For more information, see Ghana and the IMF

The following item is a Letter of Intent of the government of Ghana, which describes the policies that Ghana intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Ghana, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.
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June 25, 2000

Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19th Street NW
Washington, D.C. 20431

Dear Mr. Köhler:

1. The Executive Board of the Fund approved a three-year Poverty Reduction and Growth Facility (PRGF) arrangement for Ghana on May 3, 1999. The purpose of this letter is to inform you on the progress in implementing the first-year economic program, and to request that the amount of the arrangement be increased from the equivalent of SDR 155 million to the equivalent of SDR 191.9 million and that the third loan under the arrangement be disbursed following the completion of the second review under the arrangement.

2. The attached memorandum of economic and financial policies of Ghana, and our interim Poverty Reduction Strategy Paper sets out the objectives and policies that the government of Ghana intends to pursue during 2000 to improve the living standards of the Ghanaian population in a sustainable manner.

3. Faced with a sharp deterioration in the world prices for its main exports—cocoa and gold—and with a marked increase in oil prices, Ghana’s performance in the later part of 1999 deteriorated, forcing the government to take remedial measures. The macroeconomic program had to be adjusted, the exchange rate depreciated significantly and the maintenance of tight reserve money targets in the face of a deterioration of the fiscal situation caused interest rates to increase significantly.

4. However, revenue performance was disappointing, particularly in the customs area, and several of the quantitative performance criteria were not observed. Also the structural performance criteria were only partially observed or observed with a delay. These slippages occurred for a number of reasons explained in the memorandum of economic policies and do not reflect lack of commitment on the part of the Ghanaian authorities.

5. In view of the above, the government of Ghana hereby requests a waiver for non-observance of the following performance criteria for December 1999: (i) net domestic financing of the central government, (ii) reserve money, (iii) domestic primary surplus of the government budget, (iv) net foreign assets of the central bank; (v) the offer for sale of the Tema Oil Refinery; (vi) the submission to parliament of the Bank of Ghana Act; (vii) the appointment of the sales advisor for the divestiture of Ghana Airways, Ghana Railways, and Electricity Company of Ghana; (viii) the withdrawal of licenses of banks that did not meet capital adequacy requirements; and (ix) the incurrence of new external payments arrears by the government.

6. I am happy to inform you that the government has taken corrective actions to ensure that significant progress is made to resolve the issues that prevented the above mentioned performance criteria from being observed.

7. In support of its 2000-2002 poverty reduction strategy, the government hereby requests a third loan amounting to SDR 26.75 million subject to completion of the second review under the three-year PRGF arrangement.

8. The government of Ghana will provide the Fund with such information as the Fund requests in connection with the progress made in implementing the economic and financial policies and achieving the objectives of the program.

9. The government of Ghana believes that the policies and measures set out in the attached memorandum are adequate to achieve the objectives of its program; it will take any further measures that may become appropriate for this purpose. During the remaining period of the three-year PRGF arrangement, Ghana will continue to consult with the Managing Director on the adoption of any measures that may be appropriate, at the initiative of the government or whenever the Managing Director requests such a consultation. Moreover, after the period of the three-year PRGF arrangement and while Ghana has outstanding financial obligations to the Fund arising from loans under the arrangement, the government will consult with the Fund from time to time, at the initiative of the government or whenever the Managing Director requests consultation on Ghana’s economic and financial policies.

10. The government of Ghana will conduct with the Fund the third review of the three-year PRGF arrangement, based on performance criteria for end-July 2000, not later than December 22, 2000.

11. The government of Ghana intends to make these understandings public and authorizes you to provide this letter and attached memorandum to all interested parties that so request. It also authorizes you to provide to any international organization providing aid to developing countries that might request it, solely for its own use, the documents related to this request, including this letter and attached memorandum.

10. I can assure you that the government is determined to fully implement the program and comply with the performance criteria. Every effort is being made to quickly carry out the agreements contained in the attached memorandum.

11. We hope that we can count on the continued support of the Fund.

Sincerely yours,
Kwame Peprah
Minister of Finance
Kwabena Duffuor
Bank of Ghana




Memorandum of Economic and Financial Policies
of the Government of Ghana for 2000

I. Introduction

1. In November 1999, the government presented its poverty reduction strategy to the Consultative Group meeting. This strategy has been the object of wide consultation with civil society and represents a central element in our approach to raising Ghana’s living standards significantly within a generation. The poverty reduction strategy has been summarized in an Interim Poverty Reduction Strategy Paper (EBD/00/66; 8/7/00). This memorandum of economic and financial policies provides an overview of Ghana’s performance in 1999, and sets out the government’s objectives for 2000–2002 and the program for 2000, including quantitative and structural benchmarks to guide policy implementation during the year.

2. In 1999, Ghana suffered a severe terms-of-trade shock, delays in external disbursements, and a shortfall in fiscal revenues. World prices for Ghana’s two principal exports—cocoa and gold—fell by over 30 percent and 5 percent, respectively, and the world price of petroleum roughly doubled. These developments posed a serious threat to the implementation of the PRGF-supported economic program. In response, the government tightened monetary and fiscal policies in the fourth quarter of 1999 and the 2000 program was adjusted accordingly. However, the shift to tighter policies faced implementation delays and fell short. While structural reforms were for the most part carried out, albeit with delays, quantitative performance criteria on fiscal performance and net foreign assets were not observed.

3. The government will continue to act resolutely to achieve macroeconomic stability and implement structural reforms. Despite the problems faced in 1999, the government remains determined to achieve its poverty reduction and sustainable growth objectives and has taken the steps reported below to deal with this difficult situation.

II. Performance in 1999

4. In 1999, real GDP grew by 4.4 percent, which was below the original program projection of 5.5 percent, owing to domestic capital expenditure cuts and tightened monetary policy necessitated by the external shock. Inflation declined to 13.8 percent at end-1999 as compared with 15.8 percent at end-1998. Sharp declines in food prices from increased agricultural production helped keep inflation down, outweighing increases in the growth of non-food prices caused by higher oil prices and the pass-through effect of a sharp exchange rate depreciation (34 percent on an end-of-period basis).

5. The overall budget deficit on a commitment basis, including grants, was 8.2 percent of GDP, 2 percentage points of GDP higher than projected for the year, as total expenditure was cut by 0.8 percentage points of GDP, while total revenue and grants fell short of target by 2.8 percentage points of GDP. The domestic primary surplus was 1.4 percent of GDP, which was below the 3.4 percent target. The domestic financing of the budget was about 1.3 percent of GDP above the program target. Of the observed deviation, most was due to lower-than-expected tax revenue.

6. The shortfall in import tax collections reflected delays in correcting problems in customs procedures—particularly leakages from bonded warehouses. The slow rate of adjustment of petroleum prices to reflect the depreciation of the cedi and higher world oil prices reduced petroleum tax collections below their projected amount. Company taxes were also lower than expected, reflecting weaker-than-expected performance in key enterprises, such as VALCO, an aluminum producer, whose production recovered sluggishly from the effects of the 1998 energy crisis.

7. Total expenditures were 0.7 percentage points of GDP below programmed levels, reflecting mainly shortfalls in foreign project assistance (1.4 percentage points of GDP). Payments of arrears in the road sector were 0.3 percentage points of GDP above their programmed level. Nevertheless, outstanding arrears remained above programmed levels on account of interest charges, and extensions of some projects beyond the expected termination date.

8. Net domestic assets of the banking system expanded by 40 percent, reflecting higher lending to both the government and private sector. This expansion was made possible by a significant contraction in net foreign assets while money expansion, at 16 percent, remained in line with the program. The Bank of Ghana maintained reserve money on target for the year by conducting aggressive open market operations, particularly in the last four months of 1999. In doing so, it pushed the 91-day treasury bill rate to 34 percent at year-end from 27 percent in September. However, it also used sales of foreign exchange to control reserve money. As a result of these sales and of the external balance of payments shock, the net foreign assets of the central bank contracted by US$94 million, instead of increasing by US$50 million as programmed. The 34 percent depreciation in the nominal exchange rate during 1999 was a significant and needed response to the terms of trade shock, but it has contributed to a rise in the inflation rate in the latter part of 1999.

9. The current account deficit for 1999, including official transfers, is now estimated to have been higher than originally projected by almost US$500 million. This is attributed mainly to higher imports. Substantial shortfalls in official transfers and delays in external financing have adversely affected the external accounts, although this has been partly offset by unexpectedly high short-term inflows. Ghana continues to observe a moratorium on nonconcessional external borrowing. Temporary external arrears were incurred in late-1999, but they have been regularized in the first half of 2000.

10. Regarding structural reforms, good progress was achieved in reducing government involvement in financial sector institutions. The National Investment Bank has been sold to investors, and the Bank for Housing and Construction (BHC) and Cooperative Bank (COOP) was closed on January 17 with minimum disruption to banking activities; deposits were transferred to sound banks. In 2000, the cost of these closures is presently estimated at about 60 billion, which is less than originally estimated. The government will be issuing treasury bills as needed to cover liabilities to depositors. The Bank of Credit and Commerce, a private bank, was also closed on May 31, 2000. Two new banks have entered the market: Stanbic Ghana Ltd. and Amalgamated Ghana Ltd. Draft central bank and banking laws have been finalized and submitted to parliament in May 2000.

11. Shares of the Produce Buying Company (PBC) were offered for sale on the Ghana Stock Exchange on December 10, 1999. A sales advisor for the Electricity Company of Ghana will be appointed by end-September 2000. The appointment of the transaction advisor for Ghana Railways has been delayed and is now expected in September 2000. The government decided not to move ahead with the divestiture of Ghana Airways for the moment. The financial restructuring of the Tema Oil Refinery (TOR) was completed in 1999. In June 2000, a memorandum of understanding was signed with Samsung (Korea), which is financing the modernization of the refinery, to take up to a 15 percent equity stake in TOR.

12. The government issued a report for the Consultative Group (CG) meeting in November 1999 on the measurement of poverty, both its incidence and distribution, based on results of the fourth Ghana Living Standards Survey (GLSS4) completed in June. It also presented reports on the elements of a national program for reducing poverty at that meeting.

13. In the area of governance, the government is reinforcing its fight against corruption. The Serious Fraud Office investigated 37 cases of alleged contract fraud, embezzlement, tax evasion, and misappropriation involving an amount of 9.5 billion, and, as a result, has been able to recover about 2.2 billion. Government has extended an invitation to the World Bank to collaborate in the conduct of a survey on corruption perceptions in Ghana, a first step in determining how this problem can be mitigated, if not eradicated.

III. Objectives and Policies for 2000–2002

14. Objectives. The government’s overall objective is to increase growth and reduce poverty within a stable macroeconomic environment. In view of the severe external shock suffered by the economy in 1999–2000 the government intends to reconvene the National Economic Forum to consult stakeholders on appropriate adjustments to its development strategy. In the meantime, Ghana’s vulnerable balance of payments position is likely to constrain economic growth. The government is appealing to bilateral and multilateral donors to help Ghana by committing to disburse additional assistance, particularly program assistance to finance poverty reduction measures.

15. In view of the terms-of-trade shock, the real GDP growth target has been set at a minimum of 4 percent in 2000, 4.5 percent in 2001, and 5.5 percent in 2002, as tighter policies are likely to reduce economic activity and constrain imports. The program recognizes a temporary rise in inflation to 20 percent (average period) in 2000 owing to the substantial depreciation of the cedi during the year, but is expected to decline to 5 percent in 2002. The external current account deficit, including grants, will be targeted at 10.4 percent of GDP in 2000 and at an average of 6 percent for 2001–02. Gross official reserves, which declined in 1999 to 1.5 months of imports owing to the external shock, are expected to increase to 1.8 months in 2000.

16. The central objective of the government’s medium-term fiscal policy is to move toward a balanced overall budget. The government aims at maintaining the domestic primary surplus in the 3.5-4.5 percent of GDP range, while ensuring that the stock of domestic debt as a share of GDP begins to decline by 2001. These fiscal objectives are expected to be achieved by increasing the total revenue-to-GDP ratio to about 19 percent by broadening the tax base and improving tax administration, notwithstanding the planned reduction of cocoa taxation and tariff reform. Discretionary expenditures will be curtailed, but expenditures in health and education will be protected. Interest payments are expected to increase to 7.7 percent of GDP (43 percent of recurrent expenditures) in 2000, crowding out other needed expenditures. Government intends to reduce interest payments through improvements in domestic debt management, primary surpluses, and the use of divestiture receipts to reduce the domestic debt stock. Monetary policy will aim at limiting monetary expansion to that consistent with targeted nominal GDP growth so as to contribute to a stable exchange rate.

17. Structural reforms. During 2000-2002, the government will accelerate the implementation of structural reforms that directly support its poverty reduction strategy. In particular, the government will begin the implementation of its Agriculture Services Sector Investment Program, an integrated program of expenditures to be financed by the government and a consortium of donors. Regarding cocoa, a workshop involving all stakeholders took place in March and submitted its recommendations to the government. In June, the government introduced new cocoa regulations for the 2000/01 crop year. Private Licensed Buying Companies that meet Cocobod standards will be allowed to directly export 30 percent of their cocoa purchases. An ad valorem tax projected at 17.8 percent will be imposed on cocoa exports. A producer price will remain in effect whereby farmers will receive an estimated 67 percent of the f.o.b. export price.

18. The government will deepen its divestiture program during 2000–2002, with the sale of the Electricity Company of Ghana, sale of additional shares in Ghana Telecom and the Ghana Commercial Bank, and concessioning of the Ghana Railways. Efforts will also be made to collect amounts due to government on account of previous divestitures. The government will continue to implement public sector reforms aimed at refocusing its priorities on core areas, in particular agriculture, the social sectors, and basic infrastructure. Ghana’s decentralization policy is expected to devolve power, competence, and resources to the district level.

IV. Program for 2000

A. Financial Policies

19. Fiscal policy. The overall deficit in the 2000 program, on a commitment basis, is projected at 6.5 percent of GDP, a 1.7 percentage point decline from 1999. The domestic primary balance is expected to show a surplus of about 4 percent of GDP in 2000. Helped by significantly higher divestiture receipts, the net domestic financing of the budget will be limited to 0.9 percent of GDP in 2000, and it will be maintained below 2 percent of GDP in 2001-02 to help lower inflation and interest rates and avoid crowding out the private sector.

20. Revenue measures. Revenue is projected to rise to 18.0 percent of GDP in 2000. The value-added tax rate was increased from 10 percent to 12.5 percent and the petroleum excise tax has been raised by 80 per liter. Despite government’s policy of cushioning the impact of the decline in world cocoa prices on poor farmers by keeping producer prices in cedi constant, cocoa revenues will be only slightly below last year’s as the strong cedi depreciation has helped prevent a marked decline in revenue. The government does not intend to introduce new tax incentives, particularly those contingent on export and import performance, until the revenue impact of the existing incentives has been assessed.

21. Revenue administration. The government has proposed the setting up of a Parliamentary Oversight Committee on the performance of revenue collecting agencies, with special powers to deal with delinquent and corrupt officials. The Ministry of Finance will make the release of funds to spending units that collect nontax revenue conditional on the presentation of quarterly returns and the transfer of these resources to the consolidated fund. Tariff exemptions will be tightened by allowing only nongovernmental agencies specifically exempted by parliament to import goods free of duty. Controls over bonded warehouses will be tightened by requiring computerization of inventory, conducting unannounced audits, limiting warehousing time and type of commodities allowed, and requiring breakage reports to be filled with customs not more than 48 hours after the goods reach the warehouse.

22. Tariff reforms. The government will continue to review the tariff structure, with a view to enhancing the external competitiveness of local industry, harmonizing tariff rates with regional practices, and removing distortions. Trade developments in the West African region will be closely monitored to ensure that Ghana takes full advantage of existing regional arrangements, while positioning itself as the gateway to West Africa. The government will complete by September 2000 a study of its tariff structure to determine the best strategy in response to world and regional trends. Specifically, it will assess the effects of a possible reduction of the average tariff rate, which now stands at 13.6 percent, to 10 percent by end-2002. It will also impose a standstill on new exemptions and will review all exemptions and prepare a report on the review by end-October 2000. To facilitate the review of exemptions, the government will request technical assistance from the Fund.

23. Expenditure. Noninterest recurrent spending will be cut by 0.7 percent of GDP, despite the inclusion of exceptional expenditures in 2000 comprising the national census (26 billion) and the elections (37 billion). Domestically financed capital expenditure will be maintained broadly constant as a share of GDP, with spending on education and health increasing as a share of both total expenditure and GDP under the program. The wage bill is expected to increase broadly in line with nominal GDP.

24. Expenditure controls. The government is implementing a number of expenditure control measures aimed at avoiding the accumulation of arrears (see paragraph below) and improving cash flow projections. These include the introduction of a certificate of commencement of work, which will be required for any payments to be made with respect to ongoing and new projects in 2000. Also, certificates for payment submitted every fourth quarter will be thoroughly scrutinized to ensure that the services have been provided or goods received before effecting payment. Strict controls on procurement will be set up for all spending units. As part of the measures to minimize fraud, prosecution will now be an initial option in all cases of malfeasance revealed in the Auditor-General’s report. As part of its efforts to strengthen expenditure controls and cash flow monitoring, the government has received Fund technical assistance in May/June and will respond to the mission’s final report.

25. Domestic arrears. Road arrears amounting to 130 billion were outstanding at the end of 1998, owing to contracts that allowed road construction to be carried out even in the absence of full budgetary allocation. To resolve this situation, the government terminated a number of contracts, scaled down domestically financed road projects, and revised procedures for initiating projects and awarding new road contracts in line with World Bank procurement procedures. Nevertheless, extensions of some of these road contracts to allow the completion of partly constructed road sections and underestimation of late interest charges resulted in outstanding road arrears remaining at 277.5 billion in December 1999, despite payments in excess of program. A new program of payments aimed at eliminating road arrears by end-2001 has been approved by cabinet in the first quarter of 2000. In addition to road arrears, other outstanding liabilities at the end of 1999 are estimated to 156 billion. The government will monitor these outstanding liabilities monthly and will eliminate them by mid-2000.

26. Monetary policy. A key challenge for monetary policy in 2000 will be to ensure that the passthrough effect on prices of the large depreciation in late 1999 and early 2000 is minimized. The inflation target for 2000 is 20 percent (average period), given the large currency depreciation. Consistent with this objective and the expectation that real GDP will grow by 4 percent, the Bank of Ghana will aim at limiting monetary growth to 20 percent. The monetary growth target will be achieved by controlling reserve money growth to 15 percent by slowing down the growth of net credit to government. Pressures on the exchange rate and inflation have limited the Bank of Ghana’s ability to reduce its interest rates in 2000. Bank financing of the budget is projected to expand by no more than 213 billion, or the equivalent of about 0.8 percent of GDP, which would allow credit to the private sector to grow by 23 percent in 2000.

27. To confront the instability in the foreign exchange market, the Bank of Ghana has taken steps to defend the exchange rate using monetary policy to remove excess liquidity from the financial markets and encourage the holding of domestic currency. In June 2000, the Bank of Ghana announced that reserve requirements would be increased from 8 to 9 percent effective July 3. Treasury bill sales were increased during May and June and the yield on 91-day treasury bills rose about ten percentage points to about 44 percent by late June. To improve the exchange rate mechanism, the Bank of Ghana has begun using the weighted average transaction-based exchange rates for all official transactions, and has halted the use of special swap agreements. The government has not and will not implement any new payments restrictions.

28. The Bank of Ghana will intervene in the foreign exchange market as necessary to achieve its net foreign assets target, but will otherwise continue to ensure that the exchange rate is market-determined, without administrative interference. The Bank of Ghana’s expectation is that the real effective exchange rate will gradually stabilize during the course of 2000, as the terms-of-trade shock is absorbed, foreign exchange inflows increase in the second half of the year, and inflation moderates in response to continued tight monetary policies. For 2000, the Bank of Ghana has targeted an accumulation of net foreign assets, and gross international reserves from about 1.5 months of imports to 1.8 months of imports.

29. The Bank of Ghana will keep domestic and foreign exchange market developments under close review and will adjust policies as needed. It will continue to take steps to deepen its domestic and foreign exchange markets and has requested Fund assistance in this area. In this context, it intends to eliminate the surrender requirement on gold exports by September 2001.

30. Balance of payments prospects. Ghana’s external situation is very vulnerable. The Bank of Ghana gross international reserves were not more than 1.5 months of imports in 1999. Exports in 2000 are forecast to increase by 4 percent despite the decline in Ghana’s export prices, owing primarily to a strong growth of nontraditional exports. Import volumes are projected to contract markedly, although import values will fall only 3 percent as a result of increased import prices. The current account deficit, including grants, is expected to remain at about 10½  percent of GDP in 2000.

31. External financing requirements. External financing requirements are projected to total about US$2.4 billion over the 2000–2002 period. For 2000, total requirements amount to about US$0.9 billion. The financing gap for 2000 was closed by exceptional assistance by a number of donors led by the World Bank and Japan. Additional access under the PRGF, amounting to 10 percent of quota, is also being requested. Because of the large terms-of-trade shocks in 1999/00, Ghana’s debt service payments experienced temporary delays, but the government is committed to meeting its external debt-service obligations, including those to the Fund.

32. Statistical issues. The government continues to attach high priority to improving its statistics base. It intends to conduct a housing and population census in 2000. The Ghana Statistical Service (GSS) will continue its review of the methodology used to compile national accounts; it will publish updated national accounts (sources and uses) with a lag of at most six months. The GSS will collaborate closely with the Ministry of Trade and Industry, Customs and the Bank of Ghana to improve the reliability of trade and balance of payments statistics. In this context, the government has received technical assistance on balance of payments from the Statistics Department of the Fund. The government will report consumer prices, international reserves, and monetary accounts with lags of not more than one month, as well as budget execution data with a lag of not more than six weeks, and trade and travel receipts data with a lag of not more than 2 months.

V. Program Monitoring

33. Prior Actions. In March, the government committed to take prior actions in a number of key areas of reform to underscore its commitment to the strategy described in this memorandum (Table 2). In particular, government will postpone the expenditures equivalent to at least 1 percent of GDP until the second half of 2000; these expenditures will be cut, if necessary, if fiscal developments in the first half of 2000 are less favorable than programmed. It will make the new VAT rate and petroleum excise effective prior to or on June 1, 2000. A sales advisor prepared to underwrite the sale of 10-15 percent shares in Ghana Telecom will be selected in June. The remaining commercial bank that presently does not meet the capital adequacy requirement will be closed and the draft central bank law submitted to parliament. The government, after consultation with its technical partner, will provide documentary evidence of the intended partial divestiture of TOR. The government will also eliminate any outstanding external payment arrears.

34. Monitoring. The monetary and fiscal authorities will maintain monthly monitoring of program targets, including foreign reserves, and continue to report outturns to the Fund on a timely basis. The government agrees to a review of the current program in September/October 2000, at which time adjustments or corrective actions may be taken if needed. To clarify the situation for domestic arrears, the government will undertake an audit of arrears that will be completed by December 2000.

35. Performance criteria. Performance through March 2000 will be monitored on the basis of the following quantitative performance criteria (for end-August 2000 and end-December 2000) and benchmarks (for end-September 2000 and end-March 2001) as defined in the Technical Memorandum of Understanding: (a) domestic primary balance of the government budget; (b) government revenue;1 (c) net domestic financing of the government budget; (d) reserve money; (e) net foreign assets of the Bank of Ghana; (f) new nonconcessional external borrowing; and (g) the stock of external short-term debt (Table 1). The nonaccumulation of new external payments arrears will also constitute a performance criterion, applying on a continuous basis. Structural performance criteria and key benchmarks are shown in Table 2. These performance criteria and benchmarks will be supplemented by monthly benchmarks for customs revenues (VAT on imports plus import duties), net domestic financing, and reserve money for the first six months of 2000 (Table 3). These monthly indicators will be used to assess whether a turnaround in fiscal performance has been achieved.

36. Provision of information. In order to ensure effective monitoring of the program, the government will make available to Fund staff all core data on a timely basis. In particular, the Bank of Ghana will continue to compile and provide to the Fund staff with no more than one-week lag a set of indicators of financial policies. This set will include at a minimum data on market and bureau exchange rates, reserve money, net foreign assets of the central bank, net placement of government securities (outside the central bank), and treasury bill and repurchase rates.

Technical Memorandum of Understanding

1. This technical note contains definitions and adjustor mechanisms that are intended to clarify the measurement of the performance criteria designated in the Memorandum of Economic and Financial Policies (MEFP), paragraph 33 and Table 1B of the MEFP.

2. The domestic primary balance is defined as the difference between total central government revenue (excluding foreign grants and divestiture receipts) and noninterest central government expenditure (excluding foreign-financed capital expenditure), measured on a commitment basis.

3. Central government revenue, a benchmark, excludes foreign grants and divestiture receipts.

4. Ceiling on domestic financing of the government. The net domestic financing of the government is defined as the change in net credit to government, as reported in the central governments accounts of the monetary survey, plus net financing from all other sources to the government, excluding the amount of bonds contracted to cover the cost of bank restructuring. The quarterly quantitative performance criteria and benchmarks for the ceiling on domestic financing of the government have been set in cedis. All quantitative performance criteria and benchmarks will be evaluated in terms of cumulative flows from January 1, 2000.

  1. All quantitative performance criteria and benchmarks for the ceiling on domestic financing of the government will be adjusted for differences between projected and actual external program support for the government. Projected quarterly amounts in U.S. dollars of external program support for the government budget (program loans and grants) are presented in Table 1. Quarterly differences between projected and actual support, both excesses and shortages, will be converted to cedis based on programmed average quarterly exchange rates. The ceiling on domestic financing will be reduced by the excess of actual over projected external program support and will be increased by 50 percent of the shortfall of actual below projected external program support. A temporary increase in the ceiling of 100 percent of a shortfall will be allowed if the shortfall is generated by a disbursement programmed within one quarter of a test date other than the last.

  2. Divestiture receipts. The government’s fiscal program for 2000 projects the following flows of divestiture receipts for 2000: US$100 million in July, and US$17 million in October.

  3. The ceiling on domestic financing of the government will be reduced by any excess in divestiture receipts over the programmed amounts given in item ii above expressed in cedis. The ceiling on domestic financing will not be increased for a shortfall in divestiture receipts.

  4. Domestic arrears in sectors other than the road sector. Such arrears comprise all accrued liabilities on purchases, wages, interest, and transfers in sectors outside the road sector. All such arrears are expected to be eliminated by the end of June 2000.

  5. The ceiling on domestic financing of the government will be reduced by the amount of new net domestic arrears at any test date.

5. Reserve money is defined as the sum of currency in circulation, commercial banks deposits at the Bank of Ghana in cedis and private sector demand deposits at the BoG in cedis. It will be measured by the indicated stock at end of month and will be adjusted downward to the extent of any reduction in, or shortfall in compliance with, the legal reserve requirement (8 percent of average weekly bank deposits until July 6 and 9 percent thereafter).

6. Floor on net foreign assets of the Bank of Ghana. Until December 2000 or the completion of the STA technical assistance mission if earlier, net foreign assets will be defined as the difference between gross foreign assets and gross foreign liabilities based on the currency criterion presently utilized by the Bank of Ghana. Subject to the results of technical assistance, foreign assets and liability transactions will be based on the residency criterion, which will exclude swap arrangements with and foreign currency deposits from domestic banks from foreign assets and liabilities, respectively. These data will be provided as memoranda items until the final revision of accounts. The quarterly quantitative performance criteria and benchmarks for the floor on net foreign assets of the Bank of Ghana have been set in U.S. dollars and will be monitored on an end-of-quarter basis. All quantitative performance criteria and benchmarks will be evaluated in terms of cumulative flows from January 1, 2000.

  1. All quantitative performance criteria and benchmarks for the floor on net foreign assets of the Bank of Ghana will be adjusted for differences between projected and actual external program support for the government budget. Differences, both excesses and shortages, will be expressed in U.S. dollars. The floor on net foreign assets of the Bank of Ghana will be increased by the excess of actual over projected external program support and will be reduced by 50 percent of the shortfall of actual below projected external program support. A temporary decrease in the floor of 100 percent of a shortfall will be allowed if the shortfall is generated by a disbursement programmed within one quarter of a test date other than the last.

  2. The floor on net foreign assets of the Bank of Ghana will be increased by any excess in divestiture receipts paid in dollars over the programmed amounts given in paragraph 4, item ii, but will not be decreased for any shortfall in divestiture receipts.

7. Short-term external debt contracted or guaranteed by the government or the Bank of Ghana (with an initial maturity of less than one year) will exclude normal import-related credits. For the purposes of the program, government is defined to comprise central and local authorities and special funds. Public enterprises, agencies and public corporations are excluded from the definition of government. As such, cocoa financing by Cocobod is excluded.

8. The stock of arrears in the road sector (a benchmark) at the end of 1999 and projected quarterly stocks under the program in cedis are presented in Table 2. Performance will be measured by the outstanding stock at the end of the period. Any conversion of amounts from U.S. dollars into cedis will be made at the program end-of-period rate at each test date. Conversion from other currencies into U.S. dollars will be made at the actual end-of-period rate at each test date.

9. New exemptions in paragraph 24 of the MEFP mean exemptions not required under international agreements or existing legislation; it covers any exemptions which the government has the choice to grant or not.

1 Benchmark only.


Table 1. Ghana: Foreign Financing Program, 2000
(In millions of U.S. dollars)

  Q1 Q2 Q3 Q4 year
  Prog Prog. Prog. Prog. Prog.


(Program loans)



0 0 0 25 25

Japanese ERSO

44 0 0 100 144


0 0 130 0 130

Total loans

44 0 130 125 299

(Program grants)



0 2.1 4.9 0 7

UK/Ghana grant

0 0 25.5 17 42.5


1.2 0 0 0 1.2


0 0 4 0 4

Dutch grant

0 7 0 0 7

Other (incl. ADB)

0 0 5.3 0 5.3

Total grants

1.2 9.1 39.7 17 67

Total committed program financing

45.2 9.1 169.7 142 366

Source: Ghanaian authorities and staff estimates.


Table 2. Ghana: Reduction in the Outstanding Stock of Road Arrears 1

End -1999



(in billions of cedis)

Stock of arrears (end of period) 2



Source: IMF staff estimates.

1 The performance criterion refers to the end-of-period stock.
2 Arrears are composed of both cedi and dollar liabilities.