Statement by the IMF Staff Mission at the Conclusion of the 2008 Article IV Discussion with Ghana

Press Release No. 08/82
April 10, 2008

An International Monetary Fund (IMF) mission headed by Piroska M. Nagy visited Accra during March 26-April 8, 2008 to hold discussions for its annual Article IV review of Ghana's macroeconomic policies. The mission met with Finance Minister Baah-Wiredu, State Minister Osei, Governor of the Bank of Ghana Acquah, and other senior officials, as well as representatives of the private sector, non-governmental organizations, labor unions, and the donor community.

The mission issued the following statement in Accra on April 9:

"The IMF mission had extensive and fruitful discussions with the Ghanaian authorities on macroeconomic policies in a worsening global environment.

"Demand pressures in Ghana from a rising fiscal deficit combined with robust private sector growth have led to increasing fiscal and external current account deficits, downward pressure on the exchange rate, and, in combination with energy and food price shocks, a pickup in inflation. The fiscal deficit reached about 9 % of GDP in 2007, reflecting in part the impact of world oil price increases and necessary investments to address energy supply bottlenecks, as well as a higher-than-budgeted wage bill and rising price subsidies for utilities. Strong private sector lending—an otherwise positive development—added to demand. Risks to debt distress have increased, although they remain moderate. These trends have continued through the first quarter of 2008.

"The mission welcomes the policy measures the government has developed recently to address fiscal and external imbalances. When fully implemented, these will limit the increase in the fiscal and current account deficits in 2008 and go a long way towards reducing the fiscal deficit to 7 % of GDP or less starting in 2009. In particular, the government has announced its intention to eliminate subsidies for non-residential users by bringing utility prices to cost-recovery levels as of May 1, 2008, against the backdrop of rising world market oil prices and continued delays in starting deliveries through the West African Gas Pipeline (WAGP).

"The government is considering steps to increase the very low level of government revenue from the gold sector (estimated at less than 6 % of gold export receipts); revenue performance outside gold has continued to be strong. The government is also developing administrative measures to keep the wage bill within budgeted levels. The mission noted the government's intention to eliminate all utility price subsidies in the future. The mission suggested establishing an automatic price adjustment akin to that now operating successfully for petroleum prices. The mission also noted the authorities' continued commitment to implementing their broad economic reform program since the early 2000s, which has underpinned the economy's strong performance.

"To put inflation back on a downward trend, the Bank of Ghana has begun tightening monetary policy starting in November 2007, which the mission supports. Further tightening appears to be necessary in the presence of strong demand pressures. The adoption in May 2007 of the inflation targeting framework with a medium-term target of 5 % has enhanced the transparency of monetary policy; its implementation, with coordinated monetary and fiscal policy, will help anchor long-term inflation expectations.

"Financial deepening through deposit-funded private sector credit growth is welcome, but its speed requires supervisory vigilance. The recently announced increase in the level of minimum capital and steps towards a more risk-sensitive regulatory system, with an eventual introduction of Basel II, are appropriate. If continued, rapid credit expansion may nevertheless necessitate additional prudential measures.

"As a newly emerging market economy with an agenda for accelerated growth, Ghana is now facing both new opportunities and new policy challenges. Growth performance has indeed been impressive, and real GDP growth reached an all-time high of 6½ % in 2006 and 2007. Growth is increasingly led by the private sector, in response to macroeconomic stability, structural reforms, and a business-friendly environment. The government's ambitious objective of reaching middle income status by 2015 is worthy of support; however, as recent developments demonstrate, keeping on a path of sustained economic growth is a key condition to achieve this.

"Ghana's medium-term prospects are bright, with the outlook depending closely on actions taken now. The prospect of oil production could accelerate Ghana's timetable for reducing poverty and reaching middle income status, provided that it avoids the "oil curse" of governance problems and boom-bust cycles. Appropriate regimes for oil revenue and demand management are critical, and the Ghanaian authorities are to be commended for already having started a nation-wide consultation on how best to use oil resources to the benefit of the Ghanaian people."



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