News Brief No. 00/71

News Brief: IMF Completes Second Review of Ghana under PRGF-Supported Program and Approves In Principle US$35.1 Million Disbursement

August 22, 2000

The Executive Board of the International Monetary Fund (IMF) completed in principle the second review under the three year Poverty Reduction and Growth Facility (PRGF)¹ arrangement for Ghana (see Press Release 99/16).

A final decision by the IMF Executive Board is pending discussion by the World Bank Executive Board of Ghana's interim Poverty Reduction Strategy Paper (PRSP). The World Bank Board is expected to meet on August 24, 2000 to consider Ghana's PRSP.

The third loan under the arrangement in an amount equivalent to SDR 26.8 million (about US$35.1 million) will be available when a final decision by the IMF Executive Board is taken. Such disbursement brings total disbursements under the current program to SDR 71.1 million (about US$93.0 million).

After the Executive Board's discussion of Ghana's economic and structural reform program, Eduardo Aninat, Deputy Managing Director and Acting chairman, issued the following statement:

"The Ghanaian authorities are to be commended for the adjustment efforts they took in response to a weakening in economic performance under the PRGF arrangement owing to a severe terms of trade shock. Fiscal measures, including an increase in the VAT rate, were implemented and monetary policy was tightened, albeit with some delay, to help stabilize the exchange rate and keep inflation under control. There has been an acceleration of the privatization program, which will help reduce domestic debt accumulation and the fiscal burden of interest payments. There also is a commitment to structural reform, notably in the ongoing liberalization of the cocoa sector.

"However, the review of the second annual program has highlighted the need to continue fiscal restraint by controlling expenditures while improving tax administration and budget management. To keep budgetary execution transparent the authorities will undertake an audit of domestic arrears. Fiscal discipline will be pursued and wage increases will be held in line with productivity, especially in this election year.

"The authorities are committed to ensure the smooth functioning of the foreign exchange and primary markets, without the use of administrative controls and to allow the interest rate and the exchange rate to be more responsive to market pressures.

"The authorities will avoid the use of import surcharges for protecting local industries and are committed to the early elimination of all surcharges. The average tariff rate will be reduced while aiming at harmonizing regional practices and avoiding distortions.

"The Fund concludes that the Interim Poverty Reduction Strategy Paper (IPRSP) set forth in EBD/00/66 provides a sound basis for the development of a full participatory PRSP and for Fund concessional assistance. A National Economic Forum is intended to be reconvened to consult with a wide range of stakeholders the poverty reduction and growth strategy," Aninat said.

1 On November 22, 1999, the IMF's concessiomal facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that the PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society ad 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. At this time for Ghana, an interim PRSP sets out a preliminary framework in a statement by the government and the participatory process is underway. It is understood that all policy undertakings in the government's statement beyond the first year are subject to reexamination and modification in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for future reviews under this PRGF arrangement. PRGF loans carry an interest rate of 0.5% a year, and are repayable over 10 years with a 5½-year grace period on principal payments.