IMF Staff Mission to Ghana Conducts Article IV Consultation, Makes Progress on Fund Support for ProgramPress Release No. 09/185
May 22, 2009
A mission from the International Monetary Fund (IMF), led by Peter Allum, visited Accra during May 11-22, 2009 to conduct the annual Article IV Consultation with Ghana, and discuss the authorities’ request for IMF financing in support of its program of economic adjustment and structural reform. The IMF mission met with Finance Minister Duffuor, Bank of Ghana Governor Acquah, and other senior officials. It also held productive discussions with representatives of the parliament, labor unions, research institutes, donors, and the private sector. At the end of the mission, Mr. Allum issued the following statement:
“Discussions during the mission focused on recent global and domestic developments, and the challenges of implementing fiscal adjustment and structural reform against a deteriorating external environment. Ghana has so far been less severely affected than many other countries by the global downturn. The price of its two main exports, cocoa and gold, remains strong, and the economy continues to grow, albeit at a more moderate rate than in 2008. However, the balance of payments has been adversely affected by the deterioration in official access to global market financing, a reversal of some portfolio capital inflows, and a decline in remittance earnings and foreign direct investment. This has contributed to pressures on the local currency, which depreciated by 30 percent against the US dollar during 2008, and by a further 10 percent through mid-May 2009. This has added to the inflationary pressures from strong domestic demand growth in 2008. Year-on-year CPI inflation remained in the 20 percent range in April, but is projected to slow as demand pressures ease through 2009.
“The main policy challenge is to tackle the budget deficit, which rose to more than 14 percent of GDP in 2008, boosted by strong growth in capital spending, wage and salary costs, and energy-related subsidies. The mission’s review of the first quarter fiscal data suggests that the budget goal of limiting the deficit to 9.4 percent of GDP in 2009 is within reach. With significant further fiscal consolidation needed to achieve the goal of reducing the fiscal deficit to 6 percent of GDP in 2010, the mission encouraged the authorities to consider all options for the 2010 budget—on both the revenue and expenditure side—to meet this goal.
“With tighter monetary conditions and slower overall credit expansion than a year ago, annual growth in private credit expansion is projected to slow to single digit rates, adjusted for inflation, down from more than 20 percent annually in recent years. Although banking sector indicators remain generally favorable, slowing credit growth and currency depreciation pose important risks, and banking supervision will need to be vigilant.
To support Ghana’s fiscal stabilization goals, a number of structural reforms will be key. Revenue administration is hampered by a broad range of tax exemptions and by the lack of a unified income tax and value-added tax authority. At the same time, expenditure monitoring and control has not taken full advantage of computerization. Cost recovery pricing for petroleum products and utilities remain important to avoid heavy subsidy costs, and reforms are needed to improve the affordability and service standards of the public service. The government is encouraged to move ahead vigorously with its reform plans in these areas.
“Good progress was made in discussions between the mission and the authorities on a possible Fund-supported program. Following the return of the IMF mission to Washington, discussions will continue on a few remaining issues.”