## 1ghaea2019002 ## Source details **Canonical URL:** [1ghaea2019002](https://www.imf.org/-/media/files/publications/cr/2019/1ghaea2019002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1ghaea2019002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1ghaea2019002.pdf.json) --- ### Context: Entrenching macroeconomic gains - Since 2017 Ghana achieved stronger growth, single-digit inflation, and improved government and external positions thanks to fiscal discipline and monetary tightening, including the end of monetary financing of the deficit. - Bank of Ghana (BoG) actions: resolved nine banks; shut down insolvent specialized deposit-taking institutions (SDI) and distressed fund managers; strengthened the supervisory regulatory framework; adopted a strategy for addressing nonperforming loans (NPL); rolled out the new deposit protection scheme. - Government progress: considerable progress in PFM and debt management. - Authorities’ growth strategy: “Ghana beyond Aid” emphasizing expanding agriculture and manufacturing, fostering human capital accumulation, and improving efficiency through digitalization; potential leverage from AfCFTA. - Remaining challenges: longstanding energy sector losses increasing government financing needs; fiscal costs from financial sector clean-up; slow recovery of private-sector credit; low domestic revenue mobilization relative to peers; large government borrowing needs crowding out private credit; net international reserves relatively low and dependent on external government borrowing. ### Recent economic developments (selected findings and headline figures) - Growth: slowed to 6.3 percent in 2018; expected to pick up to 7 percent in 2019 due to gold production and oil and gas offsetting a smaller cocoa crop. - Inflation: projected at 7.8 percent by year-end (rebased CPI series); Cedi depreciation and utility tariff increases raised non-food inflation; food inflation expected to slow. - Fiscal deficit: projected to reach 7 percent of GDP in 2019; or 4.7 percent of GDP when excluding energy and financial sector costs. - Central government debt: expected increase from 59 percent of GDP at end-2018 to 63.1 percent of GDP in 2019; cumulative financial sector costs of 4.6 percentage points of GDP in 2018–2019 and energy sector costs of about 1.5 percentage points of GDP in 2019 contributed to the rise. - Current account: expected broadly unchanged at -3.1 percent of GDP in 2019. - Cedi: overall depreciated by 9.7 percent between end-2018 and end-October. - Net international reserves: projected to remain stable at about US$3.9 billion, partly reflecting the US$3 billion Eurobond issued in March and other commercial and multilateral borrowing. Key macro table excerpts (staff estimates and projections): - GDP growth (annual): 2016: 3.4; 2018: 6.3; 2019p: 7.0 - Inflation (annual average): 2016: 17.5; 2018: 7.7; 2019p: 7.8 - Primary balance: 2016: -1.9; 2019p: -1.3 - Public and publicly guaranteed debt: 2016: 57.5; 2019p: 66.5 - Current account: 2016: -5.2; 2019p: -3.1 - Reserves (months of prospective imports): 2016: 2.6; 2019p: 2.4 - Money supply growth (M2, excluding foreign deposits): 2016: 24.6; 2019p: 10.2 - Tier I capital to risk-weighted assets (as of August 2019): 14.4 percent (2016) and 19.8 percent (2019) - Nonperforming loans (net of loan-loss provision to capital, as of August 2019): 14.9 percent (2016) and 12.5 percent (2019) ### Outlook and risks - Medium-term baseline: - New oil field production expected to support medium-term growth around 5 percent. - At current policies, overall government deficit projected to stabilize around 5 percent of GDP. - Inflation expected to decline to 6 percent. - International reserves to remain at about two months of imports, strengthening later as oil and gas exports pick up. - Outcome predicated on continued market access and refinancing of large domestic and foreign public debt. - Debt sustainability: - DSA risk of debt distress remains high. - Public and publicly-guaranteed debt (DSA measure), including Sinohydro-related debt obligations and debt of key energy sector SOEs, projected at 66.5 percent of GDP at end-2019; expected to peak at about 68 percent of GDP in 2020; gradually decline to 64 percent by 2024. - DSA rating driven by debt service to revenue exceeding threshold throughout the forecast horizon; other indicators exceed thresholds at some point. - Alternative (downside) scenario (weaker fiscal policies starting 2020): - Assumes fiscal deficit increases in 2020 in line with average fiscal slippages in the last two elections and remains above 8 percent of GDP over the medium term. - Monetary loosening allows inflation to rise to double digits in 2020 and remain above the upper bound of the inflation target thereafter. - Growth temporarily higher in 2020 due to fiscal impulse but falls below baseline subsequently due to lower investor confidence. - Debt rises to 75 percent of GDP in 2022 and remains above 73 percent of GDP over the medium term. - Gross reserves fall to one month of import coverage in 2022 before stabilizing. ### Policy discussions: delivering macroeconomic stability and inclusive growth - Goals: - Entrench macroeconomic stability and lay ground for strong, sustained, inclusive growth under “Ghana Beyond Aid.” - Stay the course on fiscal policy to confirm commitment to fiscal discipline and debt sustainability; break cycle of electoral slippages; contain rollover risks. - BoG: accumulation of external buffers and readiness to increase policy rates to protect against shocks. - Completion of financial sector clean-up and lower government borrowing needs to strengthen private-sector credit. ### Preserving fiscal sustainability — fiscal policy measures and recommendations - Fiscal rules and commitments: - Adoption of the 2018 Fiscal Responsibility Act: imposes a deficit ceiling of 5 percent of GDP and requires a positive primary balance. - Authorities committed to breaking the pattern of high fiscal deficits observed in previous electoral cycles (deficit increased by over 3 percent of GDP on average during the last three electoral cycles). - 2020 budget (authorities): - Targets a headline fiscal deficit (excluding financial and energy sector costs) of 4.7 percent of GDP and a positive primary balance. - Revenue measures: extension of the National Fiscal stabilization levy to all firms (about 0.1 percent of GDP); sale of telecommunication licenses (about 0.15 percent of GDP); improvements in compliance including in the oil sector (0.2 percent of GDP). - Spending measures: accommodates a wage bill increase of 15 percent while keeping goods and services spending, including flagship program implementation, at the projected 2019 level. - Staff projection (baseline macro, conservative revenue): headline deficit at 4.9 percent of GDP, equivalent to overall deficit of 6.4 percent of GDP — a tightening of 0.6 percent of GDP compared to projected 2019 outcome. - Case for a tighter fiscal path: - A more ambitious stance targeting smaller medium-term budget deficits than the baseline would reduce government borrowing and rollover risks, raise buffers to accommodate contingent liabilities, contain domestic demand, improve the external position, and result in higher international reserve cover. ### Fiscal rules: assessment and recommendations (Box 1 highlights) - About 2.8 percentage points of GDP in financial and energy sector costs (financed in part through ESLA bond issuance) were recorded below the line in the 2019 budget because the government considers the financial sector costs as one-off and energy costs as debt amortization. - Best international practice would include these transactions above the line, as they reflect either direct government obligations or government transfers to SOEs. - Spending on roads (Cocobod) and potentially infrastructure collateralized on bauxite exports (Sinohydro) should be recorded in the central government budget. - A formal debt anchor targeting a sustainable debt-to-GDP ratio over the medium term could effectively guide fiscal policy and reduce uncertainty about the debt trajectory. Possible modifications to the 2018 Fiscal Responsibility Act: - Anchor: Define an additional fiscal anchor in terms of a specific debt ceiling path. About 70 percent of the countries in the IMF’s Fiscal Rules database have a debt rule, including most African countries with fiscal rules. - Simplification: Consider setting one formal operational fiscal rule and keeping other measures as indicative targets to avoid internal conflicts between rules. - Flexibility: Better-specify escape clauses (for example, clarify whether the 1 percent growth threshold applies to one quarter or one year) and require independent scrutiny before suspension. - Enforcement: Require corrective measures when rules are breached. - Reporting: Publish the quarterly reports the Minister of Finance provides to the cabinet on rule compliance. - Fiscal council: Consider evolving the Presidential Fiscal Responsibility Advisory Council into an entity with legal and operational independence from the executive branch as experience is gained. Key features of the Fiscal Responsibility Act as described: - Two fiscal rules: (i) the overall fiscal balance on cash basis shall not exceed a deficit of 5 percent of GDP; and (ii) an annual positive primary balance shall be maintained. - Coverage: central and local governments, autonomous agencies, and statutory bodies. - Escape clauses: force majeure, severe economic shocks (including commodity price shocks), and periods when the GDP growth rate is one percent or below. - If the fiscal rules are missed by more than one percentage point, parliament may pass a vote of censure on the Minister of Finance. - Presidential Fiscal Responsibility Advisory Council advises on rule compliance and seeks to ensure debt-to-GDP does not exceed the informal guideline of 65 percent of GDP; council has seven presidential appointees whose terms lapse with the president’s term. ### Public financial management and SOE governance - Implementation of the 2016 PFM law has required important reforms: - Deploying revamped systems: GIFMIS, AMIS, HRMIS. - Establishing the Treasury Single Account (TSA). - Project investment management (PIM) is not fully effective; GIFMIS only reflects current year expenditure allotments for multiyear projects. - The State Interests and Governance Authority Act (SIGA) created an entity to oversee corporate governance in public corporations; effective oversight will require financial reporting from SOEs as determined under the PFM regulations, a Code of Corporate Governance and operational guidelines, and a robust enforcement mechanism. - A public sector balance sheet (PSBS) could improve management of government assets and risks by drawing attention to public sector wealth and facilitating management of fiscal risks from all public sector entities, including SOEs. ### Public debt management: structure, risks, and policy advice 2018 central government debt structure (USD million; percent of GDP): - Total public debt: 38,967; 59.5% - Domestic debt: 18,943; 28.9% - Marketable domestic debt: 13,917; 21.2% - By original maturity: - 1 year and under: 2,408; 3.7% - 2-5 years: 8,122; 12.4% - Above 5 years: 3,386; 5.2% - Non-marketable domestic debt: 5,259; 8.0% - External debt: 20,024; 30.6% - Multilateral: 6,390; 9.8% - Bilateral: 1,205; 1.8% - Paris Club: 754; 1.2% - Non-Paris Club: 451; 0.7% - Commercial: 7,343; 11.2% - o/w: Eurobond: 4,978; 7.6% - Export/Suppliers/Buyers Credits: 1,236; 1.9% - Other Concessional: 1,694; 2.6% - Memo items: - Nominal GDP: 65,518; 100.0% - Domestic debt held by non-residents: 5,692; 8.7% Observations and recommendations: - In 2019, almost 80 percent of the gross financing needs estimated at 16 percent of GDP will be financed on the domestic and international markets. - Nine outstanding Eurobonds make up about 26 percent of external debt. - The share of outstanding domestic debt held by foreign investors declined in 2019 but remains at about one-third. - Off-budget operations (ESLA, Sinohydro, GETFund) contribute to public debt; their decentralized and not always transparent nature complicates oversight and increases scope for corruption. - Debt management in 2020 should remain flexible given global uncertainty. Policy options for the Ministry of Finance: - Consider international issuances in advance of maturity dates to distribute financing pressures, lower the average effective interest rate, and support international reserves. - Conduct liability management operations to smooth the domestic redemption profile going towards the elections to limit refinancing risks and increase buffers. - Provide transparent, regular, and consistent market communication, and improve coordination and visibility of debt issuance across government entities. ### Monetary and exchange rate policies - End of monetary financing, supported by a Memorandum of Understanding (MoU) between the MOF and the BoG (which remains in effect through 2020), contributed to a significant reduction in inflation. - The Monetary Policy Committee (MPC) lowered the policy rate to 16 percent in January and kept the rate unchanged thereafter. - With the rebased CPI, inflation expectations remain aligned with the central bank’s target; short-term real rates are above the historical average and the current policy rate is considered appropriate. - Ghana’s current inflation target range is 8±2 percent. - If inflation remains below or close to target, it may be appropriate to adopt a lower target over the medium term, provided the change is carefully implemented and communicated and coordinated with fiscal policy. - FX market and reserves: - FX market remains dominated by BoG transactions; authorities are strengthening the IT framework and FX market. - With international reserves stable in 2019 largely thanks to foreign borrowing, it is crucial to reduce FX interventions by applying the new rule-based FX intervention policy to build stronger external buffers. - Authorities began promoting more market-based FX transactions, including first forward auctions in October; these auctions may help mitigate exchange rate volatility but create a net open position for the central bank that must be carefully managed. - The BoG introduced new repo guidelines to help develop the interbank market. - A limit of US$10,000 withdrawal per trip and per annual transfer without documentation remains in place as a capital flow management measure (CFM). ### Reforming the energy sector — fiscal risks and recovery program - Power sector arrears were about US$2.7 billion in late 2018, of which US$800 million was owed to private fuel suppliers and independent power plants (IPPs). - For 2019, authorities project the financing shortfall for the sector to be at least US$1 billion (1.5 percent of GDP), planned partially off budget. - Absent corrective measures, accumulated cost to the government, including current arrears, could reach US$12.5 billion by 2023, driven by a power sector structural deficit and costly LNG contracts set to become effective in 2020. - Structural oversupply and contract issues: - Dependable power generation capacity of about 4,600 MW exceeds peak demand load by 70 percent. - Under take-or-pay contracts with IPPs, Ghana pays about US$500 million annually for power generation capacity that it does not use. - Gas supply contracted for 750 mmscf per day by 2023 while demand is projected to reach about 450 mmscf per day. - Non-payment of utility bills by government entities comprised 40 percent of outstanding arrears in late 2018. - Authorities’ reform actions and ESRP measures: - Authorities developed a multiyear Energy Sector Recovery Program (ESRP) with World Bank assistance; ESRP contains measures over the next five years to better balance power and gas supply and demand. - With ESRP measures, staff estimates annual energy sector payments in the budget would average about 1 percent of GDP. - Steps already taken: adjusted utility tariffs upwards; relocated a mobile power plant to exploit existing gas; deferred or cancelled some imminent power projects; commenced consultations with IPPs and gas producers to modify contract terms (take-or-pay liabilities). - Regulator raised regulated electricity tariffs 11 percent in July 2019 and another 5 percent in October. - Implementation challenges: - Termination of PDS concession over fraud allegations is a setback to reducing distribution losses. - Pressing measures include establishment of competitive procurement and moratorium on unsolicited proposals, addressing gas oversupply (e.g., LNG contracts), and government payment for street lighting. ### Completing the financial sector clean-up - Banking sector capitalization increased; profitability trending upwards supported by interest income from government securities. - Decline in NPL during 2017–2018 did not continue in 2019; NPL overhang still hovering around 2 percent of GDP as BoG’s NPL reduction strategy continues. - SDI and fund manager costs and fiscal risks: - More than 400 SDIs had licenses revoked between May and August 2019; upfront reimbursement of small depositors (up to a cap of GHc 20,000) is ongoing. - Staff estimates SDI reimbursement costs at 0.6 percent of GDP, on top of 3.3 percent of GDP for the banking sector clean-up. - Additional estimated budget cost for possible compensation of investors of distressed fund managers is 0.5 percent of GDP for 2020 (staff estimate). - BoG balance sheet and liquidity support: - BoG operating losses in 2017 and 2018—mainly due to impairment of uncollateralized loans to commercial banks—weakened BoG equity; recoveries from receivership operations are slow. - Recommendations: retain earnings, strengthen the ELA framework, and translate MOF–BoG MOU provisions into legislation to improve BoG’s balance sheet. - Access to credit: - Private-sector credit has remained around 12 percent of GDP since 2015, compared with the SSA median of 16 percent of GDP. ### Business environment, governance, anti-corruption, and AML/CFT - Ghana scores well regionally in Doing Business dimensions such as starting a business, access to credit and electricity, and protecting minority investors; weaknesses include resolving insolvency, trading across borders, and paying taxes. - Anti-corruption institutions and gaps: - National Anti-Corruption Action Plan (2014) monitored by CHRAJ; last report published in 2017. - Asset declarations exist but are sealed and not opened outside of investigation or verification. - Legal gaps remain in criminalizing corruption (e.g., illicit enrichment and elements of bribery). - Multiple enforcement bodies include EOCO, CHRAJ, Office of the Special Prosecutor, and Attorney General’s Office; inconsistent coordination can delay cases and hinder convictions. - AML/CFT progress and remaining issues: - Authorities working to exit FATF designation for strategic AML/CFT deficiencies; draft legislation under development for NPOs and real estate sector. - A beneficial ownership register is under development and expected to be operational by June 2020, though funding challenges have caused delays. ### Domestic revenue mobilization — diagnosis and policy options - Long-term trend: government revenues as percent of GDP slowed from 2008 to 2018; revenues stagnated since 2015 due to lower grants and weak tax collection. - Tax-to-GDP ratio and comparisons: - Ghana average over last two decades: 12.8 percent of GDP. - SSA average: 15 percent. - Ghana’s tax revenue in 2018 was around 7 percentage point of GDP below the tax frontier referenced. - Ghana ranks in the second lowest quartile in SSA and in the lowest quartile among its middle-low-income peers in SSA (peers averaged 16.9 percent of GDP in 2018). - Short-term revenue potential and measures: - A menu of revenue measures could immediately yield up to 0.8 percent of GDP: - New taxes could yield 0.25 percent of GDP. - Compliance improvements could bring around 0.5 percent of GDP. - New tax options to expand the base include: - A VAT of 17.5 percent on financial services. - Increase tax on communication services from 9 percent to 12 percent. - Expand the national fiscal stabilization levy to all firms. - Introduce a minimum chargeable income. - Reintroduce the high-income tax rate of 35 percent. - Urgent tax administration measures: - Review the import duty benchmark. - Collect around half of the tax liability of around $800 million in the oil sector in 2020; achieving this would require stronger auditing capacity. Longer-run revenue mobilization (section highlights): - Longer-run domestic revenue mobilization could yield more than 2 percent of GDP. - Tax policy reform should focus on mining taxation and exemptions; unify extractive industry legislation and comprehensively review mining legislation and fiscal regime. - Exemption bill submitted to Parliament does not address several tax expenditures; streamlining should target non-standard VAT and custom duty exemptions on imported supplies and domestic sales for specific items. ### Capacity development, TA, and institutional reforms - Capacity Development (CD) to play a central role after the end of the ECF program. - Achievements supported by TA: - Passage of the Public Financial Management Act in 2016 and its regulations in 2019; Tax Exemption Bill laid in 2019. - Creation and operationalization of a fiscal risk unit. - Debt management improvements and lengthening of the debt profile supported by MCM TA. - Banking sector resolution and new regulatory directives on governance supported by MCM TA and resident advisors. - Top 5 CD priority objectives: - Revenue administration improvements and strengthening GRA capacity. - Banking supervision and financial stability: risk-based supervision, emergency liquidity assistance framework, Financial Stability Council operationalization, and FSAP. - Tax policy (including natural resources): review VAT and mining taxation regime; adoption of FARI model. - PFM: strengthen budget coverage, comprehensiveness, fiscal risk monitoring (including SOEs). - IT framework: training to support continued use of FPAS forecasting model. - Technical Assistance since January 2017 covers revenue administration, IT/Cyber security risk management, AML/CFT supervision, bank supervision & regulation, national accounts rebasing, liquidity management, petroleum fiscal modelling, and fiscal risks. ### Debt Sustainability Analysis — key findings and assumptions (exact figures) - Risk ratings: - Risk of external debt distress: High - Overall risk of debt distress: High - Granularity in the risk rating: Sustainable - Application of judgment: No - DSA inputs and contingent liabilities: - Public debt coverage includes SOE loans not explicitly guaranteed amounting to an average of 1.3 percent of GDP over the next five years. - Sinohydro facility: US$2 billion non-government guaranteed loan; first tranche disbursement of about US$646 million expected in early 2020; execution rate about US$100 million per year rising to US$200 million once more tranches are approved. - Financial sector restructuring costs: 4.6 percent of GDP in 2018–19. - Energy sector costs covered by the budget and ESLA: about 1.5 percent of GDP in 2019 and 2020 and 1 percent of GDP annually from 2021–2024. - DSA models separate shocks: 5 percent of GDP from the financial sector and 3 percent of GDP from non-guaranteed SOE debt. - Standard shock calibrations: - Exchange rate one-off depreciation: 30 percent. - Tailored commodity price shocks: 35 percent decline in fuel prices and 11 percent decline in non-fuel commodity prices. - Market financing shock: 400 basis point increase in the cost of borrowing for three years and shortening of average debt maturities to 5 years from 8 years. - Debt profile and dynamics: - External public debt in 2019 is estimated to be 4.8 percentage points higher than the March 2019 DSA vintage. - Total public debt is not expected to fall below the 55 percent of GDP threshold until 2026. - Primary balance becomes positive from 2021 in the baseline, but debt-to-GDP ratio only begins to decline in 2022. - Market financing and investor exposure: - Institutional non-resident investors held over 26.6 percent of domestic debt as of September 2019. - Effective nominal interest rate on external debt rose from 5.5 in 2017 to 7.6 percent in 2019. - EMBI spreads latest information indicates 558 basis points. Selected DSA projections and indicators (selected series and values): - Public sector debt (percent of GDP): 57.5 (2016); 62.5 (2018); 66.5 (2019); 67.9 (2020); 67.8 (2021); 64.1 (2024) - PV of PPG external debt-to-GDP ratio (selected): 40.4; 43.5; 46.0; 46.5; 46.1; 44.3 - External gross financing needs (GFN): 15 percent of GDP (noted as above 14 percent threshold) - Macroeconomic assumptions (selected): - Real GDP growth expected to peak at 7 percent before remaining on average around 4.9 percent over the medium term. - Inflation expected to reach 7.7 percent on average in 2019 (with the new CPI rebase). - Cedi depreciation of 13 percent between the beginning of the year and end-October (2019). - Overall fiscal deficit expected to reach 7 percent of GDP in 2019; expected to fall to 6.4 percent in 2020. - Overall balance excluding financial and energy sector costs will reach 5 percent (in line with the fiscal rule). - Primary balance projected to move from -1.3 percent of GDP in 2019 to an average surplus of about 0.5 percent of GDP over the medium term. - Current account deficit expected to remain at 3.1 percent of GDP in 2019 and widen to 3.6 percent of GDP in 2020; expected to average 2.4 percent of GDP thereafter. - FDI inflows: 4.2 percent of GDP in 2019; expected to recover to an average 5 percent in the medium term. - A US$3 billion Eurobond was successfully issued in 2019 of which US$1 billion was used for liability management. ### Risk Assessment Matrix — selected risks and recommended policies - Politically‑driven fiscal loosening ahead of the 2020 elections — Relative Likelihood: High; Expected Impact If Realized: High. - Mitigations: rigorously apply fiscal rules; implement credible medium‑term fiscal adjustment strategy; avoid off‑budget operations; record all financing in line with PFM Act and regulations; include off‑budget debt in government debt. - Sharp rise in risk premia — Relative Likelihood: Medium; Expected Impact If Realized: High. - Mitigations: implement credible medium‑term fiscal adjustment; build FX buffers; formulate fiscal contingency measures. - Higher financial sector and energy costs crystallizing — Relative Likelihood: Medium; Expected Impact If Realized: High/Medium. - Mitigations: finalize financial sector clean‑up; implement the ESRP; pursue strategy to revisit take‑or‑pay contracts while managing reputational risks. - Commodity price volatility — Relative Likelihood: Medium; Expected Impact If Realized: Medium. - Mitigations: diversify the economy and export base; improve business environment; invest in physical and human capital. - Macroeconomic policies after the 2020 elections — Relative Likelihood: Medium; Expected Impact If Realized: High. - Mitigations: stick to the fiscal rule; strengthen revenue mobilization. - Diversification and rapid industrialization opportunities (e.g., AfCFTA) — Relative Likelihood: Medium; Expected Impact If Realized: Medium. - Mitigations: pursue “Ghana beyond Aid” agenda while preserving fiscal sustainability; improve export competitiveness. ### Fund relations, safeguards, and statistical issues (selected figures) - Membership and quota: - Joined: September 20, 1957 - Quota: 738.00 (SDR Million) — 100.00 percent of quota - Outstanding purchases and loans: - ECF Arrangements: 805.61 (SDR Million) — 109.16 percent of quota - Forthcoming principal payments to Fund (SDR Million): - 2019: 20.07; 2020: 64.11; 2021: 83.21; 2022: 90.25; 2023: 92.99 - Safeguards Assessment (March 2018): progress mixed; outstanding recommendations include legal framework not strengthened to prohibit monetary financing; ELA framework noncompliant; significant exposure to uncollateralized loans. - Exchange rate arrangement: - De jure: “floating” (accepted obligations under Article VIII on February 2, 1994). - De facto: reclassified to “other managed” effective April 5, 2019. - At end-October 2019, average interbank exchange rate: GH¢ 5.4925 per U.S. dollar. - Data adequacy and statistical issues: data provision broadly adequate for surveillance but shortcomings in quality and timeliness (notably fiscal data delays); recommendation to extend GFS coverage to general government and improve timeliness of trade statistics. ### Staff appraisal — policy recommendations (selected) - Fiscal policy: - Maintain fiscal discipline, leverage Fiscal Responsibility Act to avoid political budget cycles, pursue stronger fiscal consolidation centered on a comprehensive revenue mobilization strategy to better anchor debt dynamics, contain large financing needs, create buffers for contingent liabilities, and support external position through domestic demand management. - Phase out off-budget operations and avoid new collateralized borrowing to reduce public debt and improve fiscal transparency. - Energy sector: - Implement ESRP in coordination with World Bank and stakeholders, implement automatic pricing formula for electricity tariffs, reinstitute private sector participation, and clarify government support (e.g., direct, non-offsetting transfers to ECG) to improve transparency and accounting of financial flows. - Financial sector: - Complete the clean-up while observing upfront reimbursement caps; pursue least-cost options for the state-owned bank recapitalization based on robust analysis; accelerate measures to reduce NPL overhang; complete regulatory reforms; and step up recovery of funds from complicit directors and shareholders of failed institutions. - Monetary policy: - Monetary policy appropriately focused on price stability; tighten policy if inflationary pressures materialize. - Over the medium term consider lowering the inflation target band in line with other IT countries in the region, coordinated with fiscal policy. - BoG should increase external buffers, using FX intervention strategy to balance reserve accumulation and FX intervention. - Amendments to the BoG Act are needed to entrench monetary financing limits currently in the MOF–BoG MoU, due to expire at end-2020, to protect and strengthen the BoG balance sheet and support the inflation-targeting framework. ### Budget assumptions and staff projections for 2020 (selected) - Revenues in 2020 are projected to be 1.5 percent of GDP higher compared to the expected 2019 outcome. - Capital spending is projected to reach 2.3 percent of GDP, or 0.4 percentage point of GDP higher than the average capital spending execution in the past three years. - Staff notes the projected revenue increase may be optimistic given past challenges to domestic resource mobilization and that actual capital spending in 2020 may turn out to be lower than budgeted. - Staff considers that a possible revenue underperformance is likely to be compensated by under execution of capital spending, resulting in a 2020 headline deficit (excluding financial and energy sector costs) in line with staff’s projections of 4.9 percent of GDP and an overall deficit of 6.4 percent of GDP. *Source: IMF staff report chapter "1. Fiscal Rules" and related sections (Ghana), document 1ghaea2019002.* ### 1. Fiscal Rules ____________________________________________________________________________________ 12 ### 1. Fiscal Rules ### Context: Entrenching macroeconomic gains - Since 2017 Ghana has achieved stronger growth, single-digit inflation, and improved government and external positions thanks to fiscal discipline and monetary tightening, including the end of monetary financing of the deficit. - Bank of Ghana (BoG) actions: resolved nine banks; shut down insolvent specialized deposit-taking institutions (SDI) and distressed fund managers; strengthened the supervisory regulatory framework; adopted a strategy for addressing nonperforming loans (NPL); rolled out the new deposit protection scheme. - Government progress: considerable progress in PFM and debt management. - Authorities’ growth strategy: “Ghana beyond Aid” emphasizing expanding agriculture and manufacturing, fostering human capital accumulation, and improving efficiency through digitalization; potential leverage from AfCFTA. - Remaining challenges: longstanding energy sector losses increasing government financing needs; fiscal costs from financial sector clean-up; slow recovery of private-sector credit; low domestic revenue mobilization relative to peers; large government borrowing needs crowding out private credit; net international reserves relatively low and dependent on external government borrowing. ### Recent economic developments (selected findings and headline figures) - Growth: slowed to 6.3 percent in 2018; expected to pick up to 7 percent in 2019 due to gold production and oil and gas offsetting a smaller cocoa crop. - Inflation: projected at 7.8 percent by year-end (rebased CPI series); Cedi depreciation and utility tariff increases raised non-food inflation; food inflation expected to slow. - Fiscal deficit: projected to reach 7 percent of GDP in 2019; or 4.7 percent of GDP when excluding energy and financial sector costs. - Central government debt: expected increase from 59 percent of GDP at end-2018 to 63.1 percent of GDP in 2019; cumulative financial sector costs of 4.6 percentage points of GDP in 2018–2019 and energy sector costs of about 1.5 percentage points of GDP in 2019 contributed to the rise. - Current account: expected broadly unchanged at -3.1 percent of GDP in 2019. - Cedi: overall depreciated by 9.7 percent between end-2018 and end-October. - Net international reserves: projected to remain stable at about US$3.9 billion, partly reflecting the US$3 billion Eurobond issued in March and other commercial and multilateral borrowing. Key macro table excerpts (staff estimates and projections): - GDP growth (annual): 2016: 3.4; 2018: 6.3; 2019p: 7.0 - Inflation (annual average): 2016: 17.5; 2018: 7.7; 2019p: 7.8 - Primary balance: 2016: -1.9; 2019p: -1.3 - Public and publicly guaranteed debt: 2016: 57.5; 2019p: 66.5 - Current account: 2016: -5.2; 2019p: -3.1 - Reserves (months of prospective imports): 2016: 2.6; 2019p: 2.4 - Money supply growth (M2, excluding foreign deposits): 2016: 24.6; 2019p: 10.2 - Tier I capital to risk-weighted assets (as of August 2019): 14.4 percent (2016) and 19.8 percent (2019) - Nonperforming loans (net of loan-loss provision to capital, as of August 2019): 14.9 percent (2016) and 12.5 percent (2019) ### Outlook and risks - Medium-term baseline: - New oil field production expected to support medium-term growth around 5 percent. - At current policies, overall government deficit projected to stabilize around 5 percent of GDP. - Inflation expected to decline to 6 percent. - International reserves to remain at about two months of imports, strengthening later as oil and gas exports pick up. - Outcome predicated on continued market access and refinancing of large domestic and foreign public debt. - Debt sustainability: - Debt Sustainability Analysis (DSA) risk of debt distress remains high. - Public and publicly-guaranteed debt (DSA measure), including Sinohydro-related debt obligations and debt of key energy sector SOEs, projected at 66.5 percent of GDP at end-2019; expected to peak at about 68 percent of GDP in 2020; gradually decline to 64 percent by 2024. - DSA rating driven by debt service to revenue exceeding threshold throughout the forecast horizon; other indicators exceed thresholds at some point. - Alternative (downside) scenario (weaker fiscal policies starting 2020): - Assumes fiscal deficit increases in 2020 in line with average fiscal slippages in the last two elections and remains above 8 percent of GDP over the medium term. - Monetary loosening allows inflation to rise to double digits in 2020 and remain above the upper bound of the inflation target thereafter. - Growth temporarily higher in 2020 due to fiscal impulse but falls below baseline subsequently due to lower investor confidence. - Debt rises to 75 percent of GDP in 2022 and remains above 73 percent of GDP over the medium term. - Gross reserves fall to one month of import coverage in 2022 before stabilizing. ### Policy discussions: delivering macroeconomic stability and inclusive growth - Goals: - Entrench macroeconomic stability and lay ground for strong, sustained, inclusive growth under “Ghana Beyond Aid.” - Stay the course on fiscal policy to confirm commitment to fiscal discipline and debt sustainability; break cycle of electoral slippages; contain rollover risks. - BoG: accumulation of external buffers and readiness to increase policy rates to protect against shocks. - Completion of financial sector clean-up and lower government borrowing needs to strengthen private-sector credit. Preserving fiscal sustainability — fiscal policy measures and recommendations: - Fiscal rules and commitments: - Adoption of the 2018 Fiscal Responsibility Act: imposes a deficit ceiling of 5 percent of GDP and requires a positive primary balance. - Authorities committed to breaking the pattern of high fiscal deficits observed in previous electoral cycles (deficit increased by over 3 percent of GDP on average during the last three electoral cycles). - 2020 budget (authorities): - Targets a headline fiscal deficit (excluding financial and energy sector costs) of 4.7 percent of GDP and a positive primary balance. - Revenue measures: extension of the National Fiscal stabilization levy to all firms (about 0.1 percent of GDP); sale of telecommunication licenses (about 0.15 percent of GDP); improvements in compliance including in the oil sector (0.2 percent of GDP). - Spending measures: accommodates a wage bill increase of 15 percent while keeping goods and services spending, including flagship program implementation, at the projected 2019 level. - Staff projection (baseline macro, conservative revenue): headline deficit at 4.9 percent of GDP, equivalent to overall deficit of 6.4 percent of GDP — a tightening of 0.6 percent of GDP compared to projected 2019 outcome. - Case for a tighter fiscal path: - A more ambitious stance targeting smaller medium-term budget deficits than the baseline would reduce government borrowing and rollover risks, raise buffers to accommodate contingent liabilities, contain domestic demand, improve the external position, and result in higher international reserve cover. Stronger domestic revenue mobilization (Annex IV highlights and staff discussion): - Ghana’s tax revenue to GDP remains low relative to peers. - “Ghana Beyond Aid” envisages increasing the tax ratio to 18 percent of GDP by 2023 (recognized as ambitious given current levels). - Possible short-term measures discussed: indirect taxes on financial and communication services. - Elements of a tax revenue strategy could include: - (i) extension of property taxes; - (ii) development of comprehensive framework for taxation of extractive industries; - (iii) reduction of exemptions through adoption of the Exemptions Bill currently in Parliament and revision of remaining exemptions; - (iv) leveraging technology to improve the taxpayer registry, interconnect the tax payment platform, and enhance the risk-based compliance system. Authorities’ views (summarized) - Broad agreement with outlook and risks; confidence in medium-term growth potential. - Confidence that recent commitment to macroeconomic stability and institutional changes (Fiscal Responsibility Act; establishment of the Fiscal Responsibility and Financial Stability Councils) will maintain sound policies in 2020 and beyond. - Emphasized strategic nature of 2019 spending on financial sector restructuring, energy, and security; asserted expenditure controls remain effective. - For 2020, reiterated budget law will deliver a headline budget deficit that respects fiscal rules despite election-year pressures. - Expect prioritization of spending programs and revenue administration gains from leadership changes at Ghana Revenue Authority and automation at Tema port. - Committed to improving revenue mobilization in line with medium-term strategy while keeping taxation conducive to private-sector development and growth. - Authorities noted that projections for international reserves should include assets held in the oil fund (about US$850 million) per the central bank’s own measure. *Source: IMF staff report chapter "1. Fiscal Rules" (Ghana).* ### 16. The fiscal rules could be further strengthened (Box 1). About 2.8 percentage points of ### 16. The fiscal rules could be further strengthened (Box 1) ### Fiscal rules: assessment and recommendations - About 2.8 percentage points of GDP in financial and energy sector costs (financed in part through ESLA bond issuance) were recorded below the line in the 2019 budget because the government considers the financial sector costs as one-off and energy costs as debt amortization. - Best international practice would include these transactions above the line, as they reflect either direct government obligations or government transfers to SOEs. - Spending on roads (Cocobod) and potentially infrastructure collateralized on bauxite exports (Sinohydro) should be recorded in the central government budget. - A formal debt anchor targeting a sustainable debt-to-GDP ratio over the medium term could effectively guide fiscal policy and reduce uncertainty about the debt trajectory. - Possible modifications to the 2018 Fiscal Responsibility Act: - Anchor: Define an additional fiscal anchor in terms of a specific debt ceiling path. About 70 percent of the countries in the IMF’s Fiscal Rules database have a debt rule, including most African countries with fiscal rules. - Simplification: Consider setting one formal operational fiscal rule and keeping other measures as indicative targets to avoid internal conflicts between rules (e.g., overall fiscal balance vs. annual primary balance). - Flexibility: Better-specify escape clauses (for example, clarify whether the 1 percent growth threshold applies to one quarter or one year) and require independent scrutiny, perhaps through parliament, before suspension. - Enforcement: Require corrective measures when rules are breached. - Reporting: Publish the quarterly reports the Minister of Finance provides to the cabinet on rule compliance. - Fiscal council: Consider evolving the Presidential Fiscal Responsibility Advisory Council into an entity with legal and operational independence from the executive branch as experience is gained. - Key features of the Fiscal Responsibility Act as described: - Two fiscal rules: (i) the overall fiscal balance on cash basis shall not exceed a deficit of 5 percent of GDP; and (ii) an annual positive primary balance shall be maintained. - Coverage: central and local governments, autonomous agencies, and statutory bodies. - Escape clauses: force majeure, severe economic shocks (including commodity price shocks), and periods when the GDP growth rate is one percent or below. - If the fiscal rules are missed by more than one percentage point, parliament may pass a vote of censure on the Minister of Finance. - A Presidential Fiscal Responsibility Advisory Council advises on rule compliance and seeks to ensure debt-to-GDP does not exceed the informal guideline of 65 percent of GDP; the council has seven presidential appointees whose terms lapse with the president’s term. ### Public financial management and SOE governance - The PFM law and guidelines established a framework for sound public financial management; implementation of the 2016 PFM law has required important reforms: - Deploying revamped systems: GIFMIS (financial management), AMIS (audit management), HRMIS (human resources management). - Establishing the Treasury Single Account (TSA). - Project investment management (PIM) is not fully effective yet; GIFMIS only reflects current year expenditure allotments for multiyear projects. - The State Interests and Governance Authority Act (SIGA) created an entity to oversee corporate governance in public corporations. - Effective oversight will require: financial reporting from SOEs as determined under the PFM regulations, a Code of Corporate Governance and operational guidelines, and a robust enforcement mechanism. - These efforts would enhance governance and complement authorities’ efforts to improve the flagship SOE report. - A public sector balance sheet (PSBS) could improve management of government assets and risks by drawing attention to substantial public sector wealth and facilitating management of fiscal risks from all public sector entities, including SOEs. ### Public debt management: structure, risks, and policy advice - 2018 central government debt structure (USD million; percent of GDP): - Total public debt: 38,967; 59.5% - Domestic debt: 18,943; 28.9% - Marketable domestic debt: 13,917; 21.2% - By original maturity: - 1 year and under: 2,408; 3.7% - 2-5 years: 8,122; 12.4% - Above 5 years: 3,386; 5.2% - Non-marketable domestic debt: 5,259; 8.0% - External debt: 20,024; 30.6% - Multilateral: 6,390; 9.8% - Bilateral: 1,205; 1.8% - Paris Club: 754; 1.2% - Non-Paris Club: 451; 0.7% - Commercial: 7,343; 11.2% - o/w: Eurobond: 4,978; 7.6% - Export/Suppliers/Buyers Credits: 1,236; 1.9% - Other Concessional: 1,694; 2.6% - Memo items: - Nominal GDP: 65,518; 100.0% - Domestic debt held by non-residents: 5,692; 8.7% - Source: Ministry of Finance (2018) - Observations and recommendations: - In 2019, almost 80 percent of the gross financing needs estimated at 16 percent of GDP will be financed on the domestic and international markets. - Nine outstanding Eurobonds make up about 26 percent of external debt. - The share of outstanding domestic debt held by foreign investors declined in 2019 but remains at about one-third. - Off-budget operations (ESLA, Sinohydro, GETFund) contribute to public debt; their decentralized and not always transparent nature complicates oversight and increases scope for corruption. - Debt management in 2020 should remain flexible given global uncertainty. - Policy options for the Ministry of Finance: - Consider international issuances in advance of maturity dates to distribute financing pressures, lower the average effective interest rate, and support international reserves. - Conduct liability management operations to smooth the domestic redemption profile going towards the elections to limit refinancing risks and increase buffers. - Provide transparent, regular, and consistent market communication, and improve coordination and visibility of debt issuance across government entities to facilitate management of possible turbulence. ### Monetary and exchange rate policies - Recent stance and measures: - End of monetary financing, supported by a Memorandum of Understanding (MoU) between the MOF and the BoG (which remains in effect through 2020), contributed to a significant reduction in inflation. - The Monetary Policy Committee (MPC) lowered the policy rate to 16 percent in January and kept the rate unchanged thereafter. - In September, the authorities released a rebased CPI that points to substantially lower inflation due to expanded CPI basket coverage and smaller price increases in discretionary non-food categories. - Inflation expectations remain aligned with the central bank’s target, and short-term real rates are above the historical average; the current policy rate is therefore considered appropriate. - The MPC should remain cautious as inflationary pressures could re-emerge; a relatively tight stance may help stabilize the exchange rate and reduce FX interventions. - Medium-term considerations: - Ghana’s current inflation target range is 8±2 percent. - The inflation target is relatively high compared to SSA peers: Kenya (5±2.5 percent), South Africa (3-6 percent), and Uganda (5 percent). - If inflation remains below or close to target, it may be appropriate to adopt a lower target over the medium term, provided the change is carefully implemented and communicated and coordinated with fiscal policy to avoid crowding out private-sector credit. - FX market and reserves: - Authorities are strengthening the IT framework and FX market; the FX market remains dominated by BoG transactions. - With international reserves stable in 2019 largely thanks to foreign borrowing, it is crucial to reduce FX interventions by applying the new rule-based FX intervention policy to build stronger external buffers. - Authorities began promoting more market-based FX transactions, including first forward auctions in October; these auctions may help mitigate exchange rate volatility but create a net open position for the central bank that must be carefully managed. - The BoG introduced new repo guidelines to help develop the interbank market. - A limit of US$10,000 withdrawal per trip and per annual transfer without documentation remains in place as a capital flow management measure (CFM). ### Growth strategy, diversification, and social policy - Growth strategy: - The "Ghana beyond Aid" strategy aims to accelerate growth through agricultural modernization and industrialization. - Recent growth has been increasingly driven by the extractive sector, making growth less inclusive. - The authorities promote expansion of manufacturing and agriculture productivity, focusing on agro-processing and heavy industries like aluminum, steel and petrochemicals to diversify and mitigate Dutch disease. - Structural reforms and supply-side measures: - Reforms to encourage formalization and digitalization: digitalization of tax and judicial procedures, introduction of unique digital addresses, expanding role of mobile money operators and microfinance lending. - Streamlined customs procedures at the revamped Tema port and the recently established AfCFTA present opportunities to attract additional trade flows. - Industrial policy (Box 2 highlights): - Programs: One District One Factory (1D1F) and One Region One Industrial Park (1R1P) to attract private investment via tax breaks and subsidized credit. - Incentives typically include duty-free imports of equipment and raw material, tax holidays of between 5 to 10 years (including corporate income tax), and subsidized rents. - Access to credit facilitated through subsidized loans under the 1D1F program. - Recommendations: balance industrial policy with domestic revenue mobilization needs; review fiscal costs of incentives annually as part of a tax-expenditure review; eliminate excessive regulations and distortions; improve business environment, physical connectivity, and reduce electricity costs. - Social outcomes: - Flagship programs (National Insurance Health Scheme, Free and Compulsory Universal Education, Free Senior High School) contributed to major improvements in health and education, especially among women. - Income and regional inequality remain concerns, with weaker access to basic services and higher unemployment and poverty in northern regions compared to the Accra-Kumasi-Takoradi triangle. - Recommended shift to more targeted and means-tested social interventions to improve outcomes while minimizing budget costs. *Source: 1ghaea2019002 excerpt.* ### 30. The authorities agreed with staff on the need to sustain inclusive growth. They see ### Reforming the Energy Sector; Completing the Financial Sector Clean-Up; Business Environment, Governance, and Corruption; Staff Appraisal ### Inclusive growth and "Ghana beyond Aid" - Authorities view “Ghana beyond Aid” as an ambitious but achievable national transformation strategy to provide opportunities, jobs, and prosperity to all Ghanaians. - Ongoing reform agenda priorities: digitalization to improve business-friendliness and public service efficiency; diversification through export competitiveness, productivity increases, and technological upgrading; modernization of agriculture to improve rural livelihoods and reduce food imports. ### Reforming the energy sector — fiscal risks and recovery program - Fiscal risks and accumulated arrears: - Power sector arrears were about US$2.7 billion in late 2018, of which US$800 million was owed to private fuel suppliers and independent power plants (IPPs). - For 2019, authorities project the financing shortfall for the sector to be at least US$1 billion (1.5 percent of GDP), planned partially off budget. - Absent corrective measures, accumulated cost to the government, including current arrears, could reach US$12.5 billion by 2023, driven by a power sector structural deficit and costly LNG contracts set to become effective in 2020. - Structural oversupply and contract issues (Box 3): - Dependable power generation capacity of about 4,600 MW exceeds peak demand load by 70 percent. - Under take-or-pay contracts with IPPs, Ghana pays about US$500 million annually for power generation capacity that it does not use. - Gas supply contracted for 750 mmscf per day by 2023 while demand is projected to reach about 450 mmscf per day. - Non-payment of utility bills by government entities comprised 40 percent of outstanding arrears in late 2018. - Authorities’ reform actions and ESRP measures: - Authorities developed a multiyear Energy Sector Recovery Program (ESRP) with World Bank assistance; ESRP contains measures over the next five years to better balance power and gas supply and demand. - With ESRP measures, staff estimates annual energy sector payments in the budget would average about 1 percent of GDP. - Steps already taken: (i) adjusted utility tariffs upwards; (ii) relocated a mobile power plant to exploit existing gas; (iii) deferred or cancelled some imminent power projects; (iv) commenced consultations with IPPs and gas producers to modify contract terms (take-or-pay liabilities). - Additional ESRP steps noted in Box 3: (i) reducing the domestic gas price; (ii) relocating the Karpower plant and establishing reverse gas flow via the West African Gas Pipeline; (iii) renegotiating expensive generation contracts; MoF began paying some energy bills directly and netting against amounts owed by ECG; regulator raised regulated electricity tariffs 11 percent in July 2019 and another 5 percent in October. - Implementation challenges: - Termination of PDS concession over fraud allegations is a setback to reducing distribution losses. - Pressing measures include establishment of competitive procurement and moratorium on unsolicited proposals, addressing gas oversupply (e.g., LNG contracts), and government payment for street lighting. ### Completing the financial sector clean-up - Banking sector status: - Banking sector capitalization has increased since the previous Article IV Consultation; profitability trending upwards supported by interest income from government securities. - Decline in nonperforming loans (NPL) during 2017–2018 did not continue in 2019; NPL overhang still hovering around 2 percent of GDP as BoG’s NPL reduction strategy continues. - Costs and fiscal risks from restructuring: - More than 400 SDIs had licenses revoked between May and August 2019; upfront reimbursement of small depositors (up to a cap of GHc 20,000) is ongoing. - Staff estimates SDI reimbursement costs at 0.6 percent of GDP, on top of 3.3 percent of GDP for the banking sector clean-up. - Additional estimated budget cost for possible compensation of investors of distressed fund managers is 0.5 percent of GDP for 2020 (staff estimate). - Other risks: ongoing litigation, contagion from cross-sectoral exposures, recapitalization needs of a state-owned bank with substantially increased estimated capital needs. - Central bank balance sheet and liquidity support: - BoG operating losses in 2017 and 2018—mainly due to impairment of uncollateralized loans to commercial banks—weakened BoG equity; recoveries from receivership operations are slow. - Recommendations: retain earnings, strengthen the ELA framework, and translate MOF–BoG MOU provisions into legislation to improve BoG’s balance sheet. - Access to credit and intermediation: - Private-sector credit has remained around 12 percent of GDP since 2015, compared with the SSA median of 16 percent of GDP. - High NPLs and banks’ preference for T-bills or placing excess liquidity at the central bank hinder credit growth; high operating costs increase spreads and drag on financial intermediation. - Regulatory and governance priorities: - Tighter supervision, new regulatory standards on corporate governance, enhanced scrutiny of internal governance and risk management, assessment of shareholder suitability and fitness and propriety of directors and key management personnel, and review of related-party transaction frameworks are needed. - Authorities’ view: - Authorities consider the financial sector well on the way to recovery, noting improved financial soundness indicators and commitment to complete SDI depositor reimbursements and address vulnerabilities in the securities industry. ### Business environment, governance, anti-corruption, and AML/CFT - Business environment: - Ghana scores well regionally in Doing Business dimensions such as starting a business, access to credit and electricity, and protecting minority investors; weaknesses include resolving insolvency, trading across borders, and paying taxes. - Anti-corruption institutions and gaps: - National Anti-Corruption Action Plan (2014) implementation is monitored by CHRAJ; last report published in 2017. - Asset declarations exist but are sealed and not opened outside of investigation or verification. - Legal gaps remain in criminalizing corruption (e.g., illicit enrichment and elements of bribery). - Multiple enforcement bodies include EOCO, CHRAJ, Office of the Special Prosecutor, and Attorney General’s Office; inconsistent coordination can delay cases and hinder convictions. - Extractive industries transparency: - Ghana has been an EITI member since 2007; latest validation of Ghana efforts to comply with EITI standard occurred in August 2017. - AML/CFT progress and remaining issues: - Authorities are working to exit FATF designation for strategic AML/CFT deficiencies through improvements to legal and supervisory frameworks. - Draft legislation under development for non-profit organizations and the real estate sector; efforts to build risk-based supervision for dealers in precious metals and stones and real estate intermediaries. - A beneficial ownership register is under development and expected to be operational by June 2020, though funding challenges have caused delays. - Effective monitoring of correspondent banking relationships is important, though CBRs in Ghana have not been affected so far. - Authorities’ view: - Authorities highlight improvements in governance and anti-corruption framework, appointment of an opposition party member as head of the Office of the Special Prosecutor, independence of anti-corruption institutions, and budget increases for anti-corruption agencies (25 percent in 2017 and 34 percent in 2018). - They express confidence that requirements to exit the FATF “grey list” will be met. ### Staff appraisal — macroeconomic outlook and policy recommendations - Progress since 2017: - Noted remarkable progress in macroeconomic stabilization, structural reform, fiscal discipline, inflation control, improved external position, financial sector restructuring, and strengthened public financial and debt management. - Risks: - Downside risks include potential external shocks, 2020 elections creating fiscal pressures, contingent liabilities from financial sector restructuring and the energy sector, and continued high public debt as highlighted by a DSA high risk rating. - Fiscal policy recommendations: - Maintain fiscal discipline, leverage Fiscal Responsibility Act to avoid political budget cycles, pursue stronger fiscal consolidation centered on a comprehensive revenue mobilization strategy to better anchor debt dynamics, contain large financing needs, create buffers for contingent liabilities, and support external position through domestic demand management. - Phase out off-budget operations and avoid new collateralized borrowing to reduce public debt and improve fiscal transparency. - Energy sector recommendations: - Implement ESRP in coordination with World Bank and stakeholders, implement automatic pricing formula for electricity tariffs, reinstitute private sector participation, and clarify government support (e.g., direct, non-offsetting transfers to ECG) to improve transparency and accounting of financial flows. - Financial sector recommendations: - Complete the clean-up while observing upfront reimbursement caps; pursue least-cost options for the state-owned bank recapitalization based on robust analysis; accelerate measures to reduce NPL overhang; complete regulatory reforms; and step up recovery of funds from complicit directors and shareholders of failed institutions. - Monetary policy recommendations: - Monetary policy appropriately focused on price stability; tighten policy if inflationary pressures materialize. - Over the medium term consider lowering the inflation target band in line with other IT countries in the region, coordinated with fiscal policy. - BoG should increase external buffers, using FX intervention strategy to balance reserve accumulation and FX intervention. - Amendments to the BoG Act are needed to entrench monetary financing limits currently in the MOF–BoG MoU, due to expire at end-2020, to protect and strengthen the BoG balance sheet and support the inflation-targeting framework. *Source: 1ghaea2019002 - 30. The authorities agreed with staff on the need to sustain inclusive growth. They see* ### 52. An anti-corruption framework is in place, but its implementation could be improved. ### 1ghaea2019002 - 52. An anti-corruption framework is in place, but its implementation could be improved. ### Anti‑corruption framework and law enforcement capacity - The legal framework should be brought in line with the United Nations Convention Against Corruption (UNCAC) to improve ability to pursue criminal cases of corruption and recover proceeds. - Enhancing capacity of law enforcement and prosecutorial bodies and ensuring clarity in their roles and responsibilities would increase anti‑corruption effectiveness. ### Fund engagement and capacity development (CD) - The Fund stands ready to assist Ghana to implement its structural reform program through Capacity Development (CD) (Annex V). - Intensive CD has delivered gains on public financial management and banking supervision. - Support on revenue and customs administration has yet to translate into higher tax revenues. - In the post‑program environment, CD will continue to play a central role in Fund engagement. ### Timetable - It is proposed that the next Article IV consultation take place on the standard 12‑month cycle. ### Fiscal and public finance implementation highlights and specific figures - An arrears clearance plan: GhC 0.7 and GhC 1.5 billion arrears to be cleared in 2019 and 2020, respectively. - Regulations implementing 2016 PFM Act became effective in April 2019; rollout of PFM IT system (IFMIS) is largely completed. - Monetary financing: - Monetary financing ended for above‑the‑line transactions, but the BoG monetized the CBG bond in November 2018. - The BoG Act has not yet been amended to strengthen the prohibition against monetary financing. - FX and central bank operations: - The BoG adopted an internal rules‑based framework for FX interventions and published market‑conduct guidelines in February 2019. - The calculation method for the reference rate was revised to exclude BoG trades; the BoG started to limit trading at the reference rate to ensure market‑based pricing. - The BoG began a review of the ELA framework with IMF TA (April 2019), but has not fully enforced a revised framework that appropriately collateralizes liquidity assistance. - The limit of US$10,000 withdrawal per trip and per annual transfer without documentation (the CFM) is still in place. ### Financial sector and AML/CFT - Financial sector cleanup: resolved nine banks in 18 months; revoked licenses of 386 deposit‑taking microfinance institutions in May 2019, and another 23 savings and loans companies and finance houses in August 2019. - Statutory capital requirements increased; capital requirements being aligned with Basel II/III via the new Capital Requirements Directive. - Ghana Deposit Protection Scheme expected to be implemented before end‑2019. - Financial Stability Council established but not yet fully operational. - FATF placed Ghana on its “grey list” in October 2018; steps are being taken to address strategic deficiencies highlighted in the Mutual Evaluation. ### Energy sector and SOE governance - Cabinet adopted the Energy Sector Recovery Program (ESRP) in May; renegotiation of take‑or‑pay contracts started and discussions on future PPAs suspended. - ESLA bonds continue to be issued to repay legacy energy sector debts. - Concession agreement for electricity distribution suspended in July and terminated in October (year implied by surrounding text). - The State Interests and Governance Authority Act was adopted in June; expanded 2018 SOE report covers 49 entities (from 18 in 2017). - Government created several off‑budget entities in the last two years, including ESLA, GAIDC, and GETFund. ### Risk Assessment Matrix — selected risks and recommended policies - Politically‑driven fiscal loosening ahead of the 2020 elections — Relative Likelihood: High; Expected Impact If Realized: High. - Risks: weak revenue collections, tax forbearance, spending pressures, off‑budget operations, higher deficit and debt, potential arrears, loss of confidence affecting exchange rate and reserves. - Mitigations: rigorously apply fiscal rules; implement credible medium‑term fiscal adjustment strategy; avoid off‑budget operations; record all financing in line with PFM Act and regulations; include off‑budget debt in government debt. - Sharp rise in risk premia — Relative Likelihood: Medium; Expected Impact If Realized: High. - Risks: rollover difficulties, eroded FX buffers, exchange rate pressure, higher interest rates dampening growth. - Mitigations: implement credible medium‑term fiscal adjustment; build FX buffers; formulate fiscal contingency measures. - Higher financial sector and energy costs crystallizing — Relative Likelihood: Medium; Expected Impact If Realized: High/Medium. - Mitigations: finalize financial sector clean‑up; implement the ESRP; pursue strategy to revisit take‑or‑pay contracts while managing reputational risks. - Commodity price volatility — Relative Likelihood: Medium; Expected Impact If Realized: Medium. - Mitigations: diversify the economy and export base; improve business environment; invest in physical and human capital. - Macroeconomic policies after the 2020 elections — Relative Likelihood: Medium; Expected Impact If Realized: High. - Risks: envisaged tightening may not materialize, political spending pressures without strong revenue mobilization could keep debt above 60 percent of GDP. - Mitigations: stick to the fiscal rule; strengthen revenue mobilization. - Diversification and rapid industrialization opportunities (e.g., AfCFTA) — Relative Likelihood: Medium; Expected Impact If Realized: Medium. - Mitigations: pursue “Ghana beyond Aid” agenda while preserving fiscal sustainability; improve export competitiveness. ### External sector assessment — key metrics and findings - 2018 current account deficit: 3.1 percent of GDP (CA‑Actual). - Model‑estimated current account norm (CA‑Norm): 4.1 percent of GDP (multilaterally consistent cyclically adjusted CA norm). - Model implication: REER undervaluation of about 3 percent (using elasticity of -0.25). - The model estimated a drag from deviation of government budget deficit and FX intervention at 3.25 percentage points of GDP on the current account. - Gross international reserves: 2.7 months of imports in 2018, below the 3‑month rule‑of‑thumb and below the model norm of 3.6 months for resource‑rich LICs with a flexible exchange rate. - Net international reserves declined by one percentage point of GDP in 2018 despite large external borrowing. - Despite regular BoG interventions, the national currency depreciated by 13 percent since the beginning of 2019. - Authorities’ reserves definition includes additional assets (e.g., oil funds) that staff do not classify as readily available; reserves projected to remain below benchmarks over the medium term. ### Domestic revenue mobilization — diagnosis and policy options - Long‑term trend: government revenues as percent of GDP slowed from 2008 to 2018; revenues stagnated since 2015 due to lower grants and weak tax collection. - Grants fell from 2 percent of GDP in 2008 to 0.3 percent of GDP in 2018. Non‑tax revenue increases driven by oil revenues mitigated the fall. - Tax‑to‑GDP ratio: - Ghana average over last two decades: 12.8 percent of GDP. - SSA average: 15 percent. - Ghana’s tax revenue in 2018 was around 7 percentage point of GDP below the tax frontier referenced. - Ghana ranks in the second lowest quartile in SSA and in the lowest quartile among its middle‑low‑income peers in SSA (peers averaged 16.9 percent of GDP in 2018). - Composition and trends in main taxes: - Personal income tax: 1.3 percent of GDP in 2008 → 2.2 percent of GDP in 2012 → 2 percent of GDP in 2018. - VAT: 2.6 percent of GDP in 2008 → 3.1 percent of GDP in 2015 → 2.3 percent of GDP in 2018. - Corporate tax: 1.3 percent of GDP in 2008 → 2.8 percent of GDP in 2018. - Trade taxes: 1.9 percent of GDP in 2015 (up 0.1 point from 2008) → stagnated at 2 percent of GDP since 2015. - Policy and administrative developments: - Ghana Revenue Authority (GRA) progressed on governance, management training, and deployment of integrated tax administration system (ITAS); TRIPS fully deployed in all domestic tax offices. - Government submitted an Exemptions Bill seeking to rationalize tax exemptions of about GHc 500 million (submitted to Parliament in April; not yet adopted into law). - With IMF TA, GRA aims to develop a risk‑based compliance strategy for extractive industries. - Draft revenue administration bill prepared to expand requirement for tax clearance certificates in tendering. - The government removed many taxes (2016–2019), including the high‑income tax bracket and the luxury vehicle tax (removed in 2019), and cut import benchmark tariffs by 50 percent in 2019. - Short‑term revenue potential and measures: - A menu of revenue measures could immediately yield up to 0.8 percent of GDP: - New taxes could yield 0.25 percent of GDP. - Compliance improvements could bring around 0.5 percent of GDP. - New tax options to expand the base include: - A VAT of 17.5 percent on financial services. - Increase tax on communication services from 9 percent to 12 percent. - Expand the national fiscal stabilization levy to all firms. - Introduce a minimum chargeable income. - Reintroduce the high‑income tax rate of 35 percent. - Urgent tax administration measures: - Review the import duty benchmark (which has not generated expected increases in imports through trade diversion). - Collect around half of the tax liability of around $800 million in the oil sector in 2020; achieving this would require stronger auditing capacity of the tax authority. *Italic source: IMF staff report (1ghaea2019002), sections 52–Annex IV.* ### 7. In the longer run, domestic revenue mobilization could yield more than 2 percent of ### 7. In the longer run, domestic revenue mobilization could yield more than 2 percent of GDP ### Tax policy reform and exemptions - Longer-run domestic revenue mobilization could yield more than 2 percent of GDP. - Tax policy reform should focus on mining taxation and exemptions, including: - A comprehensive review of the mining legislation and fiscal regime applicable to all future contracts. - Unifying various laws into a single extractive industry legislation. - The exemption bill submitted to Parliament does not address several tax expenditures; streamlining should target: - Non-standard VAT. - Custom duty exemptions on imported supplies and domestic sales, particularly on cereals, vehicles, cocoa, sugar, wood, and oil. ### Tax administration reforms and measures - Adopt the draft Compliance Risk Management Strategy (CRMS) focusing on: - Filing and arrears management. - Payments and reporting with focus on large taxpayers. - Clean up the registry for Taxpayer Identification Number (TIN) through the use of technology. - Interconnect tax payment platforms. - Enhance information sharing and data cooperation between GRA and other government agencies to: - Undertake risk and compliance analysis. - Identify discrepancies. - Address delays and backlog of unassessed returns. ### Technical assistance needs - Continued technical assistance required despite extensive IMF/FAD support over the last five years. - Priority TA areas: - GRA management and compliance. - Firms’ auditing and post-audit debt recovery. - Strengthening legal framework for contracts in the mining and petroleum sector. - Assessing potential revenues from existing mining and oil contracts. ### Capacity Development Strategy (Annex V) — background and priorities - Capacity Development (CD) to play a central role after the end of the ECF program; consolidate program gains and address backlog of TA recommendations. - Achievements supported by TA: - Passage of the Public Financial Management Act in 2016 and its regulations in 2019; Tax Exemption Bill laid in 2019. - Creation and operationalization of a fiscal risk unit. - Debt management improvements and lengthening of the debt profile supported by MCM TA. - Banking sector resolution and new regulatory directives on governance supported by MCM TA and resident advisors. - Areas of uneven progress and remaining gaps: - Revenue administration progress has been particularly slow despite extensive support. - Outstanding TA recommendations in risk-based supervision and financial stability. - Fiscal CD priorities: - Develop a holistic training strategy and take stock of backlog of TA recommendations. - Address shortages in analytical capacity and institutional memory, especially in revenue administration and tax policy. - Build skills for treasury and debt management given increasing market-based borrowing. - New CD needs from global trends: - Strengthen oversight and management of cyber risks. - Support operationalization of the Financial Stability Council, its secretariat and technical committee. - Support Bank of Ghana functions: bank supervision and resolution, monetary policy modeling and operation. ### Top 5 CD priority objectives - Revenue administration - Improve revenue mobilization through better compliance management and further improve capacity in tax audits. - Strengthen GRA capacity, including with targeted and continued training. - Banking supervision and financial stability - Strengthen legislative framework and supervisory practices, notably in risk-based supervision and early intervention; complete transition to Basel II/III if capacity allows. - Improve emergency liquidity assistance framework and BoG’s resolution function; support operationalization of Financial Stability Council and implement macroprudential framework. - Conduct an FSAP to gauge reform effectiveness and identify priorities. - Tax Policy (including Natural Resources) - Review tax policy framework including weaknesses in VAT and mining taxation regime. - Continue improving capacity to manage fiscal reforms and revenue forecasting in the natural resources sector through adoption of the FARI model. - PFM - Strengthen budget coverage and comprehensiveness, budget formulation and execution, fiscal accounts, monitoring and mitigation of fiscal risks (including SOEs), and implementation of new PFM regulations. - IT framework - Training to support continued use of FPAS forecasting model. ### Debt Sustainability Analysis — key findings - Risk ratings: - Risk of external debt distress: High - Overall risk of debt distress: High - Granularity in the risk rating: Sustainable - Application of judgment: No - External debt service continues to absorb a third of government revenues and remains well above thresholds for most of the forecast period. - Present values of external and public debt-to-GDP ratios exceed their thresholds under the baseline for the first seven years and under all shock scenarios. - Debt assessed as sustainable thanks to: - Favorable market access. - Authorities’ commitment to macroeconomic stability and fiscal discipline. - Potential for steeper than assumed fiscal consolidation. - Public debt management benefits from extensive technical assistance and training from the IMF and the World Bank. - Approved by IMF and IDA staff on November 21, 2019. ### DSA assumptions, debt profile, and shocks (exact figures) - Public debt coverage: - Includes SOE loans not explicitly guaranteed amounting to an average of 1.3 percent of GDP over the next five years. - Sinohydro facility: - US$2 billion non-government guaranteed loan. - First tranche disbursement of about US$646 million expected in early 2020. - Execution rate: about US$100 million per year rising to US$200 million once more tranches are approved. - Fiscal shocks and contingent liabilities: - Financial sector restructuring costs: 4.6 percent of GDP in 2018–19. - Energy sector costs covered by the budget and ESLA: about 1.5 percent of GDP in 2019 and 2020 and 1 percent of GDP annually from 2021–2024. - DSA models separate shocks: 5 percent of GDP from the financial sector and 3 percent of GDP from non-guaranteed SOE debt. - Contingent liability test models shocks where 35 percent of outstanding PPP arrangements become part of public debt. - Standard shock calibrations: - Exchange rate one-off depreciation: 30 percent. - Tailored commodity price shocks: 35 percent decline in fuel prices and 11 percent decline in non-fuel commodity prices. - Market financing shock: 400 basis point increase in the cost of borrowing for three years and shortening of average debt maturities to 5 years from 8 years. - Debt profile and dynamics: - External public debt in 2019 is estimated to be 4.8 percentage points higher than the March 2019 DSA vintage. - Total public debt is not expected to fall below the 55 percent of GDP threshold until 2026. - PPG debt includes projected Sinohydro disbursements. - Exceptional one-off costs pushed the primary balance into negative territory; primary balance becomes positive from 2021 in the baseline, but debt-to-GDP ratio only begins to decline in 2022. - Market financing and investor exposure: - Institutional non-resident investors held over 26.6 percent of domestic debt as of September 2019. - Effective nominal interest rate on external debt rose from 5.5 in 2017 to 7.6 percent in 2019. - EMBI spreads latest information indicates 558 basis points. - Overall, spreads have fallen by 160bps since the beginning of the year, partially offsetting the 330bps increase in 2018. ### Macroeconomic assumptions (Box 1 and related projections) - Economic activity: - Real GDP growth expected to peak at 7 percent before remaining on average around 4.9 percent over the medium term. - Oil production pickup expected in 2023. - Non-oil growth expected to reach 6.1 percent in 2019 and to remain around 5 percent, on average, from 2020 onward. - Inflation and exchange rate: - With the new CPI rebase, inflation is expected to reach 7.7 percent on average in 2019. - Target range for CPI: 8±2 percent. - Cedi depreciation of 13 percent between the beginning of the year and end-October (2019). - Headline inflation expected to drop to 6 percent in 2024. - Government balance and fiscal policy: - Overall fiscal deficit expected to reach 7 percent of GDP in 2019 (reflecting financial costs and unexpected energy amounting to 2.3 percent of GDP). - Overall fiscal deficit expected to fall to 6.4 percent in 2020. - Overall balance excluding financial and energy sector costs will reach 5 percent (in line with the fiscal rule). - Primary balance projected to move from -1.3 percent of GDP in 2019 to an average surplus of about 0.5 percent of GDP over the medium term. - Current account and financing: - Current account deficit expected to remain at 3.1 percent of GDP in 2019 and widen to 3.6 percent of GDP in 2020; expected to average 2.4 percent of GDP thereafter. - FDI inflows: 4.2 percent of GDP in 2019; expected to recover to an average 5 percent in the medium term. - A US$3 billion Eurobond was successfully issued in 2019 of which US$1 billion was used for liability management. *Source: IMF staff report for Ghana, November 21, 2019.* ### 9. Ghana has a medium debt carrying capacity, unchanged from the last DSA vintage. The ### 9. Ghana has a medium debt carrying capacity, unchanged from the last DSA vintage. The ### Calculation of the CI Index - The composite index CI used to determine the debt carrying capacity is comprised of the World Bank’s CPIA score and macro-economic fundamentals from the April 2019 WEO. - Components and contributions: - CPIA - Coefficients (A): 0.385 - 10-year average values (B): 3.548 - CI Score components (A*B) = (C): 1.37 - Contribution of components: 49% - Real growth rate (in percent) - Coefficients (A): 2.719 - 10-year average values (B): 5.085 - CI Score components (A*B) = (C): 0.145% - Import coverage of reserves (in percent) - Coefficients (A): 4.05 - 10-year average values (B): 224.762 - CI Score components (A*B) = (C): 1.00 - Contribution of components: 36% - Import coverage of reserves^2 (in percent) - Coefficients (A): -3.990 - 10-year average values (B): 6.131 - CI Score components (A*B) = (C): -0.24 - Contribution of components: -9% - Remittances (in percent) - Coefficients (A): 2.022 - 10-year average values (B): 3.362 - CI Score components (A*B) = (C): 0.072% - World economic growth (in percent) - Coefficients (A): 13.520 - 10-year average values (B): 3.559 - CI Score components (A*B) = (C): 0.4817% - CI Score: 2.81 (100%) - CI rating: Medium ### Macroeconomic projections and assumptions (as presented) - 2018-2023 2024-2038 2019-2024 2025-2039 - Real GDP (%): 5.5 4.3 5.3 4.4 - Inflation GDP Deflator: 8.8 8.2 7.3 6.2 - Nominal GDP (Million US$): 79,453 176,099 75,956 155,925 - Average real interest rate on domestic debt: 3.6 0.6 3.6 2.1 - Average real interest rate on foreign debt: 5.5 4.1 5.3 4.1 - Revenue and Grants (% of GDP): 15.6 15.7 15.4 17.1 - Primary expenditure (% of GDP): 15.1 14.7 15.2 14.8 - Primary balance (% of GDP): 0.5 1.0 0.2 2.3 - Exports of G&S (percent of GDP growth): 5.4 6.0 4.0 2.6 - Non-interest current account balance (% of GDP): -0.6 -0.1 0.1 0.6 - Sources: Ghanaian Authorities and IMF staff estimates and projections ### External Debt Sustainability - Key findings: - External debt sustainability remains at risk under most scenarios, particularly under adverse shocks to exports. - The PV of external debt-to-GDP, debt service-to-exports and debt service-to-revenues exceed their thresholds under the baseline scenario. - The export shock modeled (average decline in exports of 13 percent in 2020–2021 — a one standard deviation shock applied to the historical average — against 4 percent growth in the baseline) yields the highest ratios. - Under the export shock, external debt to GDP peaks in 2021 reaching 65 percent and remains above the threshold throughout the projected period. - Primary balance test: an average primary deficit of 4 percent of GDP in 2020–2021 against a surplus of 0.2 percent in the baseline generates a high debt ratio peaking at 53 percent in 2021 which declines only slowly. - Market financing indicators: - External gross financing needs (GFN) at 15 percent of GDP are above their 14 percent threshold. - The Emerging Markets Bond Index Global (EMBIG) spread remains below financing risk threshold. - The latest Eurobond, issued in March, was six times oversubscribed and, at 30 years, had one of the longest maturities in Africa. - Secondary market spreads have declined since the beginning of the year but remain volatile due to global uncertainty. - Applicable external debt burden thresholds (as listed): - PV of debt in % of Exports: 55 - PV of total public debt in percent of GDP: 180 - PV of debt in % of GDP: 40 - Debt service in % of Exports: 15 - Debt service in % of Revenue: 18 ### Public Debt Sustainability - Key findings: - Public debt exceeds its threshold by 11 percentage points on average for the first five years of the forecast under the baseline scenario, declining below the threshold after 2026. - Fiscal slippages and realization of contingent liabilities in finance and energy will push the public debt-to-GDP ratio beyond the benchmark in 2019 despite the recent GDP rebasing. - The ratio breaches its threshold under all shocks. - The most severe scenario is the commodity price shocks: - Deviations reaching 88 percent in 2025 and not declining below 84 percent for the remainder of the forecast. - Under the commodity price shock, debt service would absorb 103 percent of revenues in 2020. ### Conclusion and policy implications - Debt is deemed sustainable thanks to: - favorable market access, - the authorities’ commitment to macro-economic stability and fiscal discipline, - the potential for further fiscal consolidation. - However, risk assessments: - Ghana is at high risk of external public debt distress with thresholds breached on the PV of external debt to GDP ratio, the debt service-to-exports ratio, and the external debt service-to-revenues ratio (the latter exceeding the threshold throughout the forecast horizon). - Policy recommendations and priorities: - Continued sound policies will be critical for maintaining market confidence in the short term. - The recently-announced 2020 budget confirms the authorities’ focus to safeguard macro-economic stability. - The country has significant potential to increase domestic revenue mobilization. *Sources: Ghanaian Authorities and IMF staff estimates and projections; DSA June 2019.* ### 14. The authorities generally concurred with the DSA results and reiterated their commitment ### 14. The authorities generally concurred with the DSA results and reiterated their commitment ### Authorities' assessment and policy intent - Authorities concurred with the DSA results and reiterated their commitment to fiscal discipline to preserve debt sustainability. - Key policy intentions emphasized: - Expand the tax base, improve tax compliance and enforcement, and strengthen revenue administration. - Tighten expenditure management and commitment controls. - Implement the “Ghana beyond Aid” agenda and government flagship programs to enhance growth and export potential. - Strengthen fiscal risk management: creation of a Fiscal Risks Unit within the Ministry of Finance in 2018; publication of a Fiscal Risks Statement; improved PPP risk assessment capacity. - Build buffers through sinking funds and escrow accounts for public debt servicing; reprofiling of public debt to correct the yield curve; implement a tighter credit risks assessment framework on guarantees and on-lending to SOEs and public corporations. - Authorities suggested the Fund’s DSA could pay attention to both gross and net debt concepts, noting that net debt measures would capture Ghana’s overall debt profile better. ### External Debt Sustainability — baseline indicators (selected) - External debt (nominal): 41.9 (2016); 43.8 (2017); 45.4 (2018); 50.0 (2019); 51.2 (2020); 52.0 (2021); 52.1 (2022); 50.9 (2023); 50.6 (2024); 40.7 (2029); 27.2 (2039); 33.2 (memorandum) 48.2 (?) - Of which: public and publicly guaranteed (PPG): 37.9 (2016); 39.8 (2017); 41.1 (2018); 45.4 (2019); 46.4 (2020); 46.9 (2021); 46.7 (2022); 45.3 (2023); 44.7 (2024); 33.5 (2029); 17.2 (2039); 29.3 (?) - Change in external debt: 0.5 (2016); 2.0 (2017); 1.5 (2018); 4.6 (2019); 1.3 (2020); 0.7 (2021); 0.1 (2022); -1.2 (2023); -0.3 (2024); -2.0 (2029); 0.2 (2039) - Identified net debt-creating flows: -6.1 (2016); -5.5 (2017); -6.2 (2018); -4.1 (2019); -3.9 (2020); -3.3 (2021); -3.4 (2022); -5.6 (2023); -4.7 (2024); -4.7 (2029); -3.8 (2039); -2.0 (mem) - Non-interest current account deficit: 3.1 (2016); 1.3 (2017); 0.8 (2018); -0.2 (2019); 0.3 (2020); 0.2 (2021); 0.1 (2022); -0.6 (2023); -0.7 (2024); -0.4 (2029); -0.9 (2039) - Exports (percent of GDP): 31.8 (2016); 34.6 (2017); 34.4 (2018); 33.9 (2019); 34.4 (2020); 33.1 (2021); 31.8 (2022); 32.2 (2023); 31.3 (2024); 25.2 (2029); 17.3 (2039) - Imports (percent of GDP): 37.3 (2016); 37.7 (2017); 35.4 (2018); 35.1 (2019); 35.7 (2020); 34.7 (2021); 33.6 (2022); 32.2 (2023); 31.1 (2024); 26.2 (2029); 18.3 (2039) - Net FDI (negative = inflow): -6.3 (2016); -5.5 (2017); -4.4 (2018); -4.2 (2019); -4.7 (2020); -5.0 (2021); -5.0 (2022); -5.0 (2023); -5.0 (2024); -5.0 (2029); -3.0 (2039); -6.0 (mem); -4.9 (avg) - PV of PPG external debt-to-GDP ratio (selected projections): 40.4; 43.5; 46.0; 46.5; 46.1; 44.3; 44.0; 32.6; 16.5 (years unspecified in table) - PV of PPG external debt-to-exports ratio (selected): 117.6; 128.6; 133.7; 140.5; 145.2; 137.7; 140.5; 129.5; 95.7 - PPG debt service-to-exports ratio (selected): 2.0; 4.9; 17.1; 16.9; 15.7; 16.6; 17.4; 17.0; 15.6; 17.3; 13.4 - Gross external financing need (Million of U.S. dollars) (selected): -912.0; -944.4; 2132.1; 1680.0; 1534.7; 1461.1; 1527.9; 1073.7; 557.9; 909.8; 2087.1 ### Public Debt Sustainability — baseline indicators (selected) - Public sector debt (percent of GDP): 57.5 (2016); 57.7 (2017); 62.5 (2018); 66.5 (2019); 67.9 (2020); 67.8 (2021); 67.3 (2022); 65.2 (2023); 64.1 (2024); 47.9 (2029); 19.5 (2039); 45.4 (mem) 61.0 (?) - Change in public sector debt: 2.2 (2016); 0.2 (2017); 4.8 (2018); 3.9 (2019); 1.5 (2020); -0.1 (2021); -0.5 (2022); -2.1 (2023); -1.2 (2024); -3.0 (2029); 0.3 (2039) - Identified debt-creating flows: 1.7 (2016); -2.5 (2017); 0.7 (2018); 2.7 (2019); -0.3 (2020); -0.5 (2021); -0.7 (2022); -2.0 (2023); -0.7 (2024); -2.8 (2029); 0.3 (2039); 0.1 (mem); -1.4 (?) - Primary deficit: 1.9 (2016); -0.5 (2017); 1.4 (2018); 1.3 (2019); 0.3 (2020); -0.6 (2021); -1.0 (2022); -0.6 (2023); -0.4 (2024); -2.2 (2029); 0.6 (2039); 2.1 (mem); -1.2 (?) - Revenue and grants (percent of GDP): 13.4 (2016); 13.9 (2017); 14.5 (2018); 14.8 (2019); 15.5 (2020); 15.6 (2021); 15.5 (2022); 15.5 (2023); 15.3 (2024); 16.6 (2029); 18.1 (2039); 13.5 (mem); 15.7 (?) - Primary (noninterest) expenditure (percent of GDP): 15.3 (2016); 13.4 (2017); 15.9 (2018); 16.1 (2019); 15.7 (2020); 14.9 (2021); 14.5 (2022); 14.8 (2023); 15.0 (2024); 14.4 (2029); 18.8 (2039); 15.7 (mem); 14.5 (?) - PV of public debt-to-GDP ratio (selected): 63.9; 67.4; 68.7; 68.5; 67.7; 65.5; 64.2; 47.7; 19.1 ### Key macroeconomic and fiscal assumptions (selected) - Real GDP growth (in percent): 3.4 (2016); 8.1 (2017); 6.3 (2018); 7.0 (2019); 5.8 (2020); 4.0 (2021); 3.7 (2022); 6.7 (2023); 4.4 (2024); 4.1 (2029); 4.7 (2039); 7.1 (mem); 4.7 (?) - GDP deflator in US dollar terms (change in percent): 9.4 (2016); -0.8 (2017); 4.5 (2018); -3.5 (2019); -1.6 (2020); 2.2 (2021); 2.2 (2022); 1.6 (2023); 1.4 (2024); 2.4 (2029); 2.4 (2039); 2.1 (mem); -0.8 (?) - Effective interest rate (percent): 5.7 (2016); 5.5 (2017); 5.9 (2018); 7.6 (2019); 6.8 (2020); 7.0 (2021); 6.8 (2022); 6.6 (2023); 6.6 (2024); 5.9 (2029); 5.3 (2039); 4.1 (mem); 6.6 (?) - Growth of exports of G&S (US dollar terms, in percent): 5.9 (2016); 17.0 (2017); 17.0 (2018); 1.7 (2019); 5.8 (2020); 2.2 (2021); 1.9 (2022); 9.8 (2023); 2.8 (2024); 2.0 (2029); 4.1 (2039); 4.0 (mem); 3.1 (?) - Government revenues (excluding grants, in percent of GDP): 12.9; 13.3; 14.2; 14.6; 15.1; 15.3; 15.3; 15.3; 15.3; 16.6; 18.1; 12.5; 15.6 (table shows two additional numbers stacked) ### Stress tests and scenarios (high-level) - Stress tests presented in Figures and Tables include: historical scenario; most extreme shock determination rules; tailored tests (Combined contingent liabilities; Natural Disaster; Commodity price; Market Financing). - Notes on stress tests: - The most extreme stress test is the test that yields the highest ratio in or before 2029. - All additional financing needs generated by shocks under the stress tests are assumed to be covered by PPG external MLT debt in the external DSA. - Default terms of marginal debt are based on baseline 10-year projections. - Example parameter values shown for borrowing assumptions for stress tests: - Avg. nominal interest rate on new borrowing in USD: 5.0% - Avg. maturity (incl. grace period): 17 (years) - Avg. grace period: 20 (years) - USD Discount rate: 5.0% - Other rows show values 15 and 8 in table context. ### Sensitivity analysis and breach signals (selected) - Table 3 (External PPG indicators) and Table 4 (Public debt indicators) show multiple scenario outcomes and bound/tailored tests with threshold comparisons. - Examples of baseline and alternative outcomes (selected metrics, 2019–2029): - PV of debt-to-GDP ratio (external PPG baseline series shown): 44 (2019); 44 (2020); 46 (2021); 46 (2022); 46 (2023); 44 (2024); 42 (2025); 39 (2026); 37 (2027); 35 (2028); 33 (2029) - Under A1 (key variables at historical averages): PV of debt-to-GDP rises to 52; 55; 59; 63; 66; 68; 70; 73; 75 in later years. - PV of debt-to-exports baseline: 129; 134; 141; 145; 138; 141; 140; 136; 133; 132; 130 - Thresholds indicated (examples): 40 for PV of debt-to-GDP tests; 180 for PV of debt-to-exports threshold; 15 or 18 in other tables (benchmarks vary by metric). - A bold value in tables indicates a breach of the threshold. ### Drivers of debt dynamics and realism tools - Figures show decomposition of debt changes into: - Identified debt-creating flows, primary deficit, real interest rate contribution, real GDP growth contribution, price and exchange rate changes, and residual/unexpected changes. - Figure 3 highlights: - Historical and projected changes in Gross Nominal PPG External Debt and Gross Nominal Public Debt across DSA vintages. - Residual (unexpected) changes are an observed contributor in past 5-year periods. - Figure 4 (Realism Tools) shows: - Government and private investment comparisons between previous and current DSA vintages. - Contribution to real GDP growth (percent, 5-year average) and projected fiscal adjustments (bars = annual projected fiscal adjustment; lines = possible real GDP growth paths under different fiscal multipliers). *Sources: Country authorities; and staff estimates and projections.* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### Figure caption and title - Fiscal Adjustment and Possible Growth Paths 1/ - 3-Year Adjustment in Primary Balance (Percentage points of GDP) ### Horizontal axis (3-year adjustment from program inception) - -4 .5 - -4 .0 - -3 .5 - -3 .0 - -2 .5 - -2 .0 - -1 .5 - -1 .0 - -0 .5 - 0. 0 - 0. 5 - 1. 0 - 1. 5 - 2. 0 - 2. 5 - 3. 0 - 3. 5 - 4. 0 - 4. 5 - 5. 0 - 5. 5 - 6. 0 - 6. 5 - 7. 0 - 7. 5 - 8. 0 ### Vertical axis - percent of sample ### Tick/scale indicators shown on figure - 0 - 2 - 4 - 6 - 8 - 10 - 12 - 14 ### Legend / annotation fragments present on figure - Mo re - Distribution 1/ - Pr ojec t ed 3-yr adjustment - 3-year PBadju stment greater than *Source: 1ghaea2019002* ### 2.5 percentage points of GDP in ### 2.5 percentage points of GDP in ### Market-Financing Risk Indicators - Figure highlights for Ghana: - Maximum gross financing needs (GFN) over 3-year baseline projection horizon (indicator shown). - EMBI spreads correspond to the latest available data. - Benchmarks and breach status shown: "Breach of benchmark" markers include "No" and "Yes". - Market-financing threshold classifications include "Potential heightened liquidity needs" and "Moderate". - Time series and projection periods depicted: - Historical years shown: 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020. - Projection horizon shown through 2024 and extended projections to 2029 in some panels (2019, 2021, 2023, 2025, 2027, 2029). - Multipliers shown in scenario panels: - Multiplier = 0.2 - Multiplier = 0.4 - Multiplier = 0.6 - Multiplier = 0.8 - Specific numeric values and thresholds displayed: - EMBI value shown: 570 - GFN and debt-service related panels with scales including: 0–80 (percent scale), 0–200 (percent scale), 0–30 (percent scale), and 0–6 (percent scale) depending on metric. ### Fund Relations and Financial Position (as of October 30, 2019) - Membership and quota: - Joined: September 20, 1957 - Quota: 738.00 (SDR Million) — 100.00 percent of quota - IMF's Holdings of Currency (Holdings Rate): 645.62 (SDR Million) — 87.48 percent - Reserve Tranche Position: 92.46 (SDR Million) — 12.53 percent - SDR Department: - Net cumulative allocation: 353.87 (SDR Million) — 100.00 percent - Holdings: 12.08 (SDR Million) — 3.41 percent - Outstanding purchases and loans: - ECF Arrangements: 805.61 (SDR Million) — 109.16 percent of quota - Latest financial arrangements (selected): - ECF Apr 03, 2015 – Mar 29, 2019: Amount Approved 664.20 (SDR Million); Amount Drawn 664.20 (SDR Million) - ECF Jul 15, 2009 – Jul 23, 2012: Amount Approved 387.45 (SDR Million); Amount Drawn 387.45 (SDR Million) - ECF May 09, 2003 – Oct 31, 2006: Amount Approved 184.50 (SDR Million); Amount Drawn 184.50 (SDR Million) - Overdue obligations and projected payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs): - Forthcoming Principal: - 2019: 20.07 - 2020: 64.11 - 2021: 83.21 - 2022: 90.25 - 2023: 92.99 - Charges/Interest: - 2019: 0.78 - 2020: 2.91 - 2021: 2.91 - 2022: 2.91 - 2023: 2.91 - Total: - 2019: 20.84 - 2020: 67.02 - 2021: 86.12 - 2022: 93.16 - 2023: 95.90 - HIPC and MDRI: - Decision point date (HIPC): Feb 2002 - Assistance committed by all creditors (US$ Million): 2,186.00 - Of which IMF assistance (US$ million): 112.10 (SDR equivalent: 90.05) - Completion point date: Jul 2004 - Assistance disbursed to member (SDR Million): 90.05 - Interim assistance: 25.06 - Completion point balance: 64.99 - Additional disbursement of interest income: 4.25 - Total disbursements: 94.30 - MDRI-eligible debt (SDR Million): 265.39 - Financed by MDRI Trust: 220.04 - Remaining HIPC resources: 45.35 ### Safeguards, Exchange Rate, and Institutional Notes - Safeguards Assessment (March 2018): - Progress mixed: implemented continuity of quality external audits, improved disclosures, procedures to monitor credit to government. - Outstanding recommendations: legal framework not strengthened to prohibit monetary financing; ELA framework noncompliant; significant exposure to uncollateralized loans. - Exchange rate arrangement: - De jure arrangement: “floating” (accepted obligations under Article VIII on February 2, 1994). - De facto arrangement: reclassified to “other managed” effective April 5, 2019 (previously “managed float”). - Ghana maintains one exchange restriction and a multiple currency practice (MCP) subject to Fund approval. - At end-October 2019, average interbank exchange rate: GH¢ 5.4925 per U.S. dollar. - Resident Representative: - Resident Representative office in Accra since June 1985. - Current resident representative: Mr. Albert Touna Mama, assumed post in September 2018. ### Technical Assistance (TA) since January 2017 - TA topics and departments (selected entries, all dated 2017–2019): - Assessment of revenue administration — FAD 2019 - IT/Cyber security risk management framework — MCM 2019 - Delivery of Integrity Training for Customs — AW2 2019 - AML/CFT Supervision for DNFBPS and NPOs — LEG 2019 - Bank Supervision & Regulation — MCM 2019 - Progressing Basel II/III — AW2 2019 and 2018 entries - National accounts - Rebasing of GDP and development of quarterly GDP by expenditures approach — AW2 2019 - Liquidity Management Framework — MCM 2019 - Petroleum Fiscal Modelling — FAD 2019 - Fiscal Risks — FAD 2019 - Many additional TA activities spanning fiscal, monetary, financial sector, statistics, AML/CFT, and governance topics across 2017–2019. ### Joint World Bank–IMF Work Program, 2019–20 - World Bank work program products (selected): - Ghana Development Policy Financing: Provisional timing February 2020; Expected delivery December 2020 - Public Financial Management Reform Project: Ongoing; Expected delivery December 2020 - Ghana Economic Management Strengthening Project: March 2020; Expected delivery March 2020 - Technical Assistance to Implementation of the Energy Sector Recovery Plan (ESRP): Ongoing; Expected delivery December 2023 - IMF work program in FY 2019/20 (selected): - Identification and Management of Fiscal Risks Arising from PPP Projects — AW2 April 2020 - Enhancing Offsite Follow-up Review — AW2 March 2020 - Review of Ghana Real Time Gross Settlement System based on CPSS-IOSCO PFMI — AW2 March 2020 - Strengthen VAT Compliance and data matching capacity — AW2 February 2020 - Price statistics - Rebasing of Price index numbers — AW2 February 2020 - National accounts - Development of quarterly GDP by expenditures approach — AW2 January 2020 - Follow-up Mission on Final Assessment of the SECO Bank Supervision Project — MCM January 2020 - Joint products and requests: - Joint Bank-Fund Debt Sustainability Analysis (Update) — Joint IMF-World Bank product — December 2019 - Continuous exchange of updates on PPM and Article IV missions, macroeconomic projections, and World Bank financing activities. ### Statistical Issues and Data Adequacy (as of October 30, 2019) - General assessment: - Data provision broadly adequate for standard surveillance but shortcomings in quality and timeliness (notably fiscal data delays). - Need for timelier provision of critical high-frequency data to monitor vulnerabilities. - National accounts: - Annual and quarterly GDP by production at current and constant (2013) prices following rebase disseminated September 2018. - Compilation of annual national accounts needs further strengthening. - Price statistics: - CPI rebased in September 2019 using 2016-17 household expenditures and taking 2018 as the base year. - GSS plans to update PPI weights to 2014 from 2003. - Participation in EDDI2 Prices Module supported by DFID. - Government Finance Statistics (GFS): - Quality and timeliness need improvement; monthly government accounts published with significant delays. - Significant fiscal discrepancy complicates assessment of budget deficit. - Coverage limited to budgetary central government (Consolidated Fund); statutory funds and many regional/district activities outside GFS. - Recommendation: extend coverage to general government. - Ongoing efforts: joint Ministry of Finance–Bank of Ghana working group; implementation of Treasury Single Account; rollout of GIFMIS. - Monetary statistics and financial sector: - BoG progressed on monetary and financial statistics; expanded SRF coverage to include rural banks, savings & loans, credit unions; SRF 4SR for other financial corporations compiled. - BoG reports 12 core FSIs and 7 of 13 encouraged FSIs quarterly with one-quarter lag. - Balance of Payments and external sector: - BPO of BoG Research Department responsible for BOP and IIP; participation in EDDI. - Progress on enterprise surveys (FALS); challenges remain with timeliness. - Recommendation: implement small timely sample quarterly survey of cross-border capital and better utilize ITRS. - External and domestic debt statistics: - External debt recording and payment responsibilities split across MOFEP (ADMU), CAGD, and BoG. - Recommendation: clearly identify government subsectors reported and classify financing, outstanding debt, and guarantees. - Trade statistics: - GSS not publishing timely monthly trade statistics though data available from CEPS. - Recommendation: GSS collaborate with CEPS to process customs data within six weeks; produce export unit values for major commodities (cocoa, gold, oil). ### Common Indicators Required for Surveillance (Table entries, latest observation and dates) - Exchange Rates: Latest observation Sep 2019; Date received Sep 2019; Frequency D; Frequency of Reporting M; Frequency of Publication NA - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Latest observation Sep 2019; Date received Sep 2019; Frequency M; Frequency of Reporting M; Frequency of Publication Q - Reserve/Base Money: Latest observation Aug 2019; Date received Oct 2019; Frequency M; Frequency of Reporting M; Frequency of Publication I - Broad Money: Latest observation Aug 2019; Date received Oct 2019; Frequency M; Frequency of Reporting M; Frequency of Publication I - Central Bank Balance Sheet: Latest observation Aug 2019; Date received Oct 2019; Frequency M; Frequency of Reporting M; Frequency of Publication I - Consolidated Balance Sheet of the Banking System: Latest observation Jun 2019; Date received Oct 2019; Frequency M; Frequency of Reporting M; Frequency of Publication I - Interest Rates: Latest observation Sep 2019; Date received Oct 2019; Frequency M; Frequency of Reporting M; Frequency of Publication I - Consumer Price Index: Latest observation Sep 2019; Date received Oct 2019; Frequency M; Frequency of Reporting M; Frequency of Publication M - Revenue, Expenditure, Balance and Composition of Financing – General Government: NA (not available) - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Latest observation Aug 2019; Date received Oct 2019; Frequency M; Frequency of Reporting M; Frequency of Publication I - Stocks of Central Government and Central Government-Guaranteed Debt: Latest observation Aug 2019; Date received Oct 2019; Frequency M; Frequency of Reporting Q; Frequency of Publication I - External Current Account Balance: Latest observation Jun 2019; Date received Oct 2019; Frequency Q; Frequency of Reporting Q; Frequency of Publication Q - Exports and Imports of Goods and Services: Latest observation Jun 2019; Date received Oct 2019; Frequency Q; Frequency of Reporting Q; Frequency of Publication Q - GDP/GNP: Latest observation 2018; Date received Sep 2019; Frequency Q/A; Frequency of Reporting Q/A; Frequency of Publication Q/A - Gross External Debt: Latest observation Jun 2019; Date received Oct 2019; Frequency M; Frequency of Reporting I; Frequency of Publication A - International Investment Position: Latest observation 2018; Date received Oct 2019; Frequency NA; Frequency of Reporting NA; Frequency of Publication NA ### Supplementary Information (update to Staff Report) - Update covers: - (i) the 2020 budget law presented on November 13 and approved by Parliament on November 26; - (ii) the November 25 Monetary Policy Committee decision to maintain the policy rate unchanged. - The update does not alter the thrust of the staff appraisal. *Source: GHANA — STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX (as provided in content unit 1ghaea2019002).* ### 1. More granular information on the assumptions underlying the 2020 ### 1. More granular information on the assumptions underlying the 2020 ### Budget assumptions and risks - Revenues in 2020 are projected to be 1.5 percent of GDP higher compared to the expected 2019 outcome. - Capital spending is projected to reach 2.3 percent of GDP, or 0.4 percentage point of GDP higher than the average capital spending execution in the past three years. - Staff notes the projected revenue increase is larger than the annual average increase in previous years and "may be optimistic given past challenges to domestic resource mobilization." - Given "existing execution capacity challenges and systematic postponement of investment projects in past years," actual capital spending in 2020 "may turn out to be lower than budgeted." ### Staff projections and expected outturns - Staff considers that a possible revenue underperformance is likely to be compensated by under execution of capital spending, following a pattern observed in past years. - This would result in a 2020 headline deficit (excluding financial and energy sector costs) in line with staff’s projections of 4.9 percent of GDP and an overall deficit of 6.4 percent of GDP. *Source: IMF staff statements, December 3, 2019 and December 6, 2019.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1ghaea2019002.pdf_