Statement at the Conclusion of an IMF Mission to GhanaPress Release No. 10/372
October 1, 2010
A mission from the International Monetary Fund (IMF), led by Peter Allum, visited Accra during September 20-October 1, 2010. The mission conducted discussions for the third review under the IMF’s Extended Credit Facility. The mission met with Vice President John Mahama, Finance Minister Kwabena Duffuor, Bank of Ghana Governor Kwesi Amissah-Arthur, other senior officials, members of parliament, and representatives of the private sector, academia, and civil society organizations.
At the end of the mission, Mr. Allum, mission chief for Ghana, issued the following statement:
“Discussions during the mission focused on recent economic performance, key macroeconomic challenges, and the government’s policy framework. Progress was made, in particular, in identifying the challenges for fiscal management and debt sustainability. Discussions on policies for 2010, the 2011 budget, and the medium-term will continue at the time of the IMF Annual Meetings in Washington D.C. in October 2010.
“The economy grew by 4.1 percent in 2009, with a pick-up to the 5–6 percent range projected for 2010, led by a recovery in construction and strong business services activity ahead of the projected start of oil production around end-2010. Inflation has fallen to an annual rate of 9½ percent in recent months, and is projected to remain close to this level through year-end, underpinned by the strength of the Ghanaian cedi, which has remained broadly stable against the dollar. External performance has been good, with gross reserve cover strengthening to $3.3 billion at end-August 2010, equivalent to almost three months of import cover.
“To sustain and build on these favorable trends in activity and inflation and to maintain progress toward broader macroeconomic stability, continuing efforts are needed to reduce fiscal deficits and associated public borrowing. The fiscal deficit in the first half of 2010 was 5.3 percent of projected gross domestic product (GDP)—slightly above the ceiling under the authorities’ IMF-supported program. Updated projections for the second half of 2010 indicate that the gap relative to the program targets will widen, reflecting new expenditure commitments and shortfalls in some revenue categories. Contrary to program goals, new arrears to contractors and on public wages will also be incurred in 2010. The IMF team urged adoption of contingency fiscal plans to limit fiscal slippages in 2010, to the extent possible.
“Looking ahead to 2011 and the medium term, a first estimate, before taking into account potential policy responses, shows substantially larger budget deficits and public borrowing than envisaged under the program supported by the Extended Credit Facility. This reflects the budgetary impact of the new, more costly public sector pay regime, as well as consideration being given to stepped-up external borrowing to finance infrastructure projects. Discussions focused on the impact that higher deficits and higher borrowing would have on Ghana’s rising public debt stock, and on the importance of tailoring spending plans to projected revenues, which oil incomes will increase only modestly in the coming years. Discussions are continuing on options for reducing projected deficits by limiting spending growth and strengthening domestic revenue mobilization.
“There was agreement on the importance of tackling government arrears to contractors as well as the bank liabilities of a few public enterprises, which have contributed to sharply higher non-performing loans in the banking system. To decisively resolve the government arrears problem, it will be important to strengthen public expenditure management systems, ensure sustained cost-recovery pricing of energy and other products, and reinforce overall fiscal performance. In the power sector, financial performance has been improved by the mid-2010 increase in electricity tariffs and by savings in power generation costs as a result of gas deliveries via pipeline from Nigeria. While power tariffs are now at or close to cost-recovery levels, the proposed quarterly reviews of power tariffs will be important to avoid the emergence of new subsidy costs.
“A good start was made in 2009 and early 2010 in designing strategies to strengthen revenue administration, improve tax policy, and modernize public finance management. Although progress is continuing, there have been delays in several areas, and plans are being reformulated to address these setbacks. It will be important that the momentum of reforms be sustained given the fiscal management challenges that Ghana faces. Early parliamentary passage of the Petroleum Law and Oil Revenue Management bills will help clarify the outlook for the oil sector.
“The mission encouraged early publication of the rebased national accounts, which are expected to show a substantial upward revision to the size of the Ghanaian economy and its per capita incomes. These data will be important to provide a more reliable assessment of recent economic performance, and better gauge Ghana’s fiscal and debt management situation and challenges. While the new data will reduce the level of the fiscal deficit and public debt relative to GDP, a substantial further improvement in fiscal performance will continue to be needed to reduce borrowing and deliver a debt outcome that is sustainable over the medium term.”