Statement at the Conclusion of an IMF Staff Visit to GhanaPress Release No. 11/380
October 25, 2011
A staff team from the International Monetary Fund (IMF), led by Christina Daseking, visited Accra during October 12–25, 2011 to conduct discussions for the fifth review of Ghana’s economic program under the IMF’s Extended Credit Facility. The mission met with President John Evans Atta Mills, Finance Minister Kwabena Duffuor, Bank of Ghana Governor Kwesi Amissah-Arthur, other senior officials, members of parliament, and representatives from the private sector, academia, and civil society. The mission would like to thank the Ghanaian authorities for their excellent cooperation and warm hospitality.
At the end of the mission, Ms. Daseking issued the following statement:
“The stability of Ghana’s economy has improved significantly since the start of the government’s 2009 economic program supported by the IMF. The then sizeable fiscal and external current account imbalances have been greatly reduced, the inflation rate has declined to single digits, and the stock of international reserves has risen to about US$5 billion, up from only US$2 billion at the end of 2008. A combination of fiscal consolidation and monetary easing in 2011 has reinforced the favorable economic setting and contributed to a robust and broad-based performance of the economy. Boosted further by the start of oil production, overall economic growth is projected to reach 13½ percent this year and more than 8 percent in 2012, with average inflation expected to remain broadly unchanged at a rate of 8½-9 percent. The main risks to the generally favorable outlook arise from possible adverse developments in world commodity prices and foreign investment inflows, and from public spending pressures ahead of the 2012 elections.
“Fiscal outcomes for the first half of 2011, together with preliminary data for the third quarter, indicate a strong performance. All quantitative performance criteria and indicative targets for end-June 2011 were met, and an annual deficit below the current target of 5.7 percent of non-oil gross domestic product (GDP) should be feasible. The lower deficit reflects an impressive increase in tax revenues, where reforms are beginning to bear fruit, but also a shortfall in foreign-financed capital spending. The wage bill, on the other hand, is now expected to absorb a larger share of public expenditure and non-oil GDP. This reflects both the sizeable costs of moving public sector employees onto a uniform pay structure (the “single spine”) and a 2011 base pay increase that was well above the rate of inflation. As a result, there is a risk that inflationary pressures could rise again, unless domestically-financed spending, can be kept in check.
“Plans for a significant scaling up of infrastructure investment call for new revenue measures and restraint in other spending areas in the 2012 budget. The government has secured a large financing package on nonconcessional terms to finance critical infrastructure investments, some of which are expected to be self-financing. The mission agreed with the government on the importance of infrastructure investment to boost Ghana’s growth potential and economic development. Thus, discussions focused on the appropriate evaluation and phasing of investment projects and on supportive revenue and expenditure measures to create the space for larger capital spending, while preserving macroeconomic stability and the sustainability of public debt. This is particularly important in light of the prospective decline in Ghana’s access to concessional financing reflecting its new middle-income status.
“On the revenue side, the mission encouraged the government to continue its efforts to strengthen tax administration. It also supported adoption of additional tax policy measures, particularly in the area of natural resources, where taxation is low in comparison with peer countries. Passage of new legislation to broaden the tax base will also be important. On the expenditure side, key priorities are sustainable management of the wage bill, strengthening of public financial management—where some reforms have taken longer than expected—and the regular adjustment of energy and other regulated prices to avoid costly subsidies and the need for large and disruptive adjustments in the future.
“Discussions with the Bank of Ghana focused on the challenges of maintaining low inflation, while responding to volatility in the foreign exchange market. The mission supported a policy of targeted intervention to smooth excessive exchange rate volatility and manage liquidity, while allowing the exchange rate to adjust to more lasting trends. It further encouraged the Bank of Ghana to stand ready to adjust policy rates should upside risks to inflation become acute, stressing the importance of effective coordination of fiscal and monetary policy in maintaining low inflation.
“During the mission, agreement was reached on a wide range of policy issues. Discussions will continue over the coming weeks on a few outstanding issues related to the government’s 2012 economic program. Pending agreement on these issues, the mission will recommend to the IMF Executive Board the completion of the fifth review in December 2011.”