Public Information Notice: IMF Concludes Article IV Consultation with Ghana

January 12, 1999

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On December 2, 1998, the Executive Board concluded the Article IV consultation with Ghana1.


Despite drought-related power shortages, Ghana succeeded in maintaining broadly on track its economic program for 1998, which is supported by the IMF under a three-year ESAF arrangement. All quantitative performance criteria and benchmarks for June 1998 were observed. Real GDP growth for 1998 is forecast at 4½ percent— somewhat below the 5.6 percent target—but stronger than feared at the onset of the energy crisis. The inflation rate, which was 21 percent at end-1997, increased in March and April as a result of the drought, but thereafter resumed its declining trend, falling to about 17 percent in September. The cedi remained relatively stable, depreciating by 3 percent from January to September 1998.

The primary domestic fiscal surplus for the first half of 1998 exceeded its floor by 0.5 percentage points of GDP. Tax revenue was slightly below target, and there was a shortfall in grants. Noninterest recurrent and foreign-financed capital expenditures remained below original projections, but domestic interest payments were 0.6 percentage points of GDP above projected levels. Net domestic financing of the government, both by banks and nonbanks, was kept below its ceiling. The Bank of Ghana expanded reserve money in line with the program, but the growth in broad money in the first half of 1998 exceeded the program target. The higher-than-expected money multiplier resulted primarily from a decline in the currency-to-deposit ratio. Steps taken in 1998 to improve the operation of financial markets include the introduction of a centralized book-entry system for treasury bills, a master repurchase agreement, and enhancements of the payments system.

Ghana’s external payments position is improving, but remains vulnerable. During 1998, the net foreign assets of the Bank of Ghana (NFA) was consistently above the program target. Also, the current account deficit (including official transfers) is estimated to decline to 6 percent of GDP bolstered by gains in the terms of trade. Export receipts are projected to rise by about 17 percent, reflecting mainly a recovery in cocoa exports. To ensure that the external debt remains sustainable, the government will not borrow or guarantee borrowing externally on nonconcessional terms.

As part of structural reforms, a new tariff structure was introduced in March 1998. The value-added tax (VAT) law was adopted by parliament in February 1998, and the tax took effect in December 1998. Parliament passed a bill in early December to set up a central revenue board to replace the governing boards of customs, the internal revenue service, and the VAT Secretariat. A review of the subvented agencies is ongoing, and the Cabinet approved a pilot project which will restructure at least seven subvented agencies, commercialize at least five and close down five others. The divestiture program is moving ahead, with about 20 state-owned enterprises offered for sale in 1998.

Following a 90 percent increase in energy tariffs in February 1998, the Public Utilities Regulatory Commission announced a further increase of about 100 percent in September. The arrears of the power utilities that were outstanding at end-1997 will be eliminated by end-1999. The Ghana National Petroleum Company divested some of its non-oil-related assets in March 1998 and completed the repayment of its debt to the Bank of Ghana in April 1998. To increase competition in the retail sector, regulated pump prices for petroleum products were replaced by uniform ex-depot wholesale prices on October 12, 1998. The Ghana Oil Company was offered for sale in October and the Tema Oil Refinery will be offered for sale before end-1999.

The share of the f.o.b. price of cocoa that producers receive has increased from 54 percent to 56 percent for the crop year starting October 1998. The plan for the sale of the Produce Buying Company (PBC), a subsidiary of the Cocoa Board, was delayed owing to internal government discussion on how to increase competition in the sector. The unification of the extension services of the Ministry of Agriculture and the Cocoa Board started in August 1998. A workshop on cocoa will be held in January 1999 to discuss ways to deepen the cocoa sector reforms.

Executive Board Assessment

Executive Directors noted that, despite the adverse impact of a drought-related energy crisis, real GDP is now projected to be higher than anticipated, inflation has continued its steady downward trend, the external current account has continued to improve and progress was made on the structural front. However, Directors cautioned that the economic situation remains fragile and stressed that sustained efforts to reduce the fiscal imbalances and accelerate the pace of key structural reforms will be needed to consolidate the progress achieved thus far and place Ghana on a sustainable poverty-reducing growth path.

On fiscal policy, Executive Directors welcomed the higher than expected primary surplus, and stressed that maintaining a strong primary surplus will be critical for stabilizing the domestic debt as a percentage of GDP.

Directors were encouraged by ongoing reforms of the fiscal system, including the introduction of the value-added tax (VAT) by the end of 1998 and the implementation of the medium-term expenditure framework. They welcomed the tariff measures taken in March1998 to reduce zero-rating and exemptions, and suggested further steps to bring the tax treatment of imports in line with the taxation of consumption in the VAT law. Directors were concerned that the central revenue authority could not be set up as planned. While recognizing the legal reasons for this, they underlined the importance of ensuring that the proposed central revenue board will achieve the same revenue objectives.

Directors expressed concern at the lack of expenditure control evidenced by the upward revision of the stock of arrears in the road sector. They welcomed the measures taken to ensure that road expenditures are kept strictly within the budgetary limits and noted the government’s assurances that arrears will be eliminated by end-2000.

Directors noted the unexpected increase in broad money, but commended the authorities for tightening monetary policy to achieve the target for broad money growth. As a result, the inflation rate has resumed its declining trend, allowing interest rates to fall. Directors recommended vigorous measures to strengthen the banking sector, including strong banking supervision, adoption of a transparent entry and exit policy for financial institutions, consideration of a new central bank law to enhance the Bank of Ghana’s autonomy and accountability and divestiture of the Bank of Ghana’s interest in commercial banks. In particular, they recommended decisive action to merge, liquidate, or privatize the remaining weak banks that are still in operation.

Executive Directors welcomed improvements in Ghana’s external position, in particular, the Bank of Ghana’s higher-than-projected net foreign assets, the estimated decline in the current account deficit and higher cocoa exports. They noted the appreciation of the real effective exchange rate and cautioned against intervention to slow down the depreciation of the cedi. They advised the authorities to pursue measures to improve Ghana’s competitiveness, through productivity-enhancing initiatives in the areas of education, health and basic infrastructure, and reforms in the cocoa and other key sectors. Directors supported acontinuation of the current moratorium on nonconcessional external borrowing as an important element in strengthening Ghana’s external position. They noted that continued good performance could help to attract higher donor financing, especially to reduce the stock of debt and provide additional resources for key social sectors.

Directors strongly encouraged the authorities to intensify structural reforms, especially in the petroleum and cocoa sectors. In the petroleum sector, the replacement of uniform pump prices by wholesale prices was welcomed, but seen as only one step in the liberalization process. The privatization of the Ghana Oil Company, which Directors hoped would be completed expeditiously, was considered an important step toward creating a competitive petroleum products market. They noted the timetable for a public offering of the Tema Oil Refinery next year, emphasizing the importance of staying on schedule.

Directors observed that the cocoa sector was an area where reform has been slow and behind the pace set by Ghana’s competitors. They expressed the hope that the workshop on cocoa sector reforms planned for January 1999 will serve as a catalyst for completing the liberalization of the domestic buying market and removing the Cocoa Board’s export monopoly. Directors noted the authorities’ concerns to ensure competition when deciding on the best option for privatizing the Produce Buying Company, while highlighting the importance of moving ahead with the cocoa sector reforms expeditiously and taking meaningful steps during 1999 to safeguard Ghana’s competitive position in the world cocoa market.

Executive Directors welcomed the progress in the implementation of Ghana’s divestiture program, but pointed out that the level of involvement of the government and state enterprises in economic activity is still high and should be reduced. Public service reform was particularly essential, and the pilot project for reform of subvented agencies would be crucial for translating plans into actions. Directors also called for tangible action on implementation of a new remuneration system for the public service, based on job evaluations.

Directors noted the range of problems in statistical reporting cited in the report, and urged the government to make recommended improvements.

Ghana: Selected Economic Indicators

1994 1995 1996 1997 1998

Domestic economy Percentage change
Change in real GDP 3.3 4.0 4.6 4.2 4.5
Change in consumer prices (annual average) 24.9 59.5 46.6 27.9 17.7

External economy In millions of U.S. dollars1
Exports, f.o.b. 1,227 1,431 1,571 1,492 1,745
Imports, f.o.b. -1,580 -1,687 -1,931 -2,128 -2,262
Current account balance -265.0 -141.8 -320.8 -593.9 -407.8
Capital account balance 478.8 432.4 279.0 539.7 468.1
Gross official reserves 593.0 710.0 604.9 508.5 539.2
Debt service (including to the Fund)2 27.4 35.8 27.4 32.3 27.4
Change in the real effective exchange rate (in percent)3 -17.6 14.9 12.2 7.2 ...

Financial variables In percent of GDP
General government balance -9.3 -6.7 -9.5 -9.2 -6.6
Domestic primary balance4 0.8 1.6 0.3 3.2 4.2
Change in broad money (in percent)5 53.0 40.8 39.7 40.8 18.0
Interest rate (in percent)6 29.5 40.5 42.8 42.5 ...

Sources: Data provided by the Ghanaian authorities; and staff estimates and projections.

1Unless otherwise noted.
2In percent of exports of goods and nonfactor services.
3(+) = appreciation.
4Including external aid.
5Including foreign currency deposits.
6Treasury bill rate (end of period).

1Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of directors, and this summary is transmitted to the country's authorities. In this PIN, the main features of the Board's discussion are described.


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