## cr18113 ## Source details **Canonical URL:** [cr18113](https://www.imf.org/-/media/files/publications/cr/2018/cr18113.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18113.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18113.pdf.json) --- ### Executive summary — stabilization outcomes and outlook - 2017 macro outcomes: - Non-oil GDP growth estimated at 4.7 percent over Q1-Q3. - Overall growth reached 8.4 percent. - Overall deficit reduced to 6 percent of GDP in 2017 (from 9.3 percent in 2016) — below the 6.3 percent of GDP target. - Primary balance (below-the-line) 0.7 percent of GDP; primary balance (above-the-line) 0.2 percent of GDP in reported table. - Debt/GDP ratio declined from 73.4 percent in 2016 to 71.8 percent in 2017 (including the energy bond). - 2017 fiscal composition (percent of GDP; provisional figures in parentheses) - Revenues: 18.9 percent (prov. 17.5) - Tax: 16.0 percent (prov. 15.3) - Non-tax: 2.8 percent (prov. 2.2) - Expenditure: 25.2 percent (prov. 23.4) - Compensation of employees: 7.9 percent (prov. 8.2) - Interest: 6.5 percent (prov. 6.6) - Transfers: 4.3 percent (prov. 3.4) - Goods and services: 1.5 percent (prov. 1.2) - Capital expenditure: 3.2 percent (prov. 3.1) - Other expenses: 1.8 percent (prov. 0.9) - Overall balance (below-the-line): -6.3 percent (prog. -5.9) - Primary balance (below-the-line): 0.2 percent (prog. 0.7) - Monetary and external indicators - Headline inflation: 15.4 percent end-2016 → 11.8 percent December 2017 → 10.4 percent March 2018. - Monetary Policy Rate reduced by 200bps to 18 percent at March meeting (cumulative decrease by 550bps in 2017); real MPR >7 percent. - Cedi depreciated by 5 percent against the dollar in 2017. - Current account deficit estimated at 4.5 percent of GDP in 2017. - Balance of payments overall surplus 2.3 percent of GDP in 2017; foreign exchange reserves US$5.5 billion end-December 2017 (excluding oil funds and encumbered assets). - Financial sector - Private sector credit growth 12.8 percent end-2017 (from ~50 percent peak in 2014). - NPLs GHc 8.2 billion in December 2017 or 22.7 percent. - Banking sector capital 15 percent in December 2017. - Liquidity support close to GHc 1.1 billion (~0.5 percent of GDP), excluding two resolved banks. ### 2018 fiscal framework and near-term stance - 2018 budget relies on revenue administration measures and expenditure restraint (cap transfers to statutory funds). - Staff sees budget revenue projections as optimistic; estimate additional measures equivalent to about ½ percent of GDP are required to meet the deficit target of 4.5 percent of GDP. - Authorities committed to introduce additional revenue measures in the mid-year budget review in July 2018 (MEFP ¶19) (prior action). - Interim fiscal actions: scaled back Q2 cash allotments and agreed further spending reductions amounting to GHc 850 million if revenue measures not enacted; social spending protected. - Medium-term intentions: - Maintain a primary surplus of about 2 percent of GDP to reduce debt vulnerabilities and clear arrears. - Estimated stock of outstanding arrears at end-2017: GHc 3.9 billion. - Government intends to clear all arrears by 2021, prioritizing private sector claims. - Revenue measures (Box 3) and reported yields (preserve reported values): - GoG Estimated Yield total: GHc 2,304 (0.95 percent of GDP) - IMF Assumed Yield total: GHc 1,674 (0.69 percent of GDP) - Selected line items (GoG / IMF): - Compliance Measures: GHc 1,170 (0.48) / GHc 540 (0.22) - Special audits: GHc 180 (0.07) / GHc 180 (0.07) - Electronic fiscal devices: GHc 500 (0.21) / GHc 100 (0.04) - Excise stamp regime: GHc 120 (0.05) / GHc 40 (0.02) - Communication spectrum ($50mn): GHc 240 (0.10) / GHc 240 (0.10) - Prepayment of telcos license renewal: GHc 460 (0.19) / GHc 460 (0.19) - African Union Levy: GHc 154 (0.06) / GHc 154 (0.06) - Levies on marine gas oil (Foreign): GHc 130 (0.05) / GHc 130 (0.05) - Share of property taxes for central government: GHc 150 (0.06) / GHc 150 (0.06) - One-off policy receipts planned: 0.3 percent of GDP from sale of communication spectrum and telecom license (to be offset in 2019). - New program cost: Nation Builders Corp expected to cost about 0.2 percent of GDP (hire 100,000 graduates). ### Debt, financing plans, and debt-management strategy - Domestic debt maturity: - Average time to maturity of domestic debt increased from 5.5 years end-2016 to 7.2 years end-2017. - Gross financing needs declined to 15.0 percent of GDP in 2018 (from 22.6 percent in 2017). - Planned external non-concessional borrowing: - Issue up to $2.5 billion Eurobond and borrow $500 million in commercial loans in 2018. - From Eurobond proceeds: $1.75 billion for debt management (smooth 2023 maturities); $750 million + $500 million commercial borrowing allocated to infrastructure, health, sanitation, agriculture, education. - Fiscal financing needs (selected, percent of GDP) - Gross financing needs: 2017 = 22.6; 2018 = 15.0 - Domestic primary balance (from financing), excluding grants and foreign-financed capital expenditure: 2017 = -2.6; 2018 = -1.3 - Interest payments: 2017 = 6.6; 2018 = 6.5 - Accumulation of deposits: 2017 = 1.1; 2018 = 0.0 - Loans to SOEs (on-lending of ESLA bonds to SOEs): 2017 = 2.3; 2018 = 0.5 - Amortization: 2017 = 15.2; 2018 = 9.2 (external: 2017 = 2.4, 2018 = 2.0; domestic (T-bills) 2017 = 8.0, 2018 = 3.3; domestic (1 year and over) 2017 = 4.8, 2018 = 4.0) - Financing composition 2018: program grants and loans = 0.5; IMF = 0.5; external commercial borrowing (Eurobond) = 1.5; domestic debt (1 year and over) = 10.2 - Cautionary notes: - Monetizing future gold royalties and similar initiatives should be carefully evaluated for future budget flexibility costs. ### Bank of Ghana (BoG) FX operations, monetary policy, and governance - FX operations: - BoG to develop a new FX policy to encourage market development and ensure transparent, market-based operations. - Current practice: daily ad-hoc bilateral FX sales for intermediation discourage interbank trading; removal of quasi-guarantee for foreign portfolio investors would deepen market. - Given removal of surrender requirements in 2016, cocoa export proceeds (other than loan repayments) should be sold to commercial banks (MEFP ¶27). - Capital flow management measures: - $1,000 OTC withdrawal limit rescinded; remaining restrictions include US$10,000 withdrawal per travel and annual transfer without documentation; staff recommends removal of US$10,000 restriction. - Monetary policy and instruments: - BoG actions: lowered MPR; reintroduced floating rate 56-day bills; suspended 14-day BoG bills at MPR (later restored symmetric corridor). - Recommendation: maintain inflation-targeting credibility, consider reintroducing 14-day BoG bill at policy rate to bolster credibility and liquidity management. - Institutional measures: - MoF-BoG MoU capping BoG financing to government at zero through 2020 extended and published (prior action). - Further BoG Act amendments ideal but not currently politically feasible; interim safeguards and publication of MoU are welcomed. ### Financial sector reforms, bank resolution, and NPLs - Recent interventions: - Closure of two banks in August 2017; bond issuance to Ghana Commercial Bank (GCB) to settle transfer; official administrator (OA) appointed on March 20, 2018 for a large bank with 90 days to develop rehabilitation plan. - Financial sector costs and buffers: - Tentative buffer included for financial sector clean-up estimated at 1.9 percent of GDP (including GHc 2.2 billion bond to GCB = 0.8 percent of GDP). - BoG announced outstanding liquidity support will not be renewed at maturity; established a credit committee for future liquidity support. - NPLs and remedial actions: - NPLs reached 22.7 percent in 2017; loans overdue >1 year account for ~half of outstanding NPLs. - Required actions: accelerated write-offs of uncollectible loans; enhanced recovery and enforcement of collateral; more stringent oversight of loan origination and credit risk management. - Regulatory reforms: Basel II/III engagement, Pillar 1 priority, introduce Pillar 2 (Internal Capital Adequacy Assessment Process) by end-2018; amendments to Banks and SDI Act to strengthen resolution toolkit (SB reset to end-August). - Microfinance sector: - Restructuring plan to be implemented timely, backstopped by public funding; strengthen supervisory scrutiny and licensing. ### State-Owned Enterprises (SOEs) and energy sector measures - SOE reforms and oversight: - Proposed Single Entity to monitor SOEs; cash waterfall mechanism for energy sector firms to be implemented in Q2 2018. - VRA restructuring and ECG concession processes underway; ESLA Plc issued bonds to address energy-sector debt. - Risks: - Precarious SOE finances are significant contingent liabilities; recent electricity tariff reduction could be risky if efficiency gains do not materialize. - Cocoa: world price fell from US$3,300/ton (April 2016) to about US$2,000/ton (mid-2017); producer price maintained at US$1,900/ton — staff view: farmer support should be budget-funded and a pricing formula adopted. ### Structural reforms, social programs, and growth agenda - Structural priorities: - Broad reforms to promote transparency, accountability, tax policy review, VAT and exemptions review, free zone regime reform, mining and oil & gas revenue measures, and Medium-Term Revenue Strategy. - Social and job programs: - Nation Builders Corps (NABCO) to hire 100,000 graduates in 2018 (about 400 per district across 254 districts); expected cost ~0.2 percent of GDP. - LEAP expansion: additional 150,000 households; 2018 allocation for LEAP GHS 168 million (doubled). - Free SHS: enrollment rose to ~94 percent in 2017; fully funded in 2018 budget. - Implementation progress: - GIFMIS rollout achieved 87 percent; TSA rollout achieved 85 percent; further PFM regulations submitted to Parliament in March 2018. - Fiscal Risk Unit established at MoF; World Bank supporting public sector reform. ### Debt sustainability, risks, and staff assessment - DSA conclusion: - Ghana remains at high risk of external debt distress; four of five external DSA indicators breach thresholds under baseline. - Gross fiscal financing needs (GFNs) projected to decline to 15 percent of GDP in 2018 from 23 percent in 2017; contingent financial sector costs ~1.9 percent of GDP. - Under baseline including fiscal adjustment, total public debt would decline below 56 percent of GDP only by 2026. - Key macro projections (selected) - Real GDP growth (annual change): 2016 = 3.7; 2017 = 5.9; 2018 (Prog.) = 8.4; 2018 (Prov.) = 8.9; 2019 (Prog.) = 6.3; 2019 (Proj.) = 7.6; 2020 (Proj.) = 5.5. - CPI (annual average): 2016 = 17.5; 2017 = 11.8; 2018 (Prog.) = 12.4; 2018 (Prov.) = 9.0; 2019 (Prog.) = 9.3; 2019 (Proj.) = 8.0; 2020 (Proj.) = 8.0. - Central government debt (gross): 2016 = 73.4; 2017 = 70.5; 2018 (Prog.) = 71.8; 2018 (Prov.) = 66.1; 2019 (Prog.) = 70.3; 2019 (Proj.) = 67.0; 2020 (Proj.) = 65.0. - Gross international reserves (US$ millions): 2016 = 4,862; 2017 = 5,783; 2018 (Prog.) = 5,491; 2018 (Prov.) = 6,319. - Vulnerabilities and stress tests: - Highly sensitive to exchange rate depreciation and export declines; stress scenarios show sizeable increases in PV debt ratios under depreciation shocks. - Policy emphasis: - Sustained fiscal adjustment, strengthened revenue mobilization, prudent debt-management (use Eurobond proceeds for liability management where NPV neutral), and containment of contingent liabilities from SOEs and financial sector. ### Program implementation, targets, and monitoring - Performance and reviews: - Six of nine PCs met for end-August 2017; seven of nine PCs met for end-December 2017. - PCs missed: wage bill and net change in stock of arrears (both end-August and end-December); primary balance PC missed at end-August but met at end-December. - Staff recommends completion of fifth and sixth reviews and waivers given corrective actions and improved performance. - 2018 monitoring framework (selected targets, millions of cedis / US$ where specified): - Primary fiscal balance (floor, cumulative from start of year): End-April 2018 = 769; End-June 2018 = 1,067; End-September 2018 = 2,737; End-December 2018 = 4,745. - Wage Bill (ceiling, millions of cedis): End-April 2018 = 5,466; End-June 2018 = 8,245; End-September 2018 = 12,469; End-December 2018 = 16,762. - Net international reserves of BoG (floor; change from end-2017; US$ millions): End-April 2018 = -700; End-June 2018 = 175; End-September 2018 = 310; End-December 2018 = 504. - Contracting/guaranteeing of new external non-concessional debt (ceiling; US$ millions): 1,750 at all target dates. - Debt for projects (cumulative from 2015): 3,500 at all target dates. - Social Protection spending (floor, million of cedis): End-April 2018 = 996; End-June 2018 = 2,065; End-September 2018 = 3,573; End-December 2018 = 5,391. - Data and reporting: - Extensive monthly and quarterly reporting obligations from MoF, BoG, and GSS detailed in TMU; specific lags and series enumerated. _Italic: Source: cr18113 — IMF staff report excerpts (April 16, 2018)._ ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Background and overall assessment - Program performance improved in 2017 and macroeconomic conditions strengthened considerably: growth increased on the back of expanded oil production; inflation declined; the fiscal deficit was significantly reduced, leading to a primary surplus for the first time in fifteen years; the exchange rate regained stability; and the external position improved, with a large reserve build-up. - Challenges remain: a still elevated (albeit declining) debt burden and the economy’s exposure to risks limit policy space; progress in meeting structural benchmarks remains mixed. - Program focus: policies to lock in recent gains and secure continued stability and progress beyond the Fund-supported program (authorities’ goal of “irreversibility” of sound policies). ### Gains in stabilization (key macro outcomes for 2017) - Growth - Non-oil GDP growth estimated at 4.7 percent over Q1-Q3. - Overall growth reached 8.4 percent, reflecting increased oil production. - Fiscal outcomes - Overall deficit reduced to 6 percent of GDP in 2017, from 9.3 percent of GDP in 2016—below the 6.3 percent of GDP target. - Primary surplus achieved for the first time since 2003: primary balance (below-the-line) 0.7 percent of GDP (primary balance (above-the-line) 0.2 percent of GDP in reported table). - Debt/GDP ratio declined from 73.4 percent of GDP in 2016 to 71.8 percent of GDP in 2017 (including the energy bond). - Revenue and expenditure dynamics (2017 fiscal performance, percent of GDP) - Revenues: 18.9 percent of GDP (provisional 17.5 percent of GDP). - Tax: 16.0 percent of GDP (prov. 15.3 percent). - Non-tax: 2.8 percent of GDP (prov. 2.2 percent). - Expenditure: 25.2 percent of GDP (prov. 23.4 percent). - Compensation of employees: 7.9 percent of GDP (prov. 8.2 percent). - Interest: 6.5 percent of GDP (prov. 6.6 percent). - Transfers: 4.3 percent of GDP (prov. 3.4 percent). - Goods and services: 1.5 percent of GDP (prov. 1.2 percent). - Capital expenditure: 3.2 percent of GDP (prov. 3.1 percent). - Other expenses: 1.8 percent of GDP (prov. 0.9 percent). - Overall balance (below-the-line): -6.3 percent of GDP (prog. -5.9 percent). - Primary balance (below-the-line): 0.2 percent of GDP (prog. 0.7 percent). - Monetary and external positions - Headline inflation declined from 15.4 percent at end-2016 to 11.8 percent in December 2017; further decline to 10.4 percent in March 2018. - Monetary Policy Rate (MPR) reduced by 200bps to 18 percent at March meeting (cumulative decrease by 550bps in 2017); real MPR remains elevated at above 7 percent. - The cedi depreciated by only 5 percent against the dollar in 2017. - Current account deficit estimated at 4.5 percent of GDP in 2017. - Balance of payments overall surplus of 2.3 percent of GDP in 2017; foreign exchange reserves built up to US$5.5 billion by end-December 2017 (excluding oil funds and encumbered assets). - Financial sector and credit - Credit growth to private sector declined to 12.8 percent at end-2017 (from a peak around 50 percent in 2014). - Nonperforming loans (NPLs) reached GHc 8.2 billion in December 2017 or 22.7 percent. - Banking sector capital 15 percent in December 2017 (well above regulatory minimum), but with significant variation across banks. - Liquidity support reliance close to GHc 1.1 billion (about 0.5 percent of GDP), excluding two resolved banks. ### Outlook and risks - Growth and inflation outlook - Overall GDP growth projected to decrease to 6.3 percent in 2018 (reflecting lower oil production), while non-oil growth expected to increase reflecting improved confidence. - Inflation expected to hit target of 8 percent by late 2018. - Risk assessment - Balance of risks remains tilted to the downside. - Debt remains at high risk of distress; realization of contingent liabilities makes the DSA less favorable compared to the last review, with four indicators breaching thresholds. - 2018 oil production is lower than previously projected due to the deferred 9-12 week shut-down of the Jubilee field from 2017 to 2018. ### Policy discussions and recommendations - Fiscal policy - Fiscal adjustment is needed to lock in a declining debt dynamic, supported by increased domestic revenues as the revenue base is limited and spending retrenchment cannot be sustained indefinitely, also as new spending programs come on line. - The 2018 budget targets: primary balance of 2 percent of GDP and overall deficit of 4.5 percent of GDP (excluding one-off costs for the financial sector). - These targets imply a further 1.3 percent of GDP primary adjustment relative to 2017, and a cumulative tightening of 4.4 percent of GDP over two years. - Including one-off financial sector costs (tentatively estimated at 1.9 percent of GDP), the overall deficit is expected to be 6.4 percent of GDP. - Staff view: pace of consolidation is appropriate (though 0.2 percent of GDP lower than envisaged at time of fourth review), balancing protection of social and infrastructure spending with ensuring a declining debt path. - Monetary policy and exchange rate - The monetary policy framework needs to remain anchored to delivering declining inflation, with steps to underpin the credibility of the inflation targeting framework. - Maintain tight monetary stance as needed to bring inflation to target. - Financial stability and banking sector reforms - Long-term financial stability requires resilient and well-managed institutions, supported by a robust financial safety net. - Ongoing initiatives to strengthen the financial sector are welcome and need to proceed steadfastly to create an environment supportive of credit growth and financial inclusion. - Many institutions will need to raise equity (or pursue mergers) to comply with new minimum statutory capital requirements by end-2018. - Addressing the NPL overhang is critical: loans overdue for more than one year account for about half of outstanding NPLs. - Structural reforms - Wide-ranging structural reforms, to promote transparency and accountability and address inefficiencies in the economy, are key to creating inclusive growth. - Governance developments: Auditor General tabled report on all arrears and unpaid claims as of end-2016; out of claims worth over GHc 11 billion, only GHc 6.3 billion were validated. Remedial actions to strengthen accountability will be taken up, including by the newly established Office of the Special Prosecutor. - Program completion and staff recommendation - Staff recommends completion of the fifth and sixth reviews, as most end-August and end-December performance criteria were met and corrective actions have been taken for those unmet. - The authorities are committed to bringing the Fund-supported program to successful completion in the coming year via continued policy adjustment and reform, including sustained fiscal discipline, implementation of financial stability measures, and further structural reforms. *IMF Staff report: Executive Summary (April 16, 2018).* ### 14. Recently adopted measures bring the 2018 fiscal framework in line with the program. ### Recently adopted measures bring the 2018 fiscal framework in line with the program ### 2018 fiscal framework and near-term fiscal stance - The 2018 budget relies primarily on revenue administration measures and continued expenditure restraint, including by capping transfers to statutory funds. - Staff view the budget’s revenue projections as optimistic and estimate additional measures equivalent to about ½ percent of GDP are required to meet the deficit target of 4.5 percent of GDP. - Authorities committed to introduce additional revenue measures in the mid-year budget review in July 2018 (MEFP ¶19) (prior action). - Interim fiscal actions: scaled back Q2 cash allotments and agreed to make further spending reductions in the second half of the year—overall amounting to GHc 850 million, while protecting social spending—if revenue measures are not enacted. Staff view these steps as sufficient to safeguard the deficit target. - Authorities reiterate commitment to meet 2018 targets by taking additional measures if needed (MEFP ¶21). ### Medium-term fiscal intentions and arrears - Authorities intend to maintain a primary surplus of about 2 percent of GDP over the medium term to reduce debt vulnerabilities and clear all arrears. - The authorities plan to mobilize more revenues in the 2019 budget to offset one-off revenue measures in the 2018 budget (MEFP ¶22). - Estimated stock of outstanding arrears at end-2017: GHc 3.9 billion (factoring in audit results and arrears repayment in 2017). - Government intends to clear all arrears by 2021, prioritizing claims of the private sector (MEFP ¶23). - Note on primary balance presentation: The authorities’ primary balance is 1.6 percent of GDP, which translates to 2 percent of GDP in staff’s presentation due to different treatment of the ESLA bond (interest payments of 0.4 percent of GDP are recorded as an “ESLA transfer” in the authorities’ presentation). ### Revenue measures in the 2018 budget (Box 3) - Budget focus: revenue administration measures intended to raise 0.5 percent of GDP through initiatives including special audits, electronic point-of-sale devices, and an excise stamp regime. Staff assume a yield of 0.2 percent of GDP from these measures given implementation risks. - One-off policy receipts planned: 0.3 percent of GDP from sale of communication spectrum and telecom license (to be offset in 2019). - Policy changes included: levy on foreign marine gas and an African Union (AU) levy of 0.2 percent on all imports from non-AU countries. - New programs and expenditures include Nation Builders Corp (hire 100,000 graduates), expected to cost about 0.2 percent of GDP, partially funded through District Assemblies Common Fund allocations. - Planned financing: raise GHc 1.7 billion from divestment and GHc 1.4 billion from monetizing future gold royalties. - Revenue measures table totals (preserve reported values): - GoG Estimated Yield total: GHc 2,304 (0.95 percent of GDP) - IMF Assumed Yield total: GHc 1,674 (0.69 percent of GDP) - Selected line items (GoG Estimated Yield / IMF Assumed Yield): - Compliance Measures: GHc 1,170 (0.48) / GHc 540 (0.22) - Special audits: GHc 180 (0.07) / GHc 180 (0.07) - Electronic fiscal devices: GHc 500 (0.21) / GHc 100 (0.04) - Excise stamp regime: GHc 120 (0.05) / GHc 40 (0.02) - Communication spectrum ($50mn): GHc 240 (0.10) / GHc 240 (0.10) - Prepayment of telcos license renewal: GHc 460 (0.19) / GHc 460 (0.19) - African Union Levy: GHc 154 (0.06) / GHc 154 (0.06) - Levies on marine gas oil (Foreign): GHc 130 (0.05) / GHc 130 (0.05) - Share of property taxes for central government: GHc 150 (0.06) / GHc 150 (0.06) ### Tax policy priorities and recommendations (Box 4) - Rationale: limited fiscal space—non-discretionary spending on wages and interest payments constitute a much higher share of tax revenue in Ghana compared to peers—makes revenue mobilization a priority. - Domestic tax collection has stalled; tax ratios rose 2009–2011 but have been flat in the last 5 years. Petroleum taxes rose by almost 3 percent of non-oil GDP between 2014 and 2016, offset by declines in direct taxes and VAT. - Key weaknesses: low C-efficiency of VAT (below SSA average), erosion in collections from direct taxes and VAT, complexity and proliferation of exemptions and special regimes, evasion and weak tax administration (including lack of timely and reliable taxpayers’ data). - Suggested tax policy measures: - Direct tax exemptions: discontinue certain tax holidays (e.g., mutual funds, venture capital) or replace with better targeted investment incentives; consider a temporary corporate minimum tax (charge on turnover deductible against regular income tax). - Indirect taxes: review non-standard VAT and import duty exemptions (including on locally producible items such as cocoa, cereals, vegetables); consider excise on luxury cars; repeal some recent indirect tax reliefs (e.g., removal of VAT on fee-based financial services, real estate transactions); conduct comprehensive VAT regime review. - Free zones (FZs): comprehensive review—replace tax holidays with investment allowances; reduce maximum domestic sales allowed by FZ companies from 30 to 20 percent; narrow VAT and import duty exemptions for FZ companies; restrict FZ status to designated “industrial parks”. - Mining and oil & gas: technical assistance to identify measures to ensure a fair share of revenues; enforce current legislation via cost audits to detect profit shifting. - Comprehensive review of tax rates (VAT, corporate income tax, excises, personal income tax) and develop a Medium-Term Revenue Strategy to guide short-term measures. ### Financing and debt management strategy - Average time to maturity of domestic debt increased from 5.5 years at end-2016 to 7.2 years at end-2017 (MEFP ¶6). - Gross financing needs declined to 15 percent of GDP in 2018. - Authorities plan debt management operations including buy-backs and exchanges for debt maturing in second half of 2018. - Planned financing initiatives such as monetizing future gold royalties should be carefully evaluated due to potential future budget flexibility costs. - Authorities’ 2018 borrowing plan includes non-concessional funding: - Plan to issue up to $2.5 billion in a Eurobond and borrow $500 million in commercial loans. - Staff view request as justified; allocation plans: - From Eurobond proceeds, $1.75 billion allocated for debt management to smooth maturity spikes in 2023 by repurchasing debt in a broadly NPV neutral manner. - Remaining $750 million from the Eurobond plus the additional $500 million commercial borrowing will be allocated to projects in infrastructure, health, sanitation, agriculture, and education already allocated in the budget (in line with President’s Coordinated Program, MEFP ¶61). - Alternative domestic borrowing trade-offs: lower currency risk but likely worse maturity profile, higher debt servicing costs, and pressure on domestic markets (MEFP ¶52). - Fiscal financing needs table (selected figures, in percent of GDP): - Gross financing needs: 2017 = 22.6; 2018 = 15.0 - Domestic primary balance (measured from financing), excluding grants and foreign-financed capital expenditure: 2017 = -2.6; 2018 = -1.3 - Interest payments: 2017 = 6.6; 2018 = 6.5 - Accumulation of deposits: 2017 = 1.1; 2018 = 0.0 - Loans to SOEs (on-lending of ESLA bonds to SOEs): 2017 = 2.3; 2018 = 0.5 - Amortization: 2017 = 15.2; 2018 = 9.2 (external: 2017 = 2.4, 2018 = 2.0; domestic (T-bills) 2017 = 8.0, 2018 = 3.3; domestic (1 year and over) 2017 = 4.8, 2018 = 4.0) - Financing composition 2018: program grants and loans = 0.5; IMF = 0.5; external commercial borrowing (Eurobond) = 1.5; domestic debt (1 year and over) = 10.2 ### State-Owned Enterprises (SOEs) - SOE reforms progressing, but financial risks remain significant. - Post-energy bond, government implementing operational improvements: cash waterfall mechanism for energy sector firms to be implemented in Q2 2018 (MEFP ¶55). - Governance/oversight: proposed law to create a Single Entity to monitor SOEs; concession of Electricity Company of Ghana; restructuring of Volta River Authority (MEFP ¶56). - Risks persist: precarious financial positions of SOEs constitute significant contingent liabilities; recent reduction in electricity tariffs could be risky if demand does not increase and efficiency gains from greater use of gas do not materialize (MEFP ¶54). - Cocoa sector challenges: world cocoa price fell from US$3,300 per ton in April 2016 to about US$2,000 per ton in mid-2017; producer price maintained at US$1,900 per ton—compounding financial challenges for COCOBOD. Staff view: support for farmers’ income should be directly and transparently funded by the budget and a pricing formula should be adopted. ### Monetary and exchange rate policy - Inflation remains high (though declining) and higher than comparators; authorities committed to reach the inflation target of 8 percent by end-2018 (MEFP ¶24). - Recent BoG actions: lowered the MPR; reintroduced floating rate 56-day bills; suspended 14-day BoG bills at the MPR; reduced the floor of the overnight corridor (later reversed after the March MPC meeting, restoring the symmetric corridor). - Governance of monetary policy: MPC will remain solely responsible for setting monetary stance; future policy changes will be pre-announced and explained to the market. - Box 5 highlights: - Ghana’s average inflation over the last three years: 15.5 percent (compared to SSA average 7.2 percent and selected IT countries average 3.5 percent). - Ghana’s medium-term inflation target: 8 percent with ±2 percent bands—the highest target in the world in the sample referenced. - Drivers of persistent inflation: earlier fiscal dominance and weak liquidity management; FX pass-through and import prices. - Distributional concern: persistent high inflation disproportionately taxes the poor. *International Monetary Fund — CR18113 content unit* ### 22. The BoG plans to strengthen its FX operations framework. It will develop a new FX policy ### 22. The BoG plans to strengthen its FX operations framework. It will develop a new FX policy ### FX operations and market development - The BoG will develop a new FX policy to encourage market development and ensure transparent and market-based operations. - Current practice: BoG’s sales of FX for intermediation purposes are undertaken daily and on an ad-hoc bilateral basis, which discourages interbank trading. - Opportunity: deepen the market by removing a quasi-guarantee of FX conversion provided to foreign portfolio investors. - Given the removal of surrender requirements in 2016, cocoa export proceeds (other than those used for loan repayments) should be sold to commercial banks (MEFP ¶27). ### Capital flow management measures (CFMs) - August 2014: a $1,000 limit on over-the-counter withdrawals from foreign exchange accounts (FEA) and foreign currency accounts (FCA), classified as a CFM, was rescinded. - Remaining restrictions: a limit of US$10,000 withdrawal per travel and annual transfer without documentation is still in place. - Recommendation: Removal of the US$10,000 restriction would be consistent with the Fund’s institutional view on CFMs and warranted given that BOP pressures have waned. ### BoG institutional framework and balance sheet risks - Further amendments to the BoG Act are viewed by staff as the most robust way to safeguard BoG’s independence, but are not politically feasible at this juncture. - Interim measures: MoF and BoG extended their Memorandum of Understanding (MoU) capping BoG financing to the government at zero through 2020 (the end of the current government’s mandate) and published it on the MoF website (MEFP ¶25) (prior action). - MoF agreed to take over ownership and financing of GIRSAL (guarantee scheme for lending to the agricultural sector) (MEFP ¶26); BoG will not be reimbursed for capital already injected. - BoG directive: all banks instructed to repay outstanding emergency liquidity assistance to reduce balance sheet risks (reset structural benchmark for end-June). ### Financial stability: risks and actions - Elevated risks to financial stability make strengthening financial sector resilience critically important. - Most undercapitalized banks per the 2016 Asset Quality Review have addressed capital shortfalls; one large bank proved unable to restore its capital position. - BoG announced that outstanding liquidity support will not be renewed at maturity (MEFP ¶29). - BoG established a credit committee to coordinate future liquidity support. - BoG must monitor banks’ repayment capacity to prevent liquidity pressures. ### Intervention in a large bank and microfinance sector - Official administrator (OA) appointed on March 20, 2018; under Banks and SDI Act OA has till June 18, 2018 (90 days) to develop a rehabilitation plan guided by a detailed valuation of the bank’s balance sheet. - Next steps to be decided by BoG after OA’s analyses. - Recommended actions: review causes of deterioration, strengthen regulatory and supervisory framework, increase scrutiny of banks’ risk control frameworks, strengthen enforcement of fit and proper requirements. - Microfinance sector: implement restructuring plan timely, backstopped by public sector funding (as agreed), enhance supervisory scrutiny, and enforce more stringent licensing requirements (MEFP ¶33). - A buffer is included in the baseline (tentatively estimated at 1.9 percent of GDP) to cover costs of financial sector clean-up. - Footnote: This includes the issuance of a bond to Ghana Commercial Bank (GCB) of GHc 2.2 billion (0.8 percent of GDP), to cover the shortfall between the assumed liabilities and acquired assets of the two banks resolved last August. ### NPL reduction and credit growth - BoG needs to push for actions to reduce NPLs (new structural benchmark for end-June), including: - accelerated write-offs of uncollectible loans; - enhanced recovery actions by banks (including more timely enforcement of collaterals); - more stringent oversight of banks’ loan origination and credit risk management policies (MEFP ¶32). - Policy option: longer transitional period for higher minimum statutory capital requirements to allow accelerated loss recognition in near term. ### Regulatory reforms and supervision - Engagement on draft Basel II/III regulation is welcome (MEFP ¶33); completion of impact assessments and test reporting remain important for operational readiness. - BoG intends to introduce the Internal Capital Adequacy Assessment Process (Pillar 2) by end-2018; near-term focus should be robust implementation of Pillar 1 and full integration into BoG’s risk-based supervisory framework. - Amendments to the Banks and SDI Act to strengthen resolution toolkit are underway (SB reset to end-August). - Empowering Deposit Protection Corporation to contribute funding to deposit transfers on a least cost basis (purchase and assumption transactions) would provide additional flexibility versus depositor reimbursement. ### Post-resolution activities and institutional capacity - Closure of two banks in August 2017 concluded with issuance of a bond to GCB; operationalization of a centralized resolution function is underway. - Centralized resolution function should cover all financial sector segments under BoG purview and ideally be segregated from BoG’s supervisory function to improve capacity to handle future distress. ### Structural reforms: progress and priorities - Of 17 outstanding structural benchmarks (SBs), outcomes: one met, five implemented with delay, 11 remain not met (notable progress for six SBs) (MEFP Table 3). - Progress noted in PFM regulations and the financial sector; additional reforms implemented outside program conditionality (governance, tax administration). - Authorities committed to meet all benchmarks by end of program; staff views overall reform plans as achievable given recent implementation pace. - Public Financial Management: - New PFM Act regulations submitted to Parliament in March (MEFP ¶40). - Regulations strengthen commitment controls and internal audits following Auditor General’s audit of unpaid bills. - HRMIS rollout delayed by data integrity issues; when HRMIS rollout to Ghana Education Service is completed (expected in H1 2018), system will cover almost 70 percent of public service workforce. - Transfer of commercial bank accounts to BoG slowed by lack of cooperation from some agencies; number of outstanding bank accounts is small; Control and Accountant General Department agreed to complete process in H1 2018 (MEFP ¶46). - Tax Administration: - TADAT highlighted weaknesses; GRA requested follow-up TA to design medium-term reform plan. - Lack of reliable taxpayers’ data is key bottleneck. - TRIPS deployment: after seven years of delays, TRIPS now covers all GRA offices, though more work needed to fully operationalize it. - Authorities plan measures to improve taxpayers’ compliance (MEFP ¶38). ### Program modalities, financing, and limits on non-concessional debt - Program performance improved: three PCs missed in end-August, and two at end-December 2017. PCs on wage bill and clearance of domestic arrears missed at end-August and end-December; primary fiscal balance PC missed at end-August but met at end-December. - Inflation remained within inner band of the MPCC. - Given improved performance, proposal to conclude two reviews. - Monitoring: program performance assessed semi-annually against PCs, ITs, and SBs. For 2018: PCs for end-June 2018 and end-December 2018; ITs for end-April 2018 and end-September 2018 (MEFP ¶71 and Table 2). - TMU modifications: adjust definition of social spending and drop IT on Central Bank NDA in 2018. - Financial sector costs treated as one-off outlays accommodated in primary balance PC through an adjustor. - Non-concessional external debt ceilings: - Two ceilings maintained: (i) for debt management purpose and (ii) for priority development projects which cannot be financed on concessional terms (MEFP ¶52). - Limit for debt management purposes proposed at US$1,750 million in 2018 (part of planned Eurobond to buy back existing Eurobonds). - Debt limit for key projects (cumulative since 2015) proposed to be raised by US$1,250 million (of which $750 million to be funded by the new Eurobond) relative to end-December 2017 PC set under fourth review. - Financing assurances: - Program fully financed for one year with firm financial commitments from development partners. - Capacity to repay: maximum outstanding liabilities to the Fund will reach 2.2 percent of GDP and 4.9 percent of exports as external position improves. - Staff supports using Fund disbursements associated with fifth and sixth reviews for budget support to address BOP needs and minimize budget financing costs; disbursements to be made directly to government consistent with BoG’s zero financing to the latter. ### Staff appraisal: macroeconomic assessment and policy advice - 2017 improvements: growth increased on stronger oil production; inflation declined; external position strengthened with larger-than-programmed FX reserve accumulation; nominal exchange rate relatively stable; a primary fiscal surplus achieved (first since 2003 and only second since 1980s). - Revenues came in lower than programmed; tight spending controls allowed fiscal target to be met. - BoG actions: closed two insolvent banks and taking steps to secure financial stability. - Auditor General completed audit of unpaid bills through end-2016, finding serious non-compliance and misreporting. - 2018 priorities and recommendations: - 2018 is a key test year to entrench macroeconomic gains and continue reforms. - Sustained fiscal adjustment needed to reduce debt burden while creating fiscal space for social and infrastructure spending. - Increase domestic revenue mobilization: tax revenues are almost wholly absorbed by interest payments and wage bill. - Swift passage of revenue measures in July is critical to sustain fiscal policies beyond Fund program. - As commitment to deliver budget deficit target of 4.5 percent of GDP, authorities are resizing cash releases until revenue measures implemented. - On spending side: strengthen oversight and accountability following Auditor General’s report; controls over wage bill are paramount. - Tax amnesty should be one-off; pursue forceful improvements in tax administration. - Contingent liabilities and debt management: - Contingent liabilities are a key fiscal risk; government funded energy-sector SOE debt restructuring via ESLA bond in 2017. - A buffer of 1.1 percent of GDP is included in baseline to cover potential financial sector clean-up costs. - Prudence in debt management essential: deploy Eurobond proceeds into liability management to mitigate FX roll-over risk and avoid locking in high real rates for long maturities; avoid over-reliance on foreign demand. - Monetary policy and institutional recommendations: - Monetary policy should continue to focus on achieving the inflation target. - Decline in headline inflation and expectations, fiscal adjustment, and exchange rate stability provided space for monetary easing; MPC should proceed cautiously and remain vigilant to upside inflation risks. - Recommendation to reintroduce the 14-day BoG bill at the policy rate as a complement to the 56-day BoG bill to bolster policy rate credibility and aid short-term liquidity management. - Institutional framework needs strengthening: while BoG Act amendments are ideal, extension and publication of the MoU is welcome. - To limit balance sheet risks: move GIRSAL to the budget as planned; seek repayment of outstanding largely uncollateralized liquidity assistance by mid-year; strengthen governance and risk-management of such operations. - Financial stability priority: - Urgent actions needed to tackle NPL overhang; regulatory reforms are instrumental to foster resilience and strengthen oversight. - Continue microfinance sector clean-up with public resources set aside. - BoG’s intervention in a large bank (official administrator appointed) should be followed by decisive actions to restore solvency, address liquidity shortfalls, and put the bank on a sustainable footing. *Source: cr18113 - 22. The BoG plans to strengthen its FX operations framework. It will develop a new FX policy (excerpt).* ### 43. Ultimately, entrenched macroeconomic stability and implementation of much-needed ### Ultimately, entrenched macroeconomic stability and implementation of much-needed structural reforms are the surest way to lift Ghana onto a higher sustained growth path. ### Growth and job creation - The ECF arrangement fully supports the objectives of growth and job creation. - Structural reforms are identified as the surest way to lift Ghana onto a higher sustained growth path. ### Inclusivity and social spending - The ECF arrangement places emphasis on inclusivity through the protection of social spending. ### Policy support and cooperation - Staff look forward to continued cooperation to help the authorities achieve their aspirations through an “irreversible path of sound policies.” - Entrenched macroeconomic stability and implementation of structural reforms are presented as mutually reinforcing objectives to secure higher sustained growth. *Source: cr18113 - 43. Ultimately, entrenched macroeconomic stability and implementation of much-needed* ### 44. Staff supports the authorities’ request for the completion of the fifth and sixth reviews ### 44. Staff supports the authorities’ request for the completion of the fifth and sixth reviews ### Staff recommendation and rationale - Staff supports the authorities’ request for the completion of the fifth and sixth reviews under the ECF arrangement and request of waivers. - Given progress in 2017, the authorities’ demonstrated commitment to sound economic management, financial sector restructuring and structural reforms warrant continued Fund support. ### Macroeconomic outlook (selected indicators) - Real GDP at constant prices (annual change): 2016: 3.7; 2017: 5.9; 2018 (Prog.): 8.4; 2018 (Prov.): 8.9; 2019 (Prog.): 6.3; 2019 (Proj.): 7.6; 2020 (Proj.): 5.5. - Non-oil GDP (annual change): 2016: 5.0; 2017: 4.0; 2018 (Prog.): 4.0; 2018 (Prov.): 5.0; 2019 (Prog.): 5.0; 2019 (Proj.): 6.0; 2020 (Proj.): 6.0. - Oil and gas GDP (annual change): 2016: -16.9; 2017: 42.5; 2018 (Prog.): 95.9; 2018 (Prov.): 64.9; 2019 (Prog.): 20.0; 2019 (Proj.): 22.4; 2020 (Proj.): 1.3. - Real GDP per capita (annual change): 2016: 1.1; 2017: 3.3; 2018 (Prog.): 5.7; 2018 (Prov.): 6.1; 2019 (Prog.): 3.6; 2019 (Proj.): 4.9; 2020 (Proj.): 2.9. - GDP deflator (annual change): 2016: 17.8; 2017: 14.2; 2018 (Prog.): 12.7; 2018 (Prov.): 9.6; 2019 (Prog.): 11.1; 2019 (Proj.): 8.2; 2020 (Proj.): 8.0. - Consumer price index (annual average): 2016: 17.5; 2017: 11.8; 2018 (Prog.): 12.4; 2018 (Prov.): 9.0; 2019 (Prog.): 9.3; 2019 (Proj.): 8.0; 2020 (Proj.): 8.0. - Consumer price index (end of period): 2016: 15.4; 2017: 10.0; 2018 (Prog.): 11.8; 2018 (Prov.): 8.0; 2019 (Prog.): 8.0; 2019 (Proj.): 8.0; 2020 (Proj.): 8.0. ### Fiscal accounts (central government, cash basis; percent of GDP) - Revenue: 2016: 17.2; 2017: 18.9; 2018 (Prog.): 17.5; 2018 (Prov.): 18.6; 2019 (Prog.): 17.9; 2019 (Proj.): 17.9; 2020 (Proj.): 17.8. - Expenditure: 2016: 26.6; 2017: 25.2; 2018 (Prog.): 23.4; 2018 (Prov.): 22.4; 2019 (Prog.): 24.3; 2019 (Proj.): 22.5; 2020 (Proj.): 22.3. - Overall balance: 2016: -9.3; 2017: -6.3; 2018 (Prog.): -6.0; 2018 (Prov.): -3.8; 2019 (Prog.): -6.4; 2019 (Proj.): -4.5; 2020 (Proj.): -4.5. - Overall balance excluding financial sector related costs: 2016: -9.3; 2017: -6.3; 2018 (Prog.): -6.0; 2018 (Prov.): -3.8; 2019 (Prog.): -4.5; 2019 (Proj.): -4.5; 2020 (Proj.): -4.5. - Primary balance: 2016: -2.4; 2017: 0.2; 2018 (Prog.): 0.7; 2018 (Prov.): 2.2; 2019 (Prog.): 0.1; 2019 (Proj.): 2.0; 2020 (Proj.): 1.9. - Central government debt (gross): 2016: 73.4; 2017: 70.5; 2018 (Prog.): 71.8; 2018 (Prov.): 66.1; 2019 (Prog.): 70.3; 2019 (Proj.): 67.0; 2020 (Proj.): 65.0. - Domestic debt: 2016: 32.1; 2017: 32.5; 2018 (Prog.): 34.8; 2018 (Prov.): 30.8; 2019 (Prog.): 34.8; 2019 (Proj.): 34.4; 2020 (Proj.): 35.2. - External debt: 2016: 41.3; 2017: 38.0; 2018 (Prog.): 37.0; 2018 (Prov.): 35.3; 2019 (Prog.): 35.5; 2019 (Proj.): 32.6; 2020 (Proj.): 29.8. - Nominal GDP (millions of GHc): 2016: 167,353; 2017: 202,389; 2018 (Prog.): 204,610; 2018 (Prov.): 241,549; 2019 (Prog.): 241,717; 2019 (Proj.): 281,457; 2020 (Proj.): 320,594. - Nominal GDP (millions of US$): 2016: 42,788; 2017: 45,464; 2018 (Prog.): 47,015; 2018 (Prov.): 49,226; 2019 (Prog.): 51,619; 2019 (Proj.): 56,725; 2020 (Proj.): 60,752. ### Monetary and financial sector indicators - Credit to the private sector (commercial banks, percent change): 2016: 14.4; 2017: 11.0; 2018 (Prog.): 12.8; 2018 (Prov.): 14.5; 2019 (Prog.): 17.8; 2019 (Proj.): 18.8; 2020 (Proj.): 18.9. - Broad money (M2+) annual change: 2016: 22.0; 2017: 22.7; 2018 (Prog.): 16.7; 2018 (Prov.): 15.9; 2019 (Prog.): 20.3; 2019 (Proj.): 18.8; 2020 (Proj.): 21.7. - Banks' lending rate (weighted average, percent): 2016: 31.7; 2017: ...; 2018 (Prog.): 29.3; remaining entries: ... - Policy rate (percent, end of period): 2016: 25.5; 2017: ...; 2018 (Prog.): 20.0; remaining entries: ... - Financial soundness indicators (selected, December): Regulatory capital to risk weighted assets: 2013: 18.5; 2014: 17.9; 2015: 17.7; 2016: 17.8; 2017: 15.0. Nonperforming loans to total gross loans: 2013: 12.0; 2014: 11.3; 2015: 14.9; 2016: 17.3; 2017: 22.7. Bank provisions to nonperforming loans: 2013: 78.3; 2014: 69.5; 2015: 69.9; 2016: 72.5; 2017: 77.0. ### External sector and reserves - Current account balance (percent of GDP): 2016: -6.7; 2017: -5.8; 2018 (Prog.): -4.5; 2018 (Prov.): -5.4; 2019 (Prog.): -4.2; 2019 (Proj.): -4.1; 2020 (Proj.): -3.9. - Gross international reserves (millions of US$): 2016: 4,862; 2017: 5,783; 2018 (Prog.): 5,491; 2018 (Prov.): 6,319; 2019 (Prog.): 5,909; 2019 (Proj.): 6,371; 2020 (Proj.): 6,962. - Gross international reserves (months of prospective imports): 2016: 2.6; 2017: 3.0; 2018 (Prog.): 2.9; 2018 (Prov.): 3.1; 2019 (Prog.): 2.9; 2019 (Proj.): 3.0; 2020 (Proj.): 3.1. - Net international reserves (millions of US$): 2016: 3,431; 2017: 4,475; 2018 (Prog.): 4,531; 2018 (Prov.): 5,035; 2019 (Prog.): 5,035; 2019 (Proj.): 5,510; 2020 (Proj.): 6,195. - Net international reserves (months of prospective imports): 2016: 1.8; 2017: 2.3; 2018 (Prog.): 2.4; 2018 (Prov.): 2.4; 2019 (Prog.): 2.5; 2019 (Proj.): 2.6; 2020 (Proj.): 2.8. - Balance of payments (millions of US$; selected): Current account (levels): 2016: -2,860; 2017: -2,643; 2018 (Prog.): -2,131; 2018 (Prov.): -2,677; 2019 (Prog.): -2,166; 2019 (Proj.): -2,352; 2020 (Proj.): -2,368. - Exports, f.o.b. (millions of US$): 2016: 11,137; 2017: 12,045; 2018 (Prog.): 13,752; 2018 (Prov.): 13,485; 2019 (Prog.): 13,889; 2019 (Proj.): 14,560; 2020 (Proj.): 15,722. - Imports, f.o.b. (millions of US$): 2016: -12,910; 2017: -13,494; 2018 (Prog.): -12,684; 2018 (Prov.): -13,993; 2019 (Prog.): -13,664; 2019 (Proj.): -14,770; 2020 (Proj.): -15,356. ### External financing and debt management - Table 6: Total financing requirements (millions of US$): 2017 (Proj.): -7,176; 2018 (Proj.): -5,295; 2019 (Proj.): -5,212; 2020 (Proj.): -5,221. - Total available financing (millions of US$): 2017 (Proj.): 6,731; 2018 (Proj.): 5,050; 2019 (Proj.): 4,916; 2020 (Proj.): 5,221. - Financing gap (millions of US$): 2017 (Proj.): -445; 2018 (Proj.): -245; 2019 (Proj.): -296; 2020 (Proj.): 0. - Residual gap (millions of US$): 2017 (Proj.): -197; 2018 (Proj.): -241; 2019 (Proj.): -146; 2020 (Proj.): 0. - ECF program contribution (millions of US$): 2017 (Proj.): 942; 2018 (Proj.): 411; 2019 (Proj.): 460. - Table 7 (actual external borrowing monitor, 2017): Volume of new debt in 2017 (USD million): 1,360.6 (100.0 percent). Concessional debt: 544.8 (40.0 percent). Non-concessional debt: 815.8 (60.0 percent). Uses of debt financing in 2017: Infrastructure: 952.2 (70.0 percent); Social Spending: 119.3 (8.8 percent); Other: 289.1 (21.2 percent). ### IMF ECF schedule and capacity to repay indicators - Proposed schedule of Reviews and Disbursements under the ECF arrangement (selected): Availability per tranche (Millions of SDR; Percent of Quota): 83.025 (11.25) — April 3, 2015; 83.025 (11.25) — July 15, 2015; 83.025 (11.25) — November 15, 2015; 83.025 (11.25) — April 15, 2016; 66.42 (9.00) — April 15, 2017; 66.42 (9.00) — September 15, 2017; 66.42 (9.00) — February 15, 2018; 66.42 (9.00) — August 15, 2018; 66.42 (9.00) — February 15, 2019. Total under the ECF arrangement: 664.2 (90.00). - Indicators of capacity to repay the Fund (selected, Table 10): Outstanding Fund credit (in millions of SDRs): 2018: 796.6; 2019: 785.5; 2020: 721.4; 2021: 638.2; 2022: 548.0; 2023: 448.3. Outstanding Fund credit (in millions of US$): 2018: 1,162.6; 2019: 1,152.4; 2020: 1,062.7; 2021: 944.0; 2022: 813.5; 2023: 667.6. - Total obligations based on existing and prospective credit (in millions of SDRs): 2018: 60.7; 2019: 80.0; 2020: 66.6; 2021: 85.7; 2022: 92.7; 2023: 95.5. - Total obligations based on existing and prospective credit (in millions of US$): 2018: 88.2; 2019: 117.0; 2020: 97.9; 2021: 126.5; 2022: 137.4; 2023: 142.0. - Total obligations as percent of gross international reserves (selected): 2018: 1.5; 2019: 1.8; 2020: 1.4; 2021: 1.7; 2022: 1.6; 2023: 1.5. _ Sources: Ghanaian authorities; and Fund staff estimates and projections._ ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Requests to the IMF - Government requests the IMF Executive Board to: - waive nonobservance of the Performance Criteria (PC) on the wage bill and the net change in the stock of arrears for both end-August and end-December 2017; - waive the PC on the primary balance for end-August (though met for end-December); - modify the continuous PC sub-ceiling on the contracting or guaranteeing of non-concessional debt for projects; - complete the combined fifth and sixth reviews of the Extended Credit Facility (ECF) arrangement; - disburse the sixth and seventh tranches totaling the equivalent of SDR 132.84 million. - Date and place: Accra, April 19, 2018. ### Strategic vision: "Ghana Beyond Aid" - Transformation timeline and goals: - Achieve economic and social transformation in 7 years (by 2024). - Aim for a Ghana that is a Regional Hub, with a truly diversified and digitized economy. - Vision described as a Wealthy, Inclusive, Sustainable and Harmonious society. - Pillars of the strategy: - Secure irreversibility of government policies by building strong institutions and mechanisms. - Strengthen domestic revenue mobilization and seek international technology partnerships. - Empower the private sector by creating an enabling environment for business. ### Assessment of 2017 macroeconomic performance - Growth and output: - GDP growth expected to reach 8.4 percent in 2017 from 3.7 percent in 2016. - Growth drivers: recovery in oil production, improved cocoa yields; manufacturing rebound delayed. - Inflation and monetary policy: - Headline inflation: 15.4 percent at end-December 2016 to 11.8 percent at end-December 2017 and 10.6 percent in February 2018. - Monetary policy rate: reduced cumulatively by 550 basis points in 2017 to 20 percent (from 25.5 percent in December 2016); further reduced by 200 basis points to 18 percent in March 2018. - Headline inflation at end-February 2018 noted as the lowest since mid-2013. - External sector and reserves: - Trade surplus of US$1.1 billion (2.4 percent of GDP). - Current account: negative 4.5 percent of GDP at end-2017 from negative 6.7 percent of GDP at end-2016. - Overall balance of payments surplus: US$1.1 billion (2.4 percent of GDP). - Gross international reserves: increased by US$1.1 billion to US$7.6 billion (4.3 months of imports cover) at end-December 2017, compared with US$6.2 billion (3.5 months) a year ago. ### Fiscal performance and public debt - Fiscal outcomes: - Fiscal deficit reduced from 9.3 percent of GDP in 2016 to 6.0 percent of GDP in 2017, outperforming the 6.3 percent target. - Primary surplus achieved in 2017 for the first time since 2003. - Public debt and debt management: - Gross public debt declined to below 70 percent of GDP at end-2017 from 73.1 percent of GDP a year ago. - Auditor-General audited outstanding payments and claims amounting to 5.5 percent of GDP (approximately GHS11.3 billion); claims validated: 3.1 percent of GDP; remaining balance rejected. - Precautionary liquid cash buffers: about GHS 1.7 billion at end-2017. - Reprofiling operations increased average time to maturity for domestic debt from 5.5 years in 2016 to 7.2 years in 2017; entire debt portfolio average time to maturity from 6.3 years to 8.2 years. - Proportion of total debt maturing in a year reduced from 29.8 percent in 2016 to 17.7 percent in 2017. - Re-openings: 7, 10 and 15-year bonds in November 2017. ### Financial sector and credit conditions - Money and credit: - Broad money growth: 16.7 percent in 2017 compared with 22.0 percent in 2016. - Year-on-year growth in private sector credit: increased to 13.7 percent in December 2017 from 6.5 percent in August 2017. - Liquidity and bank sector reforms: - Excess liquidity in banking system remained high (reflecting strong FX inflows and BoG emergency liquidity support). - Bank of Ghana (BoG) actions: - Successful resolution of two banks in August 2017. - Commitment to regulatory changes (Basel II/III, increase of statutory minimum capital), supervisory enhancements, and actions to address vulnerabilities in specialized deposit-taking institutions. - Ongoing actions to strengthen Asset Quality Review (AQR), reduce NPLs, and strengthen governance to enable sustainable credit growth. ### Program implementation and missed performance criteria - Overall: performance through end-December 2017 described as satisfactory with four reviews completed. - Performance criteria (end-August 2017 and end-December 2017): - Six of nine PCs met for end-August 2017. - Seven of nine PCs met for end-December 2017, including the Monetary Policy Consultation Clause (MPCC). - PCs missed: - Wage bill (missed at both end-August and end-December). - Net change in the stock of arrears (missed at both end-August and end-December). - Primary balance PC missed for end-August but met for end-December. - Causes and corrective actions for wage bill overrun: - Causes: retroactive payments of a salary adjustment under Article 71 of the Constitution and unanticipated one-off approved allowances. - Corrective measures: - Increase frequency of warrants issuance from quarterly to monthly to limit deviation of actual wage bill expenditures from targets. - Internal Audit Units of MDAs to validate any salary-related allowances requests before submission to the Ministry of Finance. - In-year approval of new allowances and conditions of service to take effect in the following fiscal year (included in PFM Act regulations). - Establish a task force to potentially outsource the payroll of the Ghana Education Service (GES) and the Ghana Health Service (GES) workers (which contribute about 70 percent of the government workforce). - Causes for missed arrears PC: - Government re-evaluating arrears repayment strategy pending completion of the audit of unpaid claims by the Auditor-General, completed in February 2018. ### Policy commitments and 2018 agenda - Confirmed commitments: - Continue firm fiscal policies to contain financing needs, further reduce public debt, and avoid arrears accumulation through enforcement of the Public Financial Management Law and expanded rollout of the Ghana Integrated Financial Management Information System (GIFMIS). - Bank of Ghana remains committed to bringing inflation down to its medium-term target by maintaining a tight monetary policy. - Ministry of Finance and Bank of Ghana have amended and extended the loan and fiscal agency Memorandum of Understanding (MOU) to be enforced through to 2020. - Continue efforts to strengthen the financial system to buttress financial stability and achieve sustainable credit growth. - Additional commitments: - Government believes measures in the attached July 2017 MEFP remain appropriate; attached supplement lays out specific policies for 2018 to strengthen program implementation. - Government will hold timely discussions with IMF staff on possible terms of non-concessional external borrowing to ensure such borrowing strengthens confidence in the program and is in line with the Government’s medium-term debt policy as approved by Cabinet. - Government consents to publication of the IMF staff report content, this letter, the attached MEFP and TMU, and the Debt Sustainability Analysis (DSA) performed by IMF and World Bank staff once the IMF Executive Board approves completion of the fifth and sixth reviews under the ECF program. *Appendix I. Letter of Intent, Accra, April 19, 2018.* ### 13. Indicative targets on pro-poor expenditures, contracting or guaranteeing of new ### 13. Indicative targets on pro-poor expenditures, contracting or guaranteeing of new ### Program implementation and structural benchmarks - Indicative targets on pro-poor expenditures, contracting or guaranteeing of new external concessional debt and net domestic assets of the BoG were met. - Indicative targets on SOE performance were missed despite notable improvements in the net after tax profits of ECG and VRA. - Implementation of structural benchmarks (SB) is progressing, albeit at a slower rate than anticipated: - Six structural benchmarks were met, a few with delays. - Notable progress: establishment of a Treasury Single Account (TSA) and rollout of GIFMIS and HRMIS; rollout not fully completed due to technical problems with connectivity and data integrity. - GIFMIS rollout achieved 87 percent. - TSA rollout achieved 85 percent. - Government intends to complete all benchmarks by the end of the program. ### Economic growth projections - Economic growth projected for 2018: - Overall growth: 6.8 percent in 2018. - Non-oil GDP growth: 5.4 percent in 2018. - Growth drivers and outlook: - Contribution of the oil sector expected to taper off in 2018. - Growth in agriculture, construction, and industry expected to pick up. - Improved access to finance as lending rates decline due to continued reductions in inflation and balance sheet repairs in the banking system. - Expected dampening effects from continued fiscal consolidation. - Medium-term projection: - Economy expected to grow at an average conservative rate of about 7 percent per annum in the period 2019-21, with the major contribution from the non-oil sector. ### Fiscal policy targets and revenue mobilization - 2018 budget targets and fiscal consolidation: - Overall fiscal deficit target for 2018: 4.5 percent of GDP (compared with 6 percent of GDP in 2017). - Achievement described as approximately 3 percent of GDP improvement over a 2-year period with an improved average growth rate of approximately 7.5 percent. - Aim to maintain a primary surplus of about 2 percent of GDP in 2019 and into the medium term. - Revenue measures and timeline: - Revenue measures to be introduced when submitting the mid-year budget review to Parliament in July. - Revenue measures will not come into effect until August 2018; expenditure allotments process to be used to preserve the 4.5 percent target in the interim. - Identified expenditures worth GHS 850 million that can be scaled back if needed. - Tax base broadening and compliance measures: - Measures include reforms to Customs/Bonded Warehousing and Transit Regimes, deployment of Fiscal Electronic devices (received Parliamentary assent in March 2018), deployment of excise stamp devices. - Implemented revenue policy measures include the African Union levy, Marine Gas levy, Spectrum sale and renewal of Telcos licenses. - Consultation launched with stakeholders including the Trade Union Congress (TUC), Ghana Union of Traders Association (GUTA), Association of Ghana Industries (AGI), and the Ghana Employers Association (GEA). - One-off measures in the 2018 budget will be replaced by sustainable revenue measures. ### Expenditure management and arrears clearance - Expenditure management strategy: - Focus on eliminating waste and inefficiencies; align MDAs expenditures to government agenda; reduce duplication of projects. - PFM Act and newly drafted regulations to continue guiding public financial management practices. - World Bank Public Reform program to complement efforts. - Priority flagship initiatives (Free SHS policy, Infrastructure for Poverty Eradication Program (IPEP), Planting for Food and Jobs, one-million per constituency, Nation Builders Corps) are fully funded in the 2018 budget. - Arrears clearance plan: - New three-year arrears clearance strategy: payment of GHS858 million in 2018 and the remaining GHS 3 billion over three years. - Claims of the private sector will be prioritized. - Clearance includes arrears verified by the Auditor-General. ### Monetary policy stance - Bank of Ghana (BoG) framework and targets: - Monetary policy guided by BoG’s inflation targeting (IT) framework. - Inflation projected to reach the medium-term target of 8 percent in 2018. - Monetary Policy Committee (MPC) to monitor developments and take necessary actions. - Liquidity management instruments: - BoG introduced the 56-day bill, complementing the 14-day bill, to manage large stock of structural excess liquidity. - Central bank financing and governance: - Commitment to zero central bank financing of government; government has not borrowed from the BoG since 2016 and remains committed over the medium term. - Government and BoG extended their Memorandum of Understanding (MoU) reaffirming zero central bank financing through 2020 and published the MoU on the MoF website. - Sector-specific measures: - BoG to transfer ownership of GIRSAL to MOF in the context of the mid-year budget review; MOF to decide on future capital and funding costs. - BoG funded GIRSAL’s initial capital of GHc200 million out of profits that would otherwise have been transferred to the budget. - FX market policy: - BoG to continue selling or buying FX in the FX interbank market on a bilateral basis to limit excessive exchange rate volatility. - Plan to develop a new FX management policy consistent with the IT framework to ensure interbank transactions conducted at current market rates. ### Financial sector reforms and supervision - Bank resolution and sector resilience: - Resolution of two weak banks in August 2017; final settlement via issuance of sovereign bonds to the assuming bank. - Liquidation of failed banks progressing; BoG holds regular meetings with the Receiver. - On March 20, 2018, BoG took control of Unibank Ghana via appointment of an official administrator; bank remains open while remediation measures are identified. - Review of BoG’s supervisory oversight of the bank during the preceding period will be conducted. - Establishment of a resolution office planned to improve BoG’s ability to deal with distressed institutions. - Reducing reliance on central bank funding: - Banks notified outstanding facilities will not be rolled over at maturity; all principal and accrued interest must be settled on or before maturity. - Governance of BoG liquidity support strengthened via establishment of an interdepartmental credit committee. - Large exposure limits and capital requirements: - Energy sector-related large exposures to be settled with the ESLA arrangement and the Energy bond issuance. - Non-oil large exposures being brought into compliance with the BSDI Act. - Regulatory new minimum capital of GHS 400 million by December 2018 expected to help resolve large exposure issues. - Banks submitted capital plans to meet the new minimum requirement; BoG reviewing plans and strengthening prudential framework for bank mergers. - BoG considering a draft mergers and acquisition (M&A) guideline and building capacity to review M&A applications. - Non-performing loans (NPLs) and prudential measures: - BoG institutionalizing a framework for addressing the NPL overhang (new structural benchmark) by: - enhanced recovery actions (including more timely enforcement of collaterals); - prudent write-offs of uncollectible loans; - more stringent oversight of banks’ credit risk management frameworks and lending policies. - Banks instructed to comply with directive to write off fully provisioned loss categorized as nonperforming loans. - Regulatory upgrades and deposit protection: - BSDI Act enacted and operational in February 2017. - New directives on corporate governance, ‘fit and proper’ standards, and risk management being prepared. - Transition to risk-based capital requirement (Basel II and III): implementing Pillar 1 and aspects of Pillar 3; intend to introduce Internal Capital Adequacy Assessment Process (Pillar 2) by end-2018. - Operationalization of new deposit insurance scheme proceeding; supported by legal amendments to the Deposit Protection Act, 2016 (Act 931), passed in Parliament in March 2018; scheme contingent on amelioration of financial sector vulnerabilities. - Specialized deposit-taking institutions (SDI) and microfinance sector: - Serious weaknesses in microfinance sector: undercapitalization, liquidity pressures, unlicensed operations, weak corporate governance and risk management, deficiencies in regulatory reporting. - Efforts to increase minimum capital of microfinance institutions under consideration. - BoG adopted a comprehensive action plan for cleaning up the sector and strengthening oversight. - Issuance of new MFI licenses halted since 2016; clamp down on unlicensed deposit-taking activity in collaboration with law enforcement. - BoG monitoring capital restoration plans of undercapitalized savings and loans companies and finance houses; ready to take action under the BSDI Act, 2016. - AML/CFT reforms: - Action plan being prepared to address AML/CFT deficiencies identified in the Mutual Evaluation conducted by GIABA in 2016. - BoG and the Financial Intelligence Centre revised the AML/CFT Guidelines in conformity with GIABA recommendations, the AML amendment Act, Act 874, the revised Financial Action Task Force Recommendations issued in 2012 and Ghana’s National Risk Assessments. ### Structural reform agenda — Tax policy and revenue administration - 2017 strategic direction: - Government used tax policy to support production: rationalize taxes, create an enabling environment for the private sector, stimulate investments and drive economic growth. - Seventeen ‘nuisance’ taxes abolished. - GRA, with MOF and DFID, commissioned audits of free zone enterprises and warehouses late in 2017; first reports to be issued end of first quarter of 2018. - Revenue policy priorities for 2018: - Reduce cost of doing business by making tax compliance easier. - Complete work on the GhaTax revenue simulation model in 2018 to simulate impacts of tax policies. - Major measures outlined for 2018: a. Tax Amnesty: - Registered individual taxpayers number less than one million five hundred thousand. - Economically active population in the formal sector estimated at more than six million. - Average filing rates falling below fifty percent. - Amnesty to exempt taxpayers who register and file returns within a targeted period from paying penalties and interests for late or non-submission and late payments; includes exemption from prosecution. - Post-amnesty, GRA to prosecute continuing defaulters and offenders. - Objectives: broaden tax base; update GRA taxpayer database; increase and improve tax compliance culture; obtain data for compliance, research and planning. b. Voluntary Disclosure Procedures (VDP): - Will waive penalty on voluntary disclosures and payment of unreported and understated taxes, with taxpayers required to arrange payment within a period agreed with the Commissioner-General of GRA. c. Alternative Dispute Resolution (ADR): - ADR mechanism to be introduced to resolve tax disputes, to instill confidence in investors. - Tax administration enhancements: a. Electronic Point of Sales Device (EPOS): - Act passed by Parliament in March 2018 to provide for use of an approved Fiscal Electronic Device at each point of sale by specified taxable persons. - Expected outcomes: (a) maximize revenue collection, (b) minimize incidence of revenue suppression, (c) obtain accurate record of volume of sales of each taxable person. b. Automatic Exchange of Information Bill: - Passed by Parliament in March 2018 to obligate reporting financial institutions to collect financial accounts information of non-residents and report to the GRA. c. Excise Tax Stamp: - Implementation launched in August 2017; implementation begun in January 2018 at ports and in March 2018 at point of sale. - Expected to increase current excise revenues by about 20 percent and close loopholes, broaden tax base. d. Tax Exemptions: - Pay-and-get refund policy implemented for nine months in 2017 to learn lessons. - Comprehensive review of exemptions regime underway; a matrix classifying all tax expenditures prepared to determine removals, renegotiations, or maintenance. - Preliminary review of import exemptions underway to identify those that can be removed. e. Full deployment of tripsTM: - GRA charged to fully deploy and improve usage of tripsTM in all tax offices; Special Committee chaired by the Minister established. f. Creation of an Anti-Money Laundering and VIP desk within GRA: - Office planned to address illicit financial flows and Anti-Money Laundering in cooperation with FIC, EOCO, and CID. g. Property tax: - GRA commenced program to assist local authorities to collect property taxes. - Review under consideration to determine whether property taxes should be collected by the central government. *Source: cr18113 - 13. Indicative targets on pro-poor expenditures, contracting or guaranteeing of new* ### 39. We will continue to step up expenditure controls by strengthening commitment ### 39. We will continue to step up expenditure controls by strengthening commitment ### Expenditure controls, payment systems, and commitment discipline - GIFMIS rollout status: rolled out to 115 Metropolitan, Municipal and District Assemblies (MMDAs), 54 Internally Generated Funds (IGFs) and 3 Statutory Funds (SFs) and 4 Donor Funds. - GIFMIS rollout plan: complete roll out to the remaining MMDAs, Statutory Funds, Donor Funds and IGFs by end-March 2019 and ensure that all government payments are processed through GIFMIS. - Electronic Fund Transfer (EFT) system: already in place as a means of payment for government transactions; currently being implemented for MDAs and will be rolled out to all MMDAs by April 2018. - Strategy implementation: developed and started implementing a strategy to address weaknesses in the payment system identified in the Audit Report of Unpaid Bills as of end-2016. - Cash Management Committee: established to improve cash management processes and link commitments to cash availability; includes top management from the MOF, BOG, GRA and the CADG with a Deputy Minister and Deputy Governor in the chair. ### Public Financial Management (PFM) regulations and related institutional measures - PFM regulations: successfully submitted to Parliament in March 2018 following IMF-FAD drafting suggestions and inputs from consulted institutions. - Key provisions in the Regulations: - Guide determination of the macro-fiscal framework within the Fiscal Strategy Document. - Provisions on commitment and contract management and use of the Contract Management System to ensure proper recording and control of government contracts. - Establish Budget offices in all MDAs in cooperation with Office of Head of Civil Service for budget preparation and management. - Establish institutions responsible for compliance and risk management and to ensure value for money in MDAs. - Strengthen Internal Audits of MDAs to review government projects for value-for-money. - Strengthen Public Investment Management System (PIMS) via inputs from the Public Investment Division and the Attorney General. ### Reporting, transparency, and statutory funds - Standardized budget reporting: MOF engaging Statutory Funds to develop a standardized Budget reporting format in line with legislative provisions. - Timeline: engagements expected to be completed by May to allow for the maiden publication of the Budget of the Statutory Funds (SF’s) in June 2018. ### Payroll cleanup and human resource systems - Payroll interfacing: payroll data of the seven public universities will be interfaced with the IPDD2; a MoU signed between the Universities and the MoF and the CAGD. - Two universities (University of Education and the University of Development Studies) have submitted payroll data; the rest expected to submit data by March 2018. - Expectation: payroll data of the universities fully interfaced into the IPDD2 by August 2018. - HRMIS rollout: rolled out to 32 MDAs, covering almost 24 percent of the workforce. - Rollout to the Ghana Education Service expected to be completed in the second quarter of 2018 and will bring HRMIS coverage to almost 70 percent of the workforce. - Government intends to roll out HRMIS to an average of 10 MDAs per month until all are live by March 2019, absent connectivity challenges and with MDA cooperation. ### Earmarked funds law and Treasury Single Account (TSA) - Earmarked Funds Capping and Realignment law: in operation since April 2017; contributed to significant reduction in budget implementation rigidity; implementation will continue and any amendment will be after the second year consistent with the Law. - TSA implementation: about 85 percent of commercial bank accounts of MDAs have been transferred to the central bank. - Remaining commercial bank accounts: 134 yet to be migrated (belong to Statutory Funds such as the GIIF and some MDAs). - Government intends to transfer all remaining commercial bank accounts to the BOG by the second quarter of 2018. - A policy is being developed to guide the use of balances in the TSA; administrative procedures are being implemented. ### Fiscal risk monitoring and public sector reform support - Fiscal Risk Unit: Minister of Finance circular in March 2018 established creation of a Fiscal Risk Unit at the Ministry of Finance to monitor risks from SOEs; will work closely with the Public Investment Division. - World Bank support: assisting government with implementation of the National Public Sector Reform Strategy (NPSRS) to improve access, quality and accountability of administrative services. - NPSRS principles: Purpose, People (capacity building), Processes (streamlining). - NPSRS, 2018-2023 received Executive and Cabinet approvals in December 2017. - World Bank provided technical guidance during review of NPSRS, 2017-2027; developing a ‘Public Sector Reform for Results Project (PSRRP)’ to strengthen service culture in selected frontline agencies with replication planned. ### Debt management strategy and external borrowing ceilings - Debt management objective: bring down cost of debt and minimize refinancing risks; focus on lengthening maturities of domestic debt. - 2018 strategy actions: - Increased issuance of medium-term bonds (especially 5-year bonds) and longer-dated bonds (7-year, 10-year & 15-year) in the domestic market. - Assumes introduction of new 20 and 30-year domestic bonds to extend the yield curve. - Publish an annual borrowing plan for 2018 in April as per Section 60 (5) of the Public Financial Management Act, 2016 (Act 921). - Maintain adequate cash buffers and conduct liability management operations to retire debt maturing in the second half of 2018. - Plan to reform the primary dealer framework to develop primary and secondary markets. - Non-concessional external debt ceilings for 2018: - Debt ceiling for debt management set at US$1,750 million (to reflect part of a planned Eurobond issue to buy back existing Eurobonds). - Debt limit for key projects increased by $1,250 (US$3,500 million on a cumulative basis from the beginning of 2015), including $750 million from the Eurobond, compared with the end-December 2017 target set in the fourth review. - Separate limit on GNPC’s non-concessional borrowing to accommodate the delayed GNPC loan of US$350 million will be maintained. - Use of non-concessional external loans restricted to projects included in the priority project list (paragraph 31 of the TMU). - Indicative target on concessional external borrowing raised by US$500 million to accommodate World Bank budget support and project loans under IDA 18, AfDB’s ADF-14 allocation to Ghana, BADEA, IFAD allocations and other donor-concerned and tied programs. ### Energy sector SOE restructuring and sector reforms - SOE oversight: - 2016 SOE Report published covering 18 SOEs; 2017 Report to be published in 2018 covering 50 SOEs. - Steps to create a Single Entity for oversight of government investments in SOEs and JVCs. - Joint standing Committee on Energy has formulated a formal plan to review efficiency mechanisms. - Electricity tariffs and sector viability: - PURC announced a reduction in electricity tariffs in March based on lower cost of production due to greater use of gas, more efficient production as more power plants start operating combined cycles, and efficiency-improvement measures to reduce transmission and distribution losses. - Ministry of Finance, World Bank and Ministry of Energy working on a comprehensive financial recovery plan for the energy sector. - Cash Waterfall Mechanism (CWM): - Replaces old clearing house mechanism; sponsored by the World Bank and endorsed by Cabinet. - Active implementation scheduled for no later than June 2018. - Rationale: ensure that all active players in the power sector value chain benefit proportionately from revenues collected by ECG and promote sector-wide cash flow visibility. - Structure: - Level 1: A system of tracking revenues collected (Inflow into an Escrow Account); - Level 2: Allocation of revenues collected for power producers; and - Level 3: Allocation of revenues collected for fuel suppliers and other creditors. - Implementation Guidelines developed; evaluation of responses to RfP for (i) Paying Bank; (ii) Escrow Bank; and (iii) Trustee/Administrator is underway. - Energy sector debt restructuring and ESLA Plc: - Strategy to restructure energy sector debt of approximately GHS 10 billion. - ESLA Plc set up in 2017 and issued bonds worth GHS5.3 billion backed by the Energy Debt Recovery Levy (EDRL). - ESLA Plc on-lent proceeds to SOEs at favorable rates, allowing settlement of more expensive legacy debts and reducing interest burden. - Second phase of bond issuance of up to GHS 4 billion to be issued once receivables from the EDRL can cover 1.25 times the issuance. - ECG concession (PSP in ECG): - PSP in ECG is part of the US$498 million Millennium Challenge Compact 2. - Amended and Restated RfP and related transaction documents released to the four remaining Shortlisted Applicants on November 30th, 2017. - Targeted financial close date: September 6, 2018. - VRA restructuring: - Phase 1 Restructuring subsumed under the First Tranche of the ESLA Bond program removed substantial portions of costly debts to local banks from VRA’s balance sheet. - Reforms to refocus the company on core activities are ongoing. - Consultants to begin detailed work on divesting some thermal assets of VRA in the second quarter of 2018 following discussions with VRA. - Inter-utility debt matrix and updates: - Matrix showing inter-utility debt as of June 2017 prepared. - Process to update it with financial information up to December 2017 by end-March 2018 underway. - Intention to continue quarterly updates. ### Policies to support growth, private sector development, and jobs - Overall objective: implement programs to open job opportunities, ease hardship and secure future prospects; improve business environment, instill fiscal discipline and promote investment in critical infrastructure, especially in rural and deprived communities. - Flagship projects supporting private sector development (as in section 1.4 of the CP): - Establishment of the National Identification System. - Establishment of an Electronic Payments System. - Implementation of accelerated export development strategy. - Dedicated energy supply sources for industrial enclaves and zones. - Expansion of the railway network to open up economic opportunities. - Implementation of the Planting for Food and Jobs Program. - Implementation of the one-district-one-factory initiative and one-village-one-dam initiative. - National Entrepreneurship and Innovation Plan (NEIP): - Government engaged a Private Sector Implementation Partner (PSIP) to manage the $10million NEIP and to raise additional private funding. - Ministry for Special Development Initiatives received 5,500 applications from young Ghanaian entrepreneurs; applications being vetted; successful entrepreneurs to receive business advisory services. - About 500 applicants will receive financial support. - Each enterprise is expected to employ a minimum of 12 persons. - National Industrial Revitalization Programme - Stimulus Package for Industry: - Over 350 applications received; 80 assessed eligible for support in the first phase. - Second phase commencing in 2018 will provide technical and financial support to eligible companies. - Beneficiary firms sector breakdown: agri-business 48; chemicals and pharmaceuticals 10; electrical and electronics 3; garment and textiles 5; building materials 6; plastics and packaging 6; services 2. - One District, One Factory Programme: - Launched in August 2017. - Technical, financial and commercial viability analysis of 462 proposals completed; 191 covering 102 Districts selected for implementation. - Expected collective job generation: about 250,000 direct and indirect jobs. - Of the 191 projects selected for implementation in 2018: - 104 companies in the agri-business sector; - 20 in the meat and poultry sector; - 40 in construction and building materials sub-sector; - 27 in cosmetics and pharmaceuticals sectors. - Akufo-Addo Program for Economic Transformation (AAPET): - Flagship program to be implemented in 2018 to mobilize and leverage public, private, and PPP investments to modernize and transform agriculture, accelerate industrialization linkages, and develop major infrastructure projects supporting agricultural zones and industrialization. - Nation Builders Corps (NABCO): - Rationale: address graduate unemployment; ISSER data (March 2017) showed only 10 percent of graduates find jobs after their first year of the national service program. - Context: approximately 100,000 undergraduates each year facing long absorption times into employment. - NABCO objectives: - i) provide employment to unemployed graduates; - ii) improve skills and employability; - iii) improve public service delivery (health, education, agriculture, sanitation); - iv) improve government revenue mobilization. - NABCO will focus on livelihood empowerment and graduate unemployment and drive revenue mobilization and collection. *International Monetary Fund — Ghana: content unit cr18113 (excerpts).* ### 67. Under the Nation Builders Corps Program, graduates will be trained, equipped with the ### Under the Nation Builders Corps Program, graduates will be trained, equipped with the ### Nation Builders Corps (NABCO): objectives and deployment - NABCO will train, equip with necessary work tools, and deploy graduates around the country to be engaged as: - Graduate Teachers in a “Teach Ghana” program focused on Science, Technology, Engineering and Mathematics (STEM) and other relevant subjects in primary and secondary schools across the country. - Sanitation Inspectors in a “Clean Ghana” program focused on enforcing sanitation laws and inspection to ensure clean communities. - Trained nurses and other healthcare workers in a “Heal Ghana” program that will provide healthcare delivery to deprived and rural communities across Ghana. - Trained Agricultural extension and other allied workers in a “Feed Ghana” program that will provide extension support to farmers along the agriculture value chain. - Tertiary graduates in a “Revenue Ghana” program that will mobilize and enforce tax collection and compliance for the development of Ghana. - Hiring and geographic coverage: - The Nation Builders Corps Programme will hire 100,000 graduates in 2018. - On average NABCO should be able to provide jobs for approximately 400 graduates in each of the 254 Districts across the country. ### Supporting the poor and vulnerable: programs and targets - Programs and implementing agencies: - Ghana Social Opportunities Project (GSOP) to improve targeting of social spending, increase access to conditional cash transfers nationwide, and provide employment and cash earning opportunities during the agricultural off-season. - Ministry of Gender, Children and Social Protection, Ministry of Local Government and Rural Development, and Development Partners implement programs including Labour Intensive Public Works (LIPW) and Livelihood Empowerment against Poverty (LEAP). - LEAP expansion and budgetary allocation: - Plan to expand coverage of the LEAP to an additional 150,000 households impacting approximately 670,000 beneficiaries (from the current 213,000 households, covering about 950,000 beneficiaries). - The 2018 budget allocation for LEAP was doubled, to GHS 168 million. - Poverty-related expenditures: - Government will continue poverty-related expenditures by MDAs and MMDAs to support basic education, primary health care, poverty-focused agriculture, rural water, feeder roads and rural electrification. - Free Senior High School (SHS) policy: - Comprehensive free public SHS program implemented in the 2017/18 academic year and will continue in 2018. - Enrollment improved from an average of about 72 percent in the last four years to an enrollment of about 94 percent in 2017 alone, an increase of 90,000 more senior high school students. - Female enrollment numbers improved by about 1 percent. - Full funding of the senior secondary school has been provisioned for in the 2018 Budget. - Policy guided by Global Education 2030 Agenda/Targets, Sustainable Development Goal 4. ### Program monitoring framework and constraints - Monitoring instruments and schedule: - Program monitored based on periodic performance criteria, continuous performance criteria, Monetary Policy Consultation Clause, and indicative targets as of end-June 2018 and end-December 2018, with indicative targets for end-April 2018 and end-September 2018 (see Table 2). - Structural benchmarks set out in Table 4 used for monitoring progress on structural reforms. - Detailed definitions and reporting requirements contained in the Technical Memorandum of Understanding (TMU). - Policy restrictions during program period: - Government will not introduce or intensify restrictions on payments and transfers for current international transactions or introduce or modify any multiple currency practice without the IMF’s prior approval. - Government will not conclude bilateral payments agreements incompatible with Article VIII of the IMF’s Articles of Agreement, or introduce or intensify import restrictions for balance of payments reasons. - Review timeline: - Completion of the seventh and eighth reviews under the program is expected on or after August 15, 2018, and on or after February 15, 2019 with end-June 2018, and end-December 2018 as test dates, respectively, bringing an end to the Fund supported ECF arrangement. ### Key quantitative program targets and indicators (selected figures as presented) - Table 1 (end-September 2017 / end-December 2017 highlights): - Primary fiscal balance of the government (floor in millions of cedis): adjusted target 1,186; actual 1,212; adjusted target 691; actual 1,144; adjusted target 1,203; actual 937; 361; 693; 1,446. - Wage Bill (ceiling; in millions of cedis): 9,345; 9,442; 10,520; 10,697; 14,047; 14,445. - Net international reserves of the Bank of Ghana (floor; millions of U.S. dollars): 731; 830; 188; 525; 805; 780; 1,229. - Net change in stock of arrears (ceiling, millions of cedis): -1,000; -624; -1,555; -764; -3,220; -1,758. - Gross financing of BoG to the Government and SOEs (ceiling; in millions of cedis): 15,394; 15,373; 15,394; 15,377; 15,394; 15,384. - Debt for projects (cumulative from the beginning of 2015): 2,250; 1,535; 2,250; 1,535; 2,250; 1,822. - Consumer price inflation bands (twelve-month, percent): outer band (upper limit) 14.4; 14.0; 13.0. Inner band (upper limit) 13.4; 13.0; 12.0. Central target rate of inflation 11.4; 12.3; 11.0; 11.6; 10.0; 11.8. Inner band (lower limit) 9.4; 9.0; 8.0. Outer band (lower limit) 8.4; 8.0; 7.0. - Social Protection spending (floor, in million of cedis): 1,627; 1,242; 1,835; 1,620; 2,425; 2,446. - Table 2 (Proposed targets for 2018): - Primary fiscal balance of the government (floor in millions of cedis): End-April 2018 target 769; End-June 2018 target 1,067; End-September 2018 target 2,737; End-December 2018 target 4,745. - Wage Bill (ceiling; in millions of cedis): 5,466; 8,245; 12,469; 16,762. - Net international reserves of the Bank of Ghana (floor; millions of U.S. dollars): -700; 175; 310; 504. - Net change in stock of arrears (ceiling, millions of cedis): -275; -515; -670; -858. - Gross financing of BoG to the Government and SOEs (ceiling; in millions of cedis): 15,384 across targets. - Contracting or guaranteeing of new external non-concessional debt (ceiling; millions of U.S. Dollars): 1,750; 1,750; 1,750; 1,750 (includes sub-ceilings). - Debt for projects (cumulative from the beginning of 2015): 3,500 across targets. - Social Protection spending (floor, in million of cedis): 996; 2,065; 3,573; 5,391. - Monetary policy inflation bands (twelve-month, percent) for Central target rate of inflation: 10.0; 9.0; 8.5; 8.0. Inner band (lower limit): 8.0; 7.0; 6.5; 6.0. Outer band (lower limit): 7.0; 6.0; 5.5; 5.0. ### Progress and proposed structural benchmarks (highlights) - Progress on 2017–18 structural benchmarks (selected): - Complete roll-out of GIFMIS to all IGFs, except DVLA and the Free Zone Board; and all Statutory Funds, except DACF and NHIS: August 2017 — Not met, progress made. 54 out of 62 IGF agencies covered. Completion expected by end 2018. - Integrate the GIFMIS Payroll, financial HRMIS and Hyperion in the Health sector: August 2017 — Met with delay. - Complete the central government TSA: August 2017 — Not met, progress made. 85 percent of bank accounts moved. - Re-establish the clearing house mechanism to prevent arrears accumulation between the government and SOEs, and between SOEs: August 2017 — Met. - Establish a Fiscal Risk Unit at the Ministry of Finance: September 2017 — Met with delay. - Submit to Parliament legal amendments to the Banks and SDI Act, prepared in consultation with IMF staff: October 2017 — Not met. - Finalize roll out of the HRMIS to remaining MDAs: December 2017 — Not met, progress made. 32 out of 50 MDAs completed including Health. Completion expected by end-2018. - Submit to Parliament legislation to restructure the tax incentives regime in Ghana, in line with IMF recommendations: June 2018 — (listed as indicative timeframe). - Proposed structural benchmarks (selected with indicative timeframes): - Complete roll-out of GIFMIS to all Internally Generated Funds (IGFs) and statutory funds: December 2018 (Reset from previous review). - Complete the central government TSA: September 2018 (Reset from previous review). - Fully enforce the ELA guidelines, including approval by the BoG of plans submitted by all ELA beneficiaries for timely repayment: June 2018 (Reset from previous review). - Submit to Parliament legal amendments to the Banks and SDI Act: August 2018 (Reset from previous review). - Publish a fiscal risk statement, including estimates of quasi-fiscal activities of SOEs and other extra-budgetary funds: December 2018 (New benchmark). - Approval by BoG Management of a strategy for reducing the overhang of nonperforming loans: June 2018 (New benchmark). - Adoption by BoG Management of specific measures to improve FX management and ensure market-based pricing of transactions: August 2018 (New benchmark). ### Prior actions (selected) - Public announcement of commitment to adopt revenue measures during the 2018 mid-year budget review in July to increase fiscal space (Economic rationale: Make fiscal adjustment more sustainable). - Publish the Memorandum of Understanding between BoG and MoF on zero financing to the government, extended to end-2020 (Economic rationale: Strengthen BoG independence and provide accountability mechanism). ### Technical Memorandum of Understanding (TMU): program rules and definitions - Exchange rate assumptions for program purposes: - GH¢4.00 per US$1 for 2016. - GH¢4.40 per US$1 for 2017. - GH¢ 4.7 for 2018. - Exchange rates to other currencies calculated as the average of buying and selling exchange rates against the U.S. dollar. - Quantitative program indicators and their definitions include: - Floor on the primary fiscal balance of the government on a cash basis (measured in terms of financing). - Continuous ceiling on gross credit to government by the Bank of Ghana (level). - Floor on the net international reserves of the Bank of Ghana (level). - Ceiling on wages and salaries. - Ceiling on the net change in the stock of domestic arrears. - Ceiling on non-accumulation of new domestic arrears. - Continuous ceiling on non-accumulation of new external arrears. - Ceiling on contracting or guaranteeing of new external non-concessional debt, with two sub-ceilings on (i) debt for debt management purposes and (ii) debt for projects integral to the development program for which concessional financing is not available. - Monetary policy consultation clause set for the twelve-month rate of consumer price inflation, with discussions with the Fund to be held if inflation is outside the target bands. *Source: IMF country report content provided.* ### 5. Indicative targets are established as: ### 5. Indicative targets are established as: ### Indicative targets and performance criteria - Floor on poverty-reducing government expenditures. - Ceiling on the contracting or guaranteeing of new external concessional debt. - Ceiling on net domestic assets of Bank of Ghana (level).1 - Ceiling on the change in accounts payable of Electricity Company of Ghana (ECG) and Volta River Authority (VRA). - Floor on the net after tax profit (excluding government subsidies) of ECG and VRA. 1. Not set for 2018. ### Definition of government and scope for fiscal monitoring - Government comprises: central government; all special funds (including the Ghana Education Trust Fund, the Road Fund, the District Assemblies Common Fund, and the National Health Insurance Fund); and all subvented and other government agencies classified as government in the Bank of Ghana (BoG) Statement of Accounts (SOA). - Excluded from government: Social Security and National Insurance Trust (SSNIT) and public enterprises, including Cocobod. ### Revenue, oil revenue, wage bill, and primary fiscal balance - Central government’s total tax revenue: all revenue collected by the Ghana Revenue Authority (GRA) (from past, current, or future obligations), includes Direct Taxes, Indirect Taxes (excises, VAT, National Health Insurance Levy (NHIL), and Communication Service Tax (CST)), and Trade Taxes. Total tax receipts recorded on a cash basis. - Oil revenue: central government’s tax and non-tax net proceeds from the sale of oil, excluding any revenue allocated to Ghana National Petroleum Corporation (GNPC). - Wage bill of the central government: sum of basic wages and allowances paid to public servants on the mechanized payroll and in subvented agencies. - Program primary fiscal balance: cumulative from the beginning of the fiscal year and measured from the financing side. Primary deficit = sum of net financial transactions of the government (as defined above)—comprising net foreign borrowing (paragraph 14), net domestic financing (paragraph 13), receipts from net divestitures and net drawing out of oil funds, minus domestic and external interest payments. ### Domestic payments arrears: definition and components - Domestic payments arrears: payments not made “when due”. Measured as sum of five components: - Arrears to government’s statutory funds: any delay of more than one month in revenue transfers to these statutory funds relative to normal payment schedule (typically monthly or quarterly, defined as a specific percentage of the previous month or quarter’s revenue collections).2 - Employees compensation arrears: wages and salaries, pensions, gratuities, and social security arrears outstanding after the agreed date for payment to staff or the social security fund. - Debt service arrears: payments of domestic and external interest, amortization, promissory notes, due and not settled within the contract-specified grace period. - MDAs expenditure arrears: approved invoices on the GIFMIS system that remain unpaid three months after the quarter in which the invoices were approved by the MDA. - Arrears to SOEs: payments for debt owed to SOEs due and not settled within 30 days after the end of the quarter. 2. Transfers to the statutory funds are scheduled as follows: (i) District Assemblies Common Fund—quarterly, with a one-quarter lag; (ii) Social Security Fund, National Health Fund, Ghana Education Trust Fund, Road Fund, Petroleum-related Fund—monthly, with a one-month lag. ### Social protection spending - Budgeted expenditures on social protection programs of the central government taken from each year’s final appropriations bill; include only spending financed by the government or from internally generated funds. - Actual spending on social protection programs, including LEAP, supplemented with transfers to the National Health Fund (NHF), which the government considers poverty-related. - Actual poverty spending excludes all donor-supported expenditure. - Overview of Social Protection Programs: 1. National Health Fund (NHF) 2. Teacher and nurse trainee allowances 3. Livelihood Empowerment Against Poverty (LEAP) 4. Other education social safety nets 5. Free senior high school 6. Health spending on essential drugs 7. Planting for food and jobs program 8. School feeding program 9. Zongo Development Fund ### Definitions of financing concepts - Net domestic financing of government: change in net credit to government by the banking system (BoG plus deposit money banks) plus the net change in holdings of treasury bills and other government securities by the nonbank sector, excluding divestiture receipts. - Net foreign financing of government: sum of project and program loans by official creditors and commercial external borrowing, minus amortization due. - Outstanding net credit to government by BoG: sum of claims on government including overdrafts of the government with the BoG, and claims on the government resulting from accrued interest on government securities less government deposits as defined in the monetary template. - Outstanding net credit by deposit money banks: DMB holdings of government securities at cost of purchase value (reported by BoG Treasury Debt Registry), direct loans less government deposits as reported by DMBs in the revised BSD2 report forms (Monetary Template), plus deferred accrued interest on their holdings of inflation-indexed bonds. - Nonbank financing: difference between total net cash receipts to the treasury main cash account from sale/repurchase of government securities, less corresponding net cash value received from BoG and DMBs as indicated on the Debt Registry by holder at discount value, plus deferred accrued interest on holdings of inflation-indexed bonds. ### Bank of Ghana (BoG) monetary aggregates and reserves - Net foreign assets (monetary survey): short- and long-term foreign assets minus liabilities of the BoG contracted with nonresidents. Short-term foreign assets include monetary gold (valued at the spot market rate for gold, US$/fine ounce, London), holdings of SDRs, reserve position in the IMF, foreign notes and travelers checks, foreign securities, positive balances with correspondent banks, encumbered external assets and other positive short-term or time deposits. Short-term foreign liabilities include foreign currency liabilities contracted by the BoG at original maturities of one year or less (including overdrafts), outstanding liabilities to the IMF, deposits of international institutions at the BoG and swaps with non-resident commercial banks. Long-term items comprise other foreign assets, investments abroad, other long-term liabilities to nonresidents, and bilateral payment agreements. - All non-U.S. dollar values converted to U.S. dollars at the program exchange rate defined in paragraph 2. A detailed listing of accounts is in the monetary template provided to the IMF on January 21, 2015. - Net international reserves (NIR) of the BoG (program monitoring definition)4: short-term foreign assets of the BoG, minus short-term external liabilities. Excludes short-term foreign assets not fully convertible external assets readily available to and controlled by the BoG (pledged or encumbered external assets, including assets encumbered by BoG guarantees). All non-U.S. dollar values converted to U.S. dollars at the average of buying and selling exchange rates against the U.S. dollar as defined in paragraph 2. - Net international reserves are defined as: - Short-term assets (Gold; Holdings of SDR; Foreign Notes and Coins; Foreign Securities/Short-term Deposits; Disposal Balances with Correspondent Banks; Fixed Deposits (excludes encumbered assets); any other short-term foreign assets), - Minus foreign short-term liabilities (Deposits of International Institutions; Liabilities to International Commercial Banks; Swap Deal Payable with non-resident banks). Short-term liabilities should exclude liabilities with an asset counterpart that is encumbered. - Minus all liabilities to the IMF. - Minus MoF’s liabilities to the IMF used for budget support. - Minus all positive foreign currency deposits at the BoG held by resident deposit money banks (including the stock of swaps deal payable with resident banks), public institutions, nonfinancial public enterprises, other financial institutions, and the private sector.5 - Minus all Bank of Ghana deposits with Ghana International Bank London (GIB). 4. Note this definition differs from the one reported in the Balance of Payments and Monetary Survey which reflects a more traditional definition of foreign assets and liabilities based on a residency basis. 5. This item is not deducted from NIR in the Balance of Payments and Monetary survey definition which is based on the standard residency criteria. - Net domestic assets of the BoG: difference between reserve money and net foreign assets of the BoG, converted from U.S. dollars to cedis at the program exchange rate. Government deposits at the BoG from disbursements of Fund resources for budget financing are also subtracted. - Outstanding gross credit to government and public enterprises by BoG (program monitoring): total amount of (i) all BoG loans and advances to government and public enterprises, (ii) all government overdrafts, (iii) absolute value of government deposits reflected as negative values in the monetary survey; (iv) face value for all outstanding Government of Ghana treasury bills, notes and bonds purchased by BoG in the primary and the secondary market. Includes all called guarantees given by BoG for operations between central government or state-owned enterprises and a third party. Excludes BoG holdings of government T-bills as collateral from commercial banks and BoG reversible market transactions involving government securities that do not result in a change of security ownership. ### Monetary Policy Consultation Clause - Consultation bands around the projected 12-month rate of inflation in consumer prices (headline CPI published by Ghana Statistical Service) are specified in the Performance Criteria table in the MEFP. - If observed 12-month CPI inflation falls outside the lower or upper outer bands specified in the Performance Criteria table for end-June 2018 and end-December 2018 test dates, authorities will complete a consultation with the IMF Executive Board focusing on: - (i) the stance of monetary policy and whether the Fund-supported program remains on track; - (ii) reasons for program deviations, taking into account compensating factors; - (iii) proposed remedial actions if deemed necessary. - When consultation with the IMF Executive Board is triggered, access to Fund resources would be interrupted until consultation takes place and the relevant program review is completed. - Authorities will conduct discussions with Fund staff should the observed year-on-year CPI inflation fall outside the inner bands specified for the end of each test date in the Performance Criteria table. ### Non-accumulation of new external arrears - External payment arrears accrue when undisputed payments such as interest or amortization on debts of the government (paragraph 6) to non-residents are not made within the terms of the contract. This performance criterion is monitored continuously. ### Ceiling on contracting or guaranteeing of new non-concessional external debt - Definition of debt (per Guidelines on Public Debt Conditionality, Executive Board Decision No.15688-(14/107)): - Debt: a current liability created under a contractual arrangement through the provision of value in form of financial/nonfinancial assets or services, requiring obligor to make payments in future to discharge principal and/or interest. Primary forms include: - (i) loans (advances of money; deposits, bonds, debentures, commercial loans, buyers’ credits; repurchase agreements; official swap arrangements), - (ii) suppliers’ credits (deferral of payments after delivery of goods/services), - (iii) leases (debt = present value at inception of all lease payments expected during agreement period, excluding operation/repair/maintenance payments). - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation not considered debt (e.g., payment on delivery) will not give rise to debt. - For ceiling purposes, external debt is any debt as defined above denominated in foreign currency, i.e., currency other than Ghanaian cedis (GH¢).6 - Nonconcessional external debt: external debt contracted or guaranteed by government (paragraph 6), BoG, and specific public enterprises (paragraph 27) on non-concessional terms (paragraph 28). External debt and concessionality reported by Debt Management Division of Ministry of Finance and Economic Planning, measured in U.S. dollars at current exchange rates. 6. Excluded from this performance criterion are: use of Fund resources, rollover of BoG’s existing liabilities, normal import-related credits, pre-export financing credits of public enterprises, cocoa loans collateralized by cocoa contracts, and individual leases with a value of less than US$100,000. ### Coverage of ceiling and indicative target on new external debt - Performance criterion (ceiling) applies to nominal values of new nonconcessional external debt. - Indicative target (ceiling) applies to nominal value of new concessional external debt contracted or guaranteed by government and BoG, and the following public enterprises: - (i) Tema Oil Refinery; - (ii) Ghana National Petroleum Company; - (iii) Ghana National Gas Company; - (iv) Volta River Authority; - (v) Electricity Company of Ghana; - (vi) GRIDCO; - (vii) Ghana Water Company Limited; - (viii) GIIF. - Ceiling applies to debt and commitments contracted or guaranteed for which value has not yet been received, including private debt for which official guarantees have been extended. - For program monitoring, debt is considered contracted or guaranteed when all conditions precedent for effectiveness of the underlying loan agreement are satisfied. Only debt signed since the beginning of 2015 will be counted against this performance criterion. ### Concessionality and present value calculations - For program purposes, debt is concessional if it includes a grant element of at least 35 percent. - Grant element calculation: difference between net present value (NPV) of debt and its nominal value, expressed as percentage of nominal value. - NPV calculation at signing date: discount future stream of payments of debt service due on this debt using discount rate of 5 percent. ### Variable-rate loans and program reference rates - For loans carrying a variable interest rate as benchmark rate plus fixed spread, PV calculated using program reference rate plus fixed spread (in basis points) specified in loan contract. - Program reference rate for six-month USD LIBOR is 3.34 percent and will remain fixed for the duration of the program. - Spreads of six-month LIBORs over six-month USD LIBOR: - Euro: -250 basis points. - JPY: -300 basis points. - GBP: -100 basis points. - For interest rates on currencies other than Euro, JPY, and GDP, the spread over six-month USD LIBOR is -200 basis points. - Where variable rate is linked to benchmark other than six-month USD LIBOR, a spread reflecting difference between the benchmark and six-month USD LIBOR (rounded to the nearest 50 bps) will be added. ### Debt management sub-ceilings and liability management - Starting from completion of second review, performance criterion on new non-concessional external debt includes two sub-ceilings on: - (i) debt for debt management purposes, and - (ii) debt for projects integral to the development program for which concessional financing is not available. - Debt for debt management purposes: non-concessional debt used to improve overall public debt profile. Debt management sub-ceiling shall be cumulative from the beginning of each calendar year. - For 2018, the exemption for debt management is limited to $1,750 million. - Liability management operations: repurchases of existing debt with proceeds from newly issued debt with purpose of improving composition of public debt portfolio in a broadly NPV-neutral manner. *cr18113 - 5. Indicative targets are established as:* ### 31. The sub-ceiling on any contracting or guaranteeing of non-concessional external debt for ### cr18113 - 31. The sub-ceiling on any contracting or guaranteeing of non-concessional external debt for ### Sub-ceiling on non-concessional external debt for specified projects - The sub-ceiling applies to projects integral to the development program for which concessional financing is not available and are those projects specified in the list below. Any contracting or guaranteeing of non-concessional external debt for projects other than those listed results in nonobservance of the PC. - Total amount of contracting of non-concessional external debt for projects on this list is strictly limited to US$ 3,500 million on a cumulative basis from the beginning of 2015. - Amounts applied toward this limit do not count toward the sub-ceiling on non-concessional borrowing for debt management purposes. - Listed projects (verbatim as provided): - Takoradi Port Expansion 2 - Supply Agricultural equipment under Food for Africa programme - Electricity Company Ghana Limited Prepaid meter distribution - Construction and Equipping of Ten (10) Polyclinics in the Central Region - Self-help electrification project (SHEP) - 4 -Hunan - 4 District Hospitals and accident and emergency center in Bamboi, Somanya, Tolong, Weta, and Buipe - Kumasi market phase 2 - SHEP five regions-CWE - Strengthening of Lots 1,2& 4 Central Corridor - Eastern Corridor Road Project Refinancing for Section I: Asikuma Junction - Have and Section II: Nkwanta - Oti Damanko - Obetsebi Lamptey Drainage network and Interchange - Bekwai Hospital Rehabilitation - Sugarcane Development and Irrigation Project - KARPOWER PROJECT B - Takoradi 4 Thermal Power Project (T4) - Renovation of Ghana Missions Abroad - Works at Kumasi Airport - Development of Tamale Airport- terminal building and related infrastructure phase - Eastern University - Damango Yendi Water project - Tema to Akosombo - Western Railway Line Construction Project in Ghana - Transport Sector Project (World Bank) - Rural Water and Sanitation (World Bank) - Secondary Education Improvement (World Bank) - Polytechnics, Technical and Vocational training centres - Obetsebi Lamptey Interchange - phase 2 - Kumasi Road Rehabilitation - The Modernization of Kumasi Central Market and Execution of Selected Infrastructure in the CBD (phase 2) - Koforidua Regional Hospital - Rehabilitation of Mampong, Atibie, Aburi and Kyebi hospitals in the Eastern Region - Completion of Legon Medical Center - Aqua Africa water project - Elimina Fishing Port Rehabilitation and Expansion - Essiama Enclave Water Supply - Planting for Food and Jobs - Free Senior High School - Infrastructure for Poverty Eradication Programme - H.E. Nana Akufo-Addo’s Plan for Agricultural Roads - Infrastructure for Zongo communities - One-district one-factory - Street lighting and SHEP - Flood control - Water systems and toilet facilities - Critical security equipment - School feeding - LEAP - National ID program - Support for business incubator ### Additional sub-ceiling for GNPC in 2017 - An additional sub-ceiling of US$350 million for a project is established for 2017 in the context of the third review to accommodate GNPC’s non-concessional borrowing, which was counted against debt limits for 2016 but did not materialize due to unforeseen delays in its loan negotiation with the creditor. ### SOEs: Definitions and payables ceiling - ECG net after tax profit definition: - Net after tax profit = difference between total operating revenues and total costs as reported in the unaudited income statement. - Total operating revenues = (i) sales of electricity; and (ii) all other operating income, excluding proceeds from central government transfers or payments of ECG’s obligations on ECG’s behalf. - Total costs = (i) power purchases and all operating costs related to electricity distribution to be borne by ECG; (ii) administrative expenses, including on wages and remuneration of the board of directors, and provisions; (iii) depreciation; (iv) interest expense and any other financial costs. - VRA net after tax profit definition: - Net after tax profit = difference between total operating revenues and total costs as reported in the unaudited income statement. - Total operating revenues = (i) sales of electricity; and (ii) all other operating income, excluding proceeds from central government transfers or payments of VRA’s obligations on VRA’s behalf. - Total costs = (i) generation of electric power and all operating costs related to electricity generation to be borne by VRA; (ii) administrative expenses, including on wages and remuneration of the board of directors, and provisions; (iii) depreciation; (iv) financial expenses and any other financial costs, including foreign exchange gain/losses from foreign currency denominated transactions and exchange fluctuation gains/losses on foreign currency denominated loans. - The zero ceiling on change in gross payables of VRA and ECG applies to the total stock of payables, current and non-current, due to trade creditor, related parties and other creditors. ### Program targets: adjustors (Primary Fiscal Deficit and others) - The deficit ceilings for 2015–18 will be adjusted for excesses and shortfalls in oil revenue and program loans and grants relative to the program assumptions. - Fiscal deficit adjustments: - Downward (upward) by 50 percent of any excess (shortfall) in oil revenue. - Downward by 50 percent of any shortfall in concessional program loans. - Upward for the full amount of any excess in concessional program loans, where these are used to repay outstanding domestic arrears at a more rapid pace than programmed. - Downward by the full amount of any excess of program grants less any use of program grants used to repay outstanding domestic arrears at a more rapid pace than programmed. - Upward by 50 percent of any shortfall in program grants. - Primary balance floor for 2018: - Will be adjusted downwards by 100 percent for financial sector related costs (including for the bond issued to Ghana Commercial Bank related to the purchase and assumption transaction undertaken in 2017, costs associated with the bank that was intervened in 2018 with the appointment of an official administrator, and for costs associated with other special depositary institutions like micro-finance institutions). - Non-concessional external debt adjustor for 2018: - The sub-ceiling on contracting of new non-concessional external debt to be used for debt management purposes for 2018 will be adjusted downwards at end-December 2018 by the full amount of any shortfall in liability management operations implemented relative to $1,750 million. - Net international reserves (NIR) adjustors: - NIR floors will be adjusted upward for any excess of budget grants and loans relative to the program baseline excluding the IMF’s budget support, except where this financing is used to repay outstanding domestic arrears at a more rapid pace than programmed. - NIR floors will be lowered by 50 percent of any shortfall in budget grants and loans relative to the program baseline. ### Budget financing and oil revenues (tables of program assumptions; cumulative GH¢ millions) - Budget Financing and oil revenues, 2016 (GH¢ millions, cumulative from the start of the calendar year) - Program grants: March 0, June 0, September 112, December 133 - Program loans: March 0, June 600, September 844, December 844 - Oil revenues, net of transfers to GNPC: March 325, June 460, September 785, December 1,640 - Budget Financing and oil revenues, 2017 (GH¢ millions, cumulative from the start of the calendar year) - Program grants: March 0, August 0, September 73, December 73 - Program loans: March 0, August 211, September 617, December 1,902 - o/w: IMF Program loan for budget support: March 0, August 0, September 406, December 811 - Oil revenues, net of transfers to GNPC: March 391, August 800, September 800, December 1,138 - Budget Financing and oil revenues, 2018 (GH¢ millions, cumulative from the start of the calendar year) - Program grants: April 0, June 0, September 18, December 18 - Program loans: April 0, June 908, September 908, December 1,362 - o/w: IMF Program loan for budget support: April 0, June 908, September 908, December 1,362 - Oil revenues, net of transfers to GNPC: April 958, June 1,135, September 1,599, December 2,206 ### Data provision obligations to the Fund (reporting frequency and lags) - General requirement: - Data with respect to variables subject to performance criteria and indicative targets will be provided monthly with a lag of no more than eight weeks (except for select data for which reporting lag is explicitly specified). Authorities will transmit promptly any data revisions and share prospective external loan agreements with Fund staff before submission to cabinet and before contracting. - Selected fiscal data to be provided by the MoF (periodicity and lag as specified): - Central budget operations for revenues, expenditures and financing, including clearance of arrears: Monthly, within six weeks of the end of each month. - Divestiture receipts received by the budget (in cedis and foreign exchange, net of divestiture transactions costs): Monthly, within six weeks of the end of each month. - The stock of domestic payments arrears by sub-category: Quarterly, within six weeks of the end of each quarter. - Updated list of (prioritized) projects to be financed by non-concessional loans and concessional loans: Monthly, within six weeks of the end of each month. - Cash flow of the central government and cash flow projections: Monthly, within six weeks of the end of each month. - Income, cash flow, and debt service projections for the state-owned energy utilities: Monthly, within six weeks of the end of each month. - Itemized data on the proceeds from the energy sector levies: Monthly, within six weeks of the end of each month. - Financial statements of ESLA Plc and details on amount and timing of interest payments on ESLA bond: Monthly, within six weeks of the end of each month. - Expenditures committed but not paid and within the legal period before they become arrears (float): Monthly, within six weeks of the end of each month. - Wage bill monthly reports including breakdown of developments per MDAs: Monthly, within six weeks of the end of each month. - Monetary data to be provided by the BoG: - Net domestic assets and net international reserves of the BoG: Monthly, within two weeks of the end of each month. - Detailed balance sheet of the monetary authorities: Monthly, within four weeks of the end of each month. - Monetary survey detailing the consolidated balance sheet of commercial banks: Monthly, within six weeks of the end of each month. - Weekly balance sheet of the central bank, including gross international reserves, net international reserves: Weekly, within a week of the end of each week. - Summary position of government committed and uncommitted accounts at BoG, and total financing from BoG: Monthly, within four weeks of the end of each month. - Composition of banking system and nonbanking system net claims on government: Monthly, within four weeks of the end of each month. - Financial soundness indicators: Monthly, within four weeks of the end of each month. - Stock of BoG swaps and encumbered and non-encumbered loans with resident and non-resident commercial banks: Monthly, within two weeks of the end of each month. - Daily computations for the BoG benchmark exchange rate, including all transactions used to derive it: Monthly, within two weeks of the end of each month. - Debt registry showing structure and holders of domestic government debt, at face value and at discount; similar table showing holders of treasury bills for open market operations: Monthly, within four weeks from the end of each month. - Itemized overview of outstanding liquidity support, granted to financial institutions: Monthly, within four weeks of the end of each month. - Balance of payments (BoG responsibilities): - Export and import data on value, volume, and unit values, by major categories and other major balance of payments variables: Quarterly, with a maximum lag of two months. - Foreign exchange cash flow: Monthly, within four weeks of the end of the month. - Monthly foreign exchange cash flow projections (with actual historical figures updated): Monthly update, with a maximum lag of two weeks of the end of the month. - External debt and foreign assistance data (MoF responsibilities): - Information on the concessionality of all new external loans contracted by the government or with a government guarantee: Quarterly, within four weeks of the end of each quarter. - For the coming quarter: (i) total debt service due by creditor, and (ii) debt service paid. Report should cover government and government-guaranteed debt (as defined in this document): Quarterly within four weeks of the end of each quarter. - External debt and external debt service incurred by enterprises with government ownership above 50 percent, even if loans have not been explicitly guaranteed by the government: Quarterly, within three weeks of the end of each quarter. - Short-term liabilities to nonresidents (maturity in one year or less), including overdraft positions and debt owed or guaranteed by the government or the BoG. Data on the BoG short-term liabilities to nonresident commercial banks on accounts 1201 plus 301 plus Crown Agent: Quarterly, within three weeks of the end of each quarter. - Disbursements of grants and loans by creditor: Quarterly, within four weeks of the end of each quarter. - Other data (GSS responsibilities): - Overall consumer price index: Monthly, within two weeks of the end of each month. - National accounts by sector of production, in nominal and real terms: Annual, within three months of the end of each year (switching to quarterly when they become available). - Quarterly financial statements of main state-owned enterprises: Quarterly, within three months of end of quarter. - Quarterly financial statements of GIIF: Quarterly, within three months of end of quarter. - Annual financial statements of main state-owned enterprises: Annual, within six months of end of year. - Electricity pricing (Ministry of Energy): Data on the tariff structure and the cost of producing electricity: Quarterly, within four weeks of the end of each quarter. - Petroleum pricing (Ministry of Energy): - (i) a breakdown of costs, including the ex-refinery price, duties, levies, and margins, for each of the individual petroleum products: Bi-weekly, within two days of the completion of the pricing review. - (ii) the indicative maximum price approved in the bi-weekly review of petroleum pricing for each of the individual petroleum products: See above. ### Debt sustainability analysis summary and macroeconomic assumptions (selected points) - Based on updated macroeconomic projections, Ghana remains at high risk of external debt distress. - Assessment reinforced by the elevated total public debt-to-GDP ratio, and four of five external debt indicators in breach of the thresholds under the baseline scenario. - Notable actions and projections: - Ghana successfully retired the Eurobond which fell due in October 2017. - Gross fiscal financing needs (GFNs) are expected to decline significantly, helped by the lengthening of domestic debt maturities. - 2018 GFNs are projected to fall to 15 percent of GDP in 2018 from 23 percent of GDP in 2017; they reflect contingent costs for cleaning up the financial sector, tentatively estimated at 1.9 percent of GDP. - Authorities plan to issue up to a $2.5 billion Eurobond in 2018, of which $1.75 billion will be used to improve the maturity structure of the existing external debt portfolio and the remaining $0.75 billion will be allocated to the budget to undertake capital and other developmental projects, together with a planned asset sale carried over from 2017. - Policy emphasis: - Maintaining fiscal discipline and building buffers, supported by appropriate debt and cash management, will be key to lock in a downward debt path, particularly given significant contingent liabilities from the energy and financial sectors. *Prepared by the International Monetary Fund and the International Development Association, April 16, 2018* ### 4. The authorities remain committed to cautiously contracting external non-concessional loans ### 4. The authorities remain committed to cautiously contracting external non-concessional loans ### Debt limits and borrowing framework - 2017 debt limits: US$2,250 million for priority projects and zero for debt management purposes (set during the fourth review). - 2018 debt limits: an additional $1.25billion for priority projects and US$ 1.75 billion for debt management purposes, with attention to debt dynamics. - Non-concessional debt limits are set separately for: - debt management purposes (to improve overall public debt profile, including Eurobonds), and - projects integral to national development (cumulative from beginning of 2015). - Nonresident investors are allowed to invest only in domestic notes with 2-years original maturity and longer. - Authorities are building cash buffers in both domestic and foreign exchange in a sinking fund to reduce rollover risk; reserve assets have been accumulated in oil funds. ### Recent macroeconomic developments and baseline assumptions (Box 1) - Real GDP growth: - 2017 estimated at 8.4 percent (2.5 percentage points above the 4th review projection), driven by increased oil production (87 percent volume growth). - Projected to reach 6.3 percent in 2018. - Non-oil growth: estimated at 4 percent in 2017; projected to gradually increase to long-run steady-state growth rate of 6 percent from 2019 onwards. - Oil production expected to peak in 2019; potential upside from new oil discoveries and gas production. - Inflation and exchange rate: - CPI inflation: 15.4 percent (yoy) at end-2016 to 11.8 percent in December 2017. - Inflation expected to decline further to within the BOG’s medium-term target of 8±2 percent during 2018. - Exchange rate depreciated by 5 percent at end-December 2017 relative to end-December 2016. - Government balances: - Primary balance projected to remain around 1.4 percent of GDP over the medium term, provided additional domestic revenues are mobilized. - Current account balance: - 2017 estimated current account deficit: 4.5 percent of GDP (1.3 percent of GDP better than previously projected). - 2018 projected current account deficit: 4.1 percent of GDP. - Long-run current account deficit: around 3½ percent of GDP. - Gross international reserves expected to remain above 3-months of imports coverage and build up gradually. - Financing flows: - FDI inflows near 6.9 percent of GDP in 2017, projected to decline to around 3 percent of GDP over the long run. - Grant inflows projected to decline to around 0.1 percent of GDP in the medium to long term. - Borrowing projected to become increasingly non-concessional for key infrastructure projects. - Eurobond issuances envisaged to roll over maturing Eurobonds, assumed repaid on an amortizing basis rather than as bullet payments. - Energy bond: foreign uptake limited; virtually no impact on external debt, though included in public debt in staff estimates. Key macroeconomic assumptions (selected rows, as presented) - Real GDP Growth (Current DSA): 2016 = 3.7; 2017 = 8.4; 2018 = 6.3; Medium term (first 6 years) = 5.5; Long-term (last 15 years) = 4.6 - Inflation (GDP deflator) (Current DSA): 2016 = 17.8; 2017 = 12.7; 2018 = 11.1; Medium term = 7.9; Long-term = 6.3 - Real interest rate (foreign debt) (Current DSA): 2016 = 6.6; 2017 = 5.3; 2018 = 4.2; Medium term = 4.7; Long-term = 4.8 - Current account balance (Current DSA): 2016 = -6.7; 2017 = -4.5; 2018 = -4.2; Medium term = -4.0; Long-term = -3.6 - Primary fiscal balance (Current DSA): 2016 = -1.4; 2017 = 0.7; 2018 = 0.1; Medium term = 1.4; Long-term = 0.4 ### External Debt Sustainability Analysis (DSA) - Analysis based on gross debt concept in line with standard DSA procedures. - Four of five external DSA indicators breach respective thresholds under the baseline. - PV of external PPG debt-to-GDP and PV-to-revenue ratios breach thresholds for 4 and 2 years, respectively. - Debt service-to-revenue ratio projected to remain above threshold for the entire projection period. - One-off breach of debt service-to-exports ratio under the baseline reflects planned Eurobond buybacks of up to $1.75 billion in 2018. - Overall conclusion: continued high risk of external debt distress. - Sensitivities: - Ghana is particularly vulnerable to one-time exchange rate depreciation and a decline in exports per standard stress tests. ### Public Debt Sustainability Analysis - Under baseline including fiscal adjustment, all debt indicators are expected to improve and stabilize. - Even with front-loaded fiscal adjustment under the IMF program, total public debt would decline below the benchmark of 56 percent of GDP only by 2026. - The World Bank’s CPIA ranks Ghana as a medium performer; relevant public debt benchmark for Ghana is 56 percent of GDP. - Public debt sustainability is significantly vulnerable to exchange rate shocks. - Historical scenario points to unsustainable debt trajectories in absence of adjustment. ### Risks from contingent liabilities and institutional measures - Contingent liabilities from SOEs and the banking system represent material risks to debt sustainability. - Costs associated with bank resolution and issuance of the energy bond highlight contingent liability risks. - High levels of systemic losses and poor fee collection capacity in the utility sector could generate fresh liabilities. - Potential risks from the micro-finance sector need close monitoring. - Institutional response: - Government submitted to cabinet a law to introduce a new statutory body (Single Entity) to monitor SOEs. - Ongoing steps to strengthen oversight over SOEs are instrumental to stem financial losses and prevent negative feedback-loops to the budget and banking system. *IMF staff report excerpt: "4. The authorities remain committed to cautiously contracting external non-concessional loans" (cr18113).* ### 11. Keeping fiscal performance on track under the Fund supported program is essential for ### 11. Keeping fiscal performance on track under the Fund supported program is essential for ### Importance of fiscal discipline and investor confidence - Maintaining fiscal performance under the Fund supported program is essential for engineering a favorable debt dynamic and maintaining confidence among foreign investors. - Ghana’s gross financing needs are declining but "will nonetheless remain high in the near term." - Given the increasing presence of nonresidents in the domestic debt market, continued fiscal discipline and a strong macroeconomic environment are needed to preserve investors’ confidence. - A derailment from the planned fiscal adjustment path "could seriously jeopardize debt sustainability." - Recommendation: "Ghana should continue engaging with development partners to seek concessional financing and expedite disbursements under existing commitments from multilateral agencies." ### External Debt Sustainability — baseline indicators and projections (selected figures from Table 1) - External debt (nominal): 2014 = 45.4; 2015 = 53.2; 2016 = 52.9; 2017 = 51.0; 2018 = 49.5; 2019 = 47.5; 2020 = 46.4; 2021 = 45.1; 2022 = 43.5; 2017-22 Average = 40.4; 2023-37 Average = 36.3; 2027 = 40.4; 2037 = 36.3. - Of which: public and publicly guaranteed (PPG): 2017 = 47.0; 2018 = 45.5; 2019 = 43.5; 2020 = 42.4; 2021 = 41.1; 2022 = 39.5; 2017-22 Average = 36.4; 2023-37 Average = 32.3. - Change in external debt: 2014 = 10.1; 2015 = 7.7; 2016 = -0.2; 2017 = -1.9; 2018 = -1.5; 2019 = -2.1; 2020 = -1.1; 2021 = -1.2; 2022 = -1.6; 2017-22 Average = -1.1; 2023-37 Average = -0.8. - Identified net debt-creating flows (2014–2037 samples): 2014 = 9.1; 2015 = 1.9; 2016 = -8.7; 2017 = -6.2; 2018 = -4.7; 2019 = -4.2; 2020 = -2.9; 2021 = -2.6; 2022 = -1.5; 2017-22 Average = -0.8; 2023-37 Average = -0.3. - Non-interest current account deficit: 2014 = 6.8; 2015 = 4.5; 2016 = 3.2; 2017 = 7.3; 2018 = 2.6; 2019 = 1.4; 2020 = 1.1; 2021 = 1.2; 2022 = 0.9; 2017-22 Average = 0.8; 2023-37 Average = 1.0. - Exports (percent of GDP): 2014 = 39.4; 2015 = 44.7; 2016 = 40.8; 2017 = 43.3; 2018 = 40.0; 2019 = 38.3; 2020 = 38.2; 2021 = 38.1; 2022 = 37.2; 2017-22 Average = 34.7; 2023-37 Average = 32.8. - Imports (percent of GDP): 2014 = 49.6; 2015 = 56.3; 2016 = 48.0; 2017 = 47.3; 2018 = 44.8; 2019 = 42.7; 2020 = 41.8; 2021 = 41.6; 2022 = 41.4; 2017-22 Average = 39.3; 2023-37 Average = 36.2. - Net FDI (negative = inflow): 2014 = -8.7; 2015 = -8.1; 2016 = -8.1; 2017 = -7.7; 2018 = 2.0; 2019 = -6.9; 2020 = -6.0; 2021 = -5.0; 2022 = -4.5; 2017-22 Average = -4.2; 2023-37 Average = -4.0. - Endogenous debt dynamics (selected contributions): Contribution from nominal interest rate (2017-22 Average = 3.1; 2023-37 Average = 2.6); Contribution from real GDP growth (2017-22 Average = -2.9; 2023-37 Average = -1.6). - PV of external debt (selected years): 2017 = 51.7; 2018 = 50.2; 2019 = 50.1; 2020 = 47.1; 2021 = 46.1; 2022 = 44.2; 2027 = 42.7; 2037 = 39.4; 2023-37 Average = 34.1. - PV of PPG external debt (selected years): 2017 = 47.7; 2018 = 46.2; 2019 = 46.1; 2020 = 43.1; 2021 = 42.1; 2022 = 40.2; 2027 = 38.7; 2037 = 35.4; 2023-37 Average = 30.1. - PV of PPG external debt (in percent of exports): 2017 = 116.8; 2018 = 106.8; 2019 = 115.2; 2020 = 112.6; 2021 = 110.4; 2022 = 105.6; 2027 = 104.2; 2037 = 101.9; 2023-37 Average = 91.8. - PV of PPG external debt (in percent of government revenues): 2017 = 288.0; 2018 = 276.3; 2019 = 262.0; 2020 = 243.6; 2021 = 238.1; 2022 = 229.3; 2027 = 224.0; 2037 = 210.9; 2023-37 Average = 183.5. - Debt service-to-exports ratio (in percent): 2014 = 15.7; 2015 = 17.2; 2016 = 19.7; 2017 = 19.1; 2018 = 26.8; 2019 = 16.7; 2020 = 15.7; 2021 = 17.1; 2022 = 20.0; 2017-22 Average = 21.3; 2023-37 Average = 18.4. - Total gross financing need (Millions of U.S. dollars): 2014 = 1682.7; 2015 = 1504.1; 2016 = 1349.4; 2017 = 1299.0; 2018 = 3009.4; 2019 = 1456.7; 2020 = 1465.4; 2021 = 1978.1; 2022 = 3063.6; 2017-22 Average = 5480.7; 2023-37 Average = 8889.0. ### Key macroeconomic assumptions (from Table 1) - Real GDP growth (in percent): 2014 = 4.0; 2015 = 3.8; 2016 = 3.7; 2017 = 6.8; 2018 = 3.4; 2019 = 8.4; 2020 = 6.3; 2021 = 7.6; 2022 = 5.5; 2017-22 Average = 5.1; 2023-37 Average = 3.2; 2027 = 6.0; 2037 = 4.6; 2023-37 Average repeated = 4.7. - GDP deflator in US dollar terms (change in percent): 2014 = -22.0; 2015 = -8.4; 2016 = 11.8; 2017 = 1.6; 2018 = 13.1; 2019 = 1.3; 2020 = 3.3; 2021 = 2.1; 2022 = 1.5; 2017-22 Average = 1.3; 2023-37 Average = 3.3. - Effective interest rate (percent) 5/: 2014 = 6.3; 2015 = 6.8; 2016 = 7.7; 2017 = 5.9; 2018 = 1.1; 2019 = 7.0; 2020 = 6.8; 2021 = 6.8; 2022 = 6.9; 2017-22 Average = 7.0; 2023-37 Average = 6.9; 2027 = 7.2; 2037 = 7.5; long-run = 7.3. - Growth of exports of G&S (US dollar terms, in percent): 2014 = -5.9; 2015 = 8.1; 2016 = 5.9; 2017 = 14.5; 2018 = 17.2; 2019 = 16.5; 2020 = 1.6; 2021 = 5.1; 2022 = 6.7; 2017-22 Average = 6.3; 2023-37 Average = 4.1. - Growth of imports of G&S (US dollar terms, in percent): 2014 = -14.5; 2015 = 7.9; 2016 = -1.1; 2017 = 10.8; 2018 = 17.7; 2019 = 8.4; 2020 = 3.9; 2021 = 4.9; 2022 = 4.9; 2017-22 Average = 5.8; 2023-37 Average = 6.3. - Government revenues (excluding grants, in percent of GDP): 2014 = 17.7; 2015 = 17.6; 2016 = 16.6; 2017 = 16.7; 2018 = 17.6; 2019 = 17.7; 2020 = 17.7; 2021 = 17.5; 2022 = 17.3; 2017-22 Average = 16.8; 2023-37 Average = 16.4. ### Public Sector Debt — baseline indicators and fiscal dynamics (selected figures from Table 2) - Public sector debt (percent of GDP): 2014 = 66.6; 2015 = 72.9; 2016 = 73.8; 2017 = 72.3; 2018 = 70.7; 2019 = 67.5; 2020 = 65.4; 2021 = 64.8; 2022 = 63.1; 2017-22 Average = 53.4; 2023-37 Average = 45.1. - Of which: foreign-currency denominated (read as "external"): 2014 = 41.1; 2015 = 49.2; 2016 = 48.9; 2017 = 47.0; 2018 = 45.5; 2019 = 43.5; 2020 = 42.4; 2021 = 41.1; 2022 = 39.5; 2017-22 Average = 36.4; 2023-37 Average = 32.3. - Change in public sector debt: 2014 = 12.4; 2015 = 6.3; 2016 = 0.9; 2017 = -1.5; 2018 = -1.7; 2019 = -3.2; 2020 = -2.1; 2021 = -0.6; 2022 = -1.7; 2017-22 Average = -3.3; 2023-37 Average = -0.9. - Identified debt-creating flows (selected): 2014 = 12.0; 2015 = 1.1; 2016 = -0.5; 2017 = -5.4; 2018 = -1.7; 2019 = -2.7; 2020 = -1.4; 2021 = -0.6; 2022 = -0.2; 2017-22 Average = -0.7; 2023-37 Average = -0.4. - Primary deficit (percent of GDP): 2014 = 3.8; 2015 = -1.0; 2016 = 0.8; 2017 = 3.2; 2018 = 2.4; 2019 = -1.3; 2020 = -0.3; 2021 = -2.0; 2022 = -1.8; 2017-22 Average = -1.4; 2023-37 Average = -1.3. - Revenue and grants (percent of GDP): 2014 = 18.4; 2015 = 19.6; 2016 = 19.2; 2017 = 17.5; 2018 = 17.9; 2019 = 17.9; 2020 = 17.8; 2021 = 17.6; 2022 = 17.3; 2017-22 Average = 16.8; 2023-37 Average = 16.4. - Automatic debt dynamics (contributions): 2014 = 8.2; 2015 = 2.1; 2016 = -1.3; 2017 = -4.2; 2018 = -0.9; 2019 = -0.7; 2020 = 0.4; 2021 = 0.8; 2022 = 1.1; 2017-22 Average = 0.0; 2023-37 Average = 0.2. - PV of public sector debt (selected): 2017 = 72.6; 2018 = 71.6; 2019 = 71.3; 2020 = 67.1; 2021 = 65.1; 2022 = 63.9; 2027 = 62.3; 2037 = 52.4; 2023-37 Average = 42.9. - Gross financing need 2/ (percent of GDP): 2014 = 22.6; 2015 = 22.5; 2016 = 23.9; 2017 = 21.7; 2018 = 19.7; 2019 = 12.0; 2020 = 11.4; 2021 = 12.0; 2022 = 14.2; 2017-22 Average = 11.6; 2023-37 Average = 7.5. - PV of public sector debt–to-revenue and grants ratio (in percent): 2017 = 421.0; 2018 = 409.4; 2019 = 399.2; 2020 = 374.2; 2021 = 366.8; 2022 = 363.9; 2027 = 360.5; 2037 = 331.2; 2023-37 Average = 261.5. - Primary deficit that stabilizes the debt-to-GDP ratio (percent of GDP): 2017 = -8.7; 2018 = -7.3; 2019 = -0.1; 2020 = 0.2; 2021 = 1.4; 2022 = 1.2; 2027 = 0.2; 2037 = -0.8; 2023-37 Average = 0.3. ### Sensitivity analysis and stress tests (selected outcomes from Tables 3 and 4) - PV of debt-to-GDP ratio (Threshold = 40 percent) — baseline and scenarios (selected values): - Baseline: 2017 = 46; 2018 = 46; 2019 = 43; 2020 = 42; 2021 = 40; 2022 = 39; 2027 = 35; 2037 = 30. - A1 (key variables at historical averages): 2017 = 46; 2018 = 51; 2019 = 52; 2020 = 54; 2021 = 54; 2022 = 48; 2027 = 30. - B6 (one-time 30 percent nominal depreciation relative to baseline in 2018): 2017 = 46; 2018 = 63; 2019 = 59; 2020 = 57; 2021 = 55; 2022 = 53; 2027 = 48; 2037 = 41. - PV of debt-to-exports ratio (Threshold = 150 percent) — baseline and scenarios (selected values): - Baseline: 2017 = 107; 2018 = 115; 2019 = 113; 2020 = 110; 2021 = 106; 2022 = 104; 2027 = 102; 2037 = 92. - A1: 2017 = 107; 2018 = 128; 2019 = 137; 2020 = 141; 2021 = 141; 2022 = 144; 2027 = 140; 2037 = 93. - B6 (30 percent depreciation): 2017 = 107; 2018 = 112; 2019 = 109; 2020 = 107; 2021 = 103; 2022 = 101; 2027 = 99; 2037 = 89. - PV of debt-to-revenue ratio (Threshold = 250 percent) — baseline and scenarios (selected values): - Baseline: 2017 = 276; 2018 = 262; 2019 = 244; 2020 = 238; 2021 = 229; 2022 = 224; 2027 = 211; 2037 = 184. - A1: 2017 = 276; 2018 = 292; 2019 = 296; 2020 = 303; 2021 = 306; 2022 = 311; 2027 = 289; 2037 = 185. - B6 (30 percent depreciation): 2017 = 276; 2018 = 360; 2019 = 331; 2020 = 325; 2021 = 315; 2022 = 307; 2027 = 288; 2037 = 250. - Debt service-to-exports ratio (Threshold = 20 percent) — baseline: 2017 = 17; 2018 = 25; 2019 = 14; 2020 = 13; 2021 = 12; 2022 = 9; 2027 = 15; 2037 = 18. - Debt service-to-revenue ratio (Threshold = 20 percent) — baseline: 2017 = 44; 2018 = 56; 2019 = 31; 2020 = 29; 2021 = 32; 2022 = 38; 2027 = 39; 2037 = 31. - Table 4 (public debt sensitivity) — PV of Debt-to-GDP Ratio baseline and select scenarios: - Baseline PV of Debt-to-GDP Ratio: 2017 = 72; 2018 = 71; 2019 = 67; 2020 = 65; 2021 = 64; 2022 = 62; 2027 = 52; 2037 = 43. - A1 (real GDP growth and primary balance at historical averages): 2017 = 72; 2018 = 74; 2019 = 76; 2020 = 78; 2021 = 80; 2022 = 82; 2027 = 88. - B4 (one-time 30 percent real depreciation in 2018): 2017 = 72; 2018 = 95; 2019 = 90; 2020 = 88; 2021 = 87; 2022 = 86; 2027 = 81; 2037 = 88. ### Supplementary information on external arrears and program compliance - New information indicates nonobservance of the continuous Performance Criterion (PC) on the non-accumulation of external arrears. - Assessment: The non-observance is characterized as "very minor and temporary." - Staff action: "On the basis of the very minor and temporary nature of the non-observance of the PC and appropriate corrective actions, staff supports the authorities’ request for a waiver for non-observance of the PC." - No other changes: "In other respects, this report does not alter the thrust of the staff appraisal and staff continues to recommend the completion of the fifth and sixth reviews." *Source: Country authorities; and staff estimates and projections.* ### 1. Staff received yesterday additional information on minor external arrears that ### 1. Staff received yesterday additional information on minor external arrears that ### Arrears incident and timeline - Two small payments, amounting to USD 1.5 million, were due to Exim Bank India on March 31, 2018 and not paid on time. - Non-payment resulted from human error and substantial staff turnover in the Debt Management Division in February 2018 during a functional reorganization of the Ministry of Finance. - Creditor notification of overdue payments: April 26, 2018. - Payment of dues was initiated: April 27, 2018 (less than 30 days after the due date). - TMU definition referenced: external payment arrears accrue when undisputed payments such as interest or amortization on debts of the government to non-residents are not made within the terms of the contract (TMU paragraph 23). ### Staff assessment and waiver recommendation - Staff supports the authorities’ request for a waiver for the non-observance of the continuous Performance Criterion (PC). - Rationale for support: - The amount of arrears was very small. - Payments were made within a reasonable time period of less than a month after the due date. - Corrective measures have been put in place by the authorities. - Staff believes the issue does not alter the overall assessment in the staff report, including the authorities’ continued commitment to the program. - Staff note: since a related grace period was not specified in the loan agreements, any delay beyond the due date gives rise to arrears and constitutes non-observance of the continuous PC as defined in the TMU. ### Corrective measures to prevent recurrence - Measures instructed by the authorities: - (i) Upgrade of the payment software to provide prior notifications of amounts falling due. - (ii) Introduction of a tracking dashboard to trace payment progress across all the stages of the payment process. - Expected effect: both measures will ensure that the operational risk of human error is removed. ### Program documentation changes - The PC table attached to the supplemental Letter of Intent (LOI) will replace “Table 1. Ghana Quantitative Program Targets” attached to the original LOI and MEFP. - Note in Table 1: “The authorities temporarily ran small arrears to an official creditor for technical reasons. These arrears have been cleared, and going forward the PC will be cumulative from end-April.” ### Key quantitative program targets and selected numeric highlights (from Table 1) - Primary fiscal balance of the government (floor in millions of cedis): End-April 2018 = 769; End-June 2018 = 1,067; End-September 2018 = 2,737; End-December 2018 = 4,745. - Wage Bill (ceiling; in millions of cedis): End-April 2018 = 5,466; End-June 2018 = 8,245; End-September 2018 = 12,469; End-December 2018 = 16,762. - Net international reserves of the Bank of Ghana (floor; millions of U.S. dollars), defined as change from end-2017 and excluding foreign currency deposits in BOG: End-April 2018 = -700; End-June 2018 = 175; End-September 2018 = 310; End-December 2018 = 504. - Non-accumulation of new domestic arrears (ceiling; millions of cedis): 0 at each target date. - Net change in stock of arrears (ceiling, millions of cedis): End-April 2018 = -275; End-June 2018 = -515; End-September 2018 = -670; End-December 2018 = -858. - Gross financing of BoG to the Government and SOEs (ceiling; in millions of cedis; continuous PC, defined as a level): 15,384 at all target dates. - Non-accumulation of external arrears (ceiling; millions of U.S. dollars; continuous PC): End-April 2018 = 8; End-June 2018 = 1.5; End-September 2018 = 0; End-December 2018 = 0. - Contracting or guaranteeing of new external non-concessional debt (ceiling; millions of U.S. dollars): 1,750 at all target dates. - Debt for projects (cumulative from the beginning of 2015): 3,500 at all target dates. - Debt for project (GNPC): 350 at all target dates. - Monetary policy targets (twelve-month consumer price inflation outer/inner/central/inner/outer bands): - End-April 2018: Outer band (upper limit) = 13.0; Inner band (upper limit) = 12.0; Central target rate of inflation = 10.0; Inner band (lower limit) = 8.0; Outer band (lower limit) = 7.0. - End-June 2018: Outer band (upper limit) = 12.0; Inner band (upper limit) = 11.0; Central target rate of inflation = 9.0; Inner band (lower limit) = 7.0; Outer band (lower limit) = 6.0. - End-September 2018: Outer band (upper limit) = 11.5; Inner band (upper limit) = 10.5; Central target rate of inflation = 8.5; Inner band (lower limit) = 6.5; Outer band (lower limit) = 5.5. - End-December 2018: Outer band (upper limit) = 11.0; Inner band (upper limit) = 11.0; Central target rate of inflation = 8.0; Inner band (lower limit) = 6.0; Outer band (lower limit) = 5.0. - Indicative targets: Contracting or guaranteeing of new external concessional debt (ceiling; millions U.S. Dollars) = 500 at all target dates. - Social Protection spending (floor, in million of cedis): End-April 2018 = 996; End-June 2018 = 2,065; End-September 2018 = 3,573; End-December 2018 = 5,391. ### Broader program context and policy actions (selected points from the Supplementary LOI and Statement) - Fiscal outcomes and plans: - Overall budget deficit in 2017 declined to 6 percent of GDP from 9.3 percent of GDP in 2016 (below the program target of 6.3 percent of GDP). - Primary surplus in 2017: 0.7 percent of GDP. - 2018 budget targets: primary surplus of 2 percent of GDP and overall deficit of 4.5 percent of GDP. - Identified expenditures equivalent to about 0.35 percent of GDP that could be scaled back if revenues underperform. - Additional revenue measures to be introduced in mid-year budget review in July 2018 and in the 2019 budget. - Financing and debt management: - Debt Management Strategy for 2018 targets lengthening maturity of domestic debt and increasing issuance of domestic medium-term and longer-dated bonds. - Planned Eurobond issue in the second half of 2018 of up to $2.5 billion, and further $500 million in commercial loans. - From Eurobond proceeds: $1.75 billion allocated for debt management purposes; remaining $750 million plus the $500 million commercial borrowing allocated to projects. - Monetary and exchange rate policy: - Headline inflation: 15.4 percent at end-2016; 11.8 percent in December 2017; 10.4 percent by March 2018. - Key policy rate reduced by 750 basis points to 18 percent since end-December 2016. - Memorandum of understanding on zero central bank financing of the budget extended to end- 2020. - Financial stability and banking sector measures: - Bank under official administrator with a rehabilitation plan due within 90 days. - OA and BoG priorities include reducing reliance on central bank funding, regularizing breaches of large exposure limits, augmenting statutory capital requirements by end of 2018, tackling elevated NPLs, transitioning to Basel II and III, and operationalizing the new deposit insurance scheme. - Banks instructed to write off fully-provisioned loss-categorized NPLs. - Microfinance institutions (MFI): issuance of new MFI licenses suspended since 2016; clampdown on unlicensed deposit taking; consideration of increased minimum capital requirements; comprehensive action plan adopted and being implemented. - Structural reforms: - Priority on strengthening institutions and implementing structural reforms, including PFM Act regulations submitted to parliament and further SOE oversight reforms. - Draft law for ceding oversight and regulation of all SOEs to a single statutory body (the Single Entity) submitted for cabinet consideration. - Job creation and training programs and measures to improve the business environment and promote investment in infrastructure emphasized. *Prepared by African Department, April 27, 2018 — Supplementary Letter of Intent and related program documentation (Ghana).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18113.pdf_