Press Releases: IMF Approves New ESAF Loans for Ghana

July 3, 1995

The International Monetary Fund (IMF) today approved a series of loans for Ghana over the next three years under the enhanced structural adjustment facility (ESAF )1totaling the equivalent of SDR 164.4 million (about $258 million) in support of the Government's 1995-97 economic program. Of this total, the equivalent of SDR 54.8 million (about $86 million) will be disbursed in the first year in equal semi-annual installments, the first of which is available on July 14, 1995.


Following a protracted period of serious economic decline, Ghana enjoyed considerable success from 1983 under an economic recovery program supported by a series of IMF loans, the most recent of which was a three-year ESAF arrangement that expired in March 1992. Inflation was brought down from 142 percent in 1983 to 10 percent by the end of 1991, real GDP growth averaged about 5 percent a year throughout most of the period, and the balance of payments registered sizable overall surpluses. In 1992, the Government encountered serious difficulties in implementing additional economic reforms in the run-up to the first multi-party elections under the new constitution. Consequently the program slipped off track, and strong price and balance of payments pressures re-emerged. Private investment slumped, and real GDP growth slowed to below 4 percent. Efforts to bring economic performance back on track during 1993-94 fell short of expectations, particularly in the areas of monetary policy, as acute financial difficulties experienced by the national oil company led to a rapid expansion in the money supply in 1994. The annual rate of inflation more than doubled in 1993 and increased to 34.2 percent by end-1994, and Ghana's external current account deficit deteriorated sharply from 3.6 percent of GDP in 1991 to 9.2 percent in 1993, before stabilizing at 4.9 percent in 1994.

The Program for 1995-97

The economic program for 1995-97 seeks to accelerate real GDP growth to 5.5 percent by 1997 and to 6 percent by the end of the decade, while reducing inflation to 5 percent and the external current account deficit to 2.7 percent of GDP by 1997. Ghana's program aims at improving the environment for private savings and investment by pursuing sound financial policies consistent with reducing the inflation rate and maintaining a stable exchange rate. The structural policies will be directed at providing a supporting environment to private sector initiative and foreign investment through curtailing public sector involvement in the economy.

Ghana's medium-term fiscal strategy is geared to generating additional domestic savings to help meet the program's investment and external current account objectives. The overall budget balance, excluding divestiture receipts, is expected to move from a deficit of 2.9 percent of GDP in 1994 to a surplus of 1.3 percent by 1997. The bulk of this adjustment will emanate from lower current expenditures, and a shift in the tax burden toward expenditure-based sources of revenue. The Government also plans to restructure its budgetary outlays to fund improvements in the country's economic infrastructure and the provision of better education and health services. To bring inflation firmly under control, broad money supply growth will be reduced sharply. Monetary restraint will be accompanied by a flexible exchange and interest rate policy aimed at protecting Ghana's external competitiveness and foreign reserve position. Control of the money supply will continue to be effected through open market operations currently conducted by the Central Bank.

Within this medium-term strategy, the 1995 program targets real GDP growth of 5 percent, an annual inflation rate of just under 20 percent by year-end, and a narrowing of the external current account deficit to 3.7 percent of GDP. To achieve these objectives, the overall budget deficit will be reduced to 0.1 percent of GDP, excluding divestiture receipts, thus helping to release the resources needed to support the program's investment and growth targets. The deficit reduction will be based almost equally on improved revenue collection and reduced expenditure in relation to GDP.

Structural Reform Policies

The structural reform strategy will focus on deregulation of the cocoa and petroleum sectors, and expanding the privatization program. Privatization policy aims at selling or liquidating a large number of the major state enterprises and will be expanded to cover banks and public utilities. The financial operations of state enterprises that remain in the public domain are being strengthened and placed on a profit- making basis. No government or central bank financial support, including loan guarantees, will be provided to these enterprises, which will depend on their internal sources or private capital markets to cover their financing needs. In the area of civil service reform, the Government has established a high-level committee to draw up recommendations -- for implementation in early 1996 -- for reducing the size of, and restructuring, the civil service.

Social and Environmental Issues

The 1995 budget provides for a real increase in spending on health and education, and also for an increase of over 50 percent in the minimum threshold for personal income tax. In addition, basic foodstuffs, livestock, and agricultural inputs have been exempted from sales tax. Furthermore, increased farm incomes arising from structural reforms in the agricultural sector are expected to help poverty in the rural areas. Efforts to curb inflation will also benefit the most needy and those on fixed incomes.

Environmental problems arising from inappropriate cultivation practices and widespread deforestation pose serious threats to Ghana's rural economic base. A new forest and wildlife policy was approved in late 1994 to deal with illegal timber felling and to promote a sustainable utilization of forest resources. Mining regulations have also been revised in an effort to prevent the discharge of industrial waste into local water supplies. The cost of repairing environmental damage is expected to be borne by the private sector and an environmental fund established by the Government in 1994.

The Challenge Ahead

Ghana's external prospects remain vulnerable to the concentration of its export earnings in relatively few primary commodities and the continuing, albeit diminishing, dependence on foreign aid. This vulnerability underscores the importance for Ghana of building up a healthy stock of foreign reserves during the program period. Ghana's long-term balance of payments prospects will depend on the success of policies to promote export growth and diversification and to mobilize the savings and investment needed to sustain robust per capita growth rates.

Ghana became a member of the IMF on September 20, 1957; its quota2 is SDR 274 million (about $430 million), and its outstanding use of IMF credit currently totals SDR 446 million (about $699 million).

Ghana: Selected Economic Indicators

  1991 1992 1993 1994* 1995** 1996** 1997**


(percent change)

Real GDP growth 5.3 3.9 5.0 3.8 5.0 5.0 5.5
Consumer prices inflation
    (end of period)
10.3 13.3 27.7 34.2 19.5 8.0 5.0

(percent of GDP)

External current account balance (deficit –) –3.6 –5.5 –9.2 –4.9 –3.7 –3.4 –2.7
Fiscal balance (deficit –)*** 1.5 –4.8 –4.7 –2.9 –0.1 0.7 1.3

Sources: Ghanaian authorities; and IMF staff estimates and projections.
***Excluding divestiture receipts.
1. The ESAF is a concessional IMF lending facility for assisting low-income members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent and are repayable over 10 years with a 5 1/2-year grace period.

2. A member's quota in the IMF determines, in particular, its subscription, voting weight, access to IMF financing, and allocation of SDRs.


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