adjustment formulas (based on calculated values through September 2003). Electricity tariffs had been implemented as reported, but water tariffs were not adjusted. The Board took note of the authorities' explanation for the nonobservance of the prior action which was attributed to "miscommunication and misjudgment."

"The Board also noted that the authorities took prompt corrective action to raise water tariffs when it was discovered that the prior action was not observed. This tariff adjustment exceeded the programmed amount in order to recover foregone revenues from the previous period.

"In view of the prompt corrective action taken by the authorities and the steps they propose to take in future to verify implementation of tariff adjustments, the Executive Board decided to grant a waiver of nonobservance of the prior action," Mr. Kato said.


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6278 Phone: 202-623-7100