Statement by the IMF Staff Mission to GhanaPress Release No. 09/365
October, 23 2009
A mission from the International Monetary Fund (IMF), led by Peter Allum, visited Accra during October 12-23, 2009. The mission conducted the first review of the government’s economic program supported by the IMF’s Poverty Reduction and Growth Facility (PRGF). The mission met with Vice President John Mahama, Finance Minister Kwabena Duffuor, Bank of Ghana Governor Kwesi Amissah-Arthur, and other senior officials.
At the end of the mission, Mr. Allum, mission chief for Ghana, issued the following statement:
“Discussions during the mission focused on economic performance in the first three quarters of 2009, near-term economic challenges, and the economic policy framework for 2010 and the medium term.
“Although national accounts data are not yet available for 2009, partial indicators suggest that the economy is expanding at a moderate pace, notwithstanding the global financial crisis. Areas of particular strength include cocoa and gold exports, and—reflecting favorable rains—agricultural production and hydroelectricity. Growth in these sectors is estimated to more than offset weaknesses in construction and import-related activities. Accordingly, the mission projects full-year GDP growth in the 4-5 percent range, in line with assumptions earlier in the year.
“After several years of rapid credit growth, the tightening of monetary policies during 2007-09 is now showing signs of slowing liquidity and credit growth. Reflecting the tighter monetary stance and fiscal consolidation, inflation fell from the 20-21 percent range in the first half of 2009 to 18.4 percent in September. This was within the program target range, and a further decline through end-year is projected.
“External performance has strengthened. Robust gold and cocoa exports combined with a downturn in imports contributed to a significant improvement in the external current account balance. Reflecting these trends and global currency developments, the Ghanaian cedi has appreciated slightly against the dollar since July 2009, and net international reserves exceeded the end-September target, even excluding the new allocation of IMF Special Drawing Rights (SDRs) in September, which provided Ghana with additional international reserve cover equivalent to about $450 million.
“In the fiscal sector, grant receipts are now expected to fall short of budgeted levels by about 1 percent of GDP in 2009. A smaller shortfall in revenues is also projected. At the same time, expenditure management has been tight, with higher than budgeted interest payments offset by restraint in non-interest spending. The fiscal deficit through September is expected to be close to, and may fall below the program targets, and with tight cash management through the fourth quarter, there are good prospects of keeping the budget deficit to 10 percent of GDP or less (down from 14½ percent of GDP in 2008).
“The mission discussed policies for managing budget and off-budget liabilities resulting from expansionary fiscal policies in earlier years. These liabilities comprise several elements, including expenditure arrears, deferred payments, and the losses incurred by public enterprises, in many cases on account of the past underpricing of energy products. A portion of these claims have been settled this year, and consideration is being given to settling the remainder in the 2010 budget. The mission underlined the need for cost recovery energy pricing and rigorous cash management to avoid incurring new arrears in the future. Avoiding new arrears would be important to the banking sector, where a recent increase in non-performing loans has partly reflected liquidity issues associated with the timing of government payments.
“Good progress has been made in defining and initiating projects to strengthen Ghana’s fiscal institutions ahead of its move to oil-producer status from 2011. Revenue administration will become more effective under plans to establish a consolidated Ghana Revenue Authority from the current three separate tax agencies. Steps are also underway to upgrade and move forward more decisively with a computerized financial management and information system. Payroll management is being automated, albeit slowly, and a headcount of the Ghana Education Service to identify potential “ghost workers” has been conducted and similar stock takes will be conducted in other government bodies. These reforms are promising, and the mission underlined the need for continuing strong support to bring them to fruition.
“For 2010, the main policy challenge remains the need for further fiscal consolidation, to stem Ghana’s rising public debt ratio and to reduce the crowding-out of private sector credit which can result from heavy bank financing of the budget. The mission worked closely with the authorities to define the scale of the necessary fiscal adjustment and identify possible budget measures. The authorities will refine its budget plans ahead of an envisaged submission to parliament in November. The mission underlined the importance of an ambitious reduction of the fiscal deficit to reduce reliance on exceptional external financing and large-scale bank borrowing.
“The mission will remain in close contact with the authorities following its return to Washington, in particular on the budget proposals for 2010. Following confirmation of the end-September macroeconomic data and the fiscal framework for 2010, the goal is to proceed with Executive Board discussion of the first review of Ghana’s PRGF arrangement by end-December.”