IMF Executive Board Concludes Article IV Consultation with Ghana

Public Information Notice (PIN) No. 11/70
June 2, 2011

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 May 25, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Ghana.1


Ghana’s economy grew by 7.7 percent in 2010, after a temporary slowdown in 2009, reflecting continued buoyancy of commodity exports as well as stronger construction and service sector activities. Spillovers from instability in Côte d’Ivoire have been limited. The rebasing of Ghana’s national accounts in 2010 showed the country as having a higher income level and growing faster than earlier recorded. With an upward revision to per capita incomes of about 70 percent, Ghana moved into the lower-middle income country grouping.

The fiscal deficit rose to 7.7 percent of GDP in 2010, compared to 5.8 percent of GDP in 2009. While tax revenue collections were broadly in line with the budget, non-tax revenues and grants fell short of targets and capital spending was larger than anticipated. Spending commitments discovered in 2010 also led to the accumulation of payment arrears, equivalent to 1.9 percent of GDP. The combined fiscal slippage in relation to the 2010 program, taking into account both cash transactions (the fiscal deficit) and unpaid bills (arrears), was equivalent to 2.6 percent of GDP.

External performance was strong in 2010. Exports grew by $2 billion, with cocoa and gold benefiting from high global prices. While imports staged a strong recovery after a decline in 2009, the current account deficit of 7.2 percent of GDP in 2010 was more than financed by strong capital inflows, including direct investments in the oil sector and Treasury bond purchases by nonresidents. Gross reserve cover rose to 3.2 months of import cover at end-2010.

Reflecting the strong balance of payments, the cedi has traded in a relatively narrow range against the U.S. dollar since mid-2009. This currency stability, combined with the lagged effects of earlier monetary tightening, contributed to a decline in inflation from around 20 percent in 2009 to close to 9 percent since mid-2010. Favorable harvests have sheltered Ghana from rising global food prices so far.

The Bank of Ghana’s policy interest rate which had been kept at 13.5 percent since July 2010 was reduced by 50 basis points in May, reflecting the stability of inflation in recent months, the continuing strength of the cedi, and a slight slowing of credit growth in early 2011. Despite a partial sterilization of Ghana’s balance of payments surpluses, reserve money grew by 35 percent in 2010 and broad money by 46 percent, considerably more rapidly than in 2009. Private sector credit also picked up towards end-2010.

The mid-2010 Financial Sector Assessment Program (FSAP) Update found that financial stability risks have heightened since the 2003 FSAP. While, in the aggregate, the banking system is profitable and liquid with high capital levels, nonperforming loan ratios are elevated, in part due to government payment arrears. Risks also relate to extensive state involvement in the banking sector, shortcomings in commercial banks’ risk management and accounting practices, gaps in supervision and systemic risk analysis, and weak enforcement of creditor rights. Immediate stability risks have been reduced since mid-2010 by clearance of substantial government arrears and state enterprise debts. The incidence of bank undercapitalization has also declined, with banks raising capital or merging with stronger banks, and progress has been made in strengthening regulation and supervision. Nevertheless, key sources of vulnerabilities remain and a sustained and comprehensive reform effort is needed to achieve long term financial stability.

Executive Board Assessment

Executive Directors welcomed Ghana’s strong growth and favorable medium-term outlook, underpinned by high commodity export prices, the start of oil production, and strong non-oil activity. International reserves have increased, the currency remains stable, and inflation has declined to single digits. To maintain the growth momentum and to meet the country’s development objectives, Directors stressed the need to address Ghana’s fiscal vulnerabilities and further advance the structural reform agenda.

Directors regretted that fiscal consolidation goals were not achieved in 2010, reflecting in part the delays in fiscal reforms. Going forward, they emphasized the importance of stronger fiscal management and called for rigorous implementation of the authorities’ plan to reduce the cash deficit and avoid further domestic arrears. They highlighted that this would require improved expenditure control, a prudent roll out of the new pay structure, and determined efforts to boost tax collections in relation to GDP. Directors urged the authorities to take additional measures to strengthen the budget, should the need arise.

Directors stressed the importance of maintaining the momentum of structural fiscal reforms, notably for tax administration, payroll management, and expenditure control. While welcoming the improvement in Ghana’s debt sustainability outlook, they underscored the need for continued improvements in debt management and prudent borrowing strategies.

Directors welcomed the recent approval of an oil revenue management bill, as well as the authorities’ intention to ensure that oil-related incomes, expenditures and savings be transparently and comprehensively recorded for dissemination, analysis, and audit purposes.

Directors observed that cost-recovery pricing of energy products is crucial for sound fiscal management. They welcomed the recent sizable adjustment of domestic petroleum product prices and encouraged the authorities to closely monitor developments in this area to ensure that domestic prices remain in line with market trends. Directors welcomed the move to quarterly cost-based reviews of electricity tariffs.

Directors concurred that monetary policy implementation should remain alert to inflationary pressures. Should circumstances warrant, the Bank of Ghana (BoG) should stand ready to tighten policies in support of the inflation target. Directors noted the assessment that the exchange rate is broadly in line with fundamentals, and welcomed the authorities’ intention to sustain this through a flexible exchange rate regime. They supported the BoG’s plans to further strengthen its monitoring of the balance of payments as well as its tools and policies for foreign exchange market intervention.

Directors noted that banks are profitable and liquid with high capital. They welcomed the steps taken by the authorities to address stability risks in the banking sector identified by the recent Financial Stability Assessment Program Update. They agreed that stronger measures will be necessary to tackle the elevated non performing loans. Further progress needs to be made to resolve vulnerable institutions, strengthen risk management in banks, enhance banking supervision, and enforce prudential regulation.

Ghana: Selected Economic and Financial Indicators, 2007–101
  2007 2008 2009 2010
  Act. Act. Act. Est.
  (Annual percentage change; unless otherwise specified)

National accounts and prices


Real GDP 2

6.5 8.4 4.0 7.7

Real GDP per capita

3.8 5.7 1.3 5.1

GDP deflator

16.3 20.2 16.7 14.1

Consumer price index (annual average)

10.7 16.5 19.3 10.7

External sector


Exports, f.o.b. (percentage change, in US$)

11.9 26.3 10.8 35.2

Imports, f.o.b. (percentage change, in US$)

19.4 27.3 -21.6 33.0

Export volume (excluding oil)

3.1 16.9 2.6 13.9

Import volume

8.6 6.9 -3.5 19.3

Terms of trade

-1.3 -9.3 33.0 6.5

Real effective exchange rate (end of period; depreciation -)

-3.9 1.3 -11.2 6.1

Money and credit


Net domestic assets 3

27.8 48.3 3.9 16.2

Credit to the private sector 3

37.1 33.3 12.9 20.3

Broad money (excluding foreign currency deposits)

43.0 31.2 21.2 45.7
  (Percent of GDP) 4

Government operations


Total revenue

13.8 13.3 13.4 15.0


3.7 2.7 3.0 2.4

Total expenditure

22.7 24.0 20.4 23.5

Arrears clearance and VAT refunds

0.4 0.6 1.8 1.5

Overall balance (including grants)

-5.6 -8.5 -5.8 -7.7

Net domestic financing

0.8 5.7 2.8 4.8

Gross government debt

31.0 33.6 36.0 38.9

Domestic debt

16.0 17.4 16.6 18.6

External debt

15.0 16.2 19.4 20.3

Government debt (net)

23.3 30.1 32.4 35.5
  (Percent of GDP; unless otherwise specified) 4

External sector


Current account balance (including official transfers)

-8.0 -10.8 -4.0 -7.2

Gross international reserves (millions of US$)

2,837 2,036 3,165 4,725

months of imports of goods and services

2.7 2.2 2.8 3.2

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

1 Based on new national accounts rebased to 2006.

2 The 2009 and 2010 real GDP growth figures are official data published after the Article IV documents were finalized.

3 Percent of broad money (including foreign currency deposits) at the beginning of the period.

4 Based on GDP estimates for 2009 and 2010 available at the time the Article IV documents were finalized.

1 Under 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 Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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