## IMF Staff Report — Ghana (content unit: _cr05292)

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### Executive summary and program requests
- Real GDP growth reached 5.8 percent in 2004, outpacing program projections for the second consecutive year.
- Inflation declined by one-half to 11.8 percent at end-2004; after petroleum price increases averaging 50 percent in late-February 2005, inflation accelerated to around 16½ percent in March-April 2005.
- Gross international reserves built up to US$1.8 billion (equivalent to 3.7 months of imports) by end-2004.
- Three fiscal-related quantitative performance criteria and one structural performance criterion for the third review were not observed; remedial actions undertaken.
- Staff supports authorities’ request for:
  - waivers for nonobservance of three quantitative and one structural performance criteria,
  - completion of the third review,
  - extension of the PRGF arrangement to October 31, 2006.
- Program for 2005 aims to: maintain real GDP growth at 5.8 percent, contain inflation at about 14 percent (inclusive of petroleum price adjustment), and build international reserves to about four months of projected imports.

### Macroeconomic performance and risks
- Key outcomes and vulnerabilities:
  - Real GDP growth: 5.8 percent (2004).
  - Private remittances in 2004: about US$1.3 billion or 15 percent of GDP.
  - External current account (after official transfers) deficit: 2.7 percent of GDP in 2004.
  - Gross international reserves end-2004: US$1,816 million (3.7 months of imports).
  - Inflation end-2004: 11.8 percent; March 2005: about 16.7 percent (after petroleum deregulation).
- Principal risks highlighted:
  - Dependence on a narrow export base (cocoa, gold) and high world oil prices.
  - Fiscal slippages could undermine market confidence and crowd out private investment.
  - Drawdown of reserves would reduce the cushion against shocks.
  - Sensitivity to a temporary reduction in grants and sustained deterioration in commodity prices.

### Fiscal performance, policy anchor, and medium-term strategy
- 2004 fiscal execution:
  - Overall budget deficit narrowed to 3.6 percent of GDP (2004) but was 2 percentage points of GDP larger than programmed.
  - Total revenue and grants rose; tax revenue to GDP ratio reached 23.8 percent of GDP.
  - Three fiscal-related performance criteria not met: net domestic financing exceeded ceiling by about 1 percent of GDP; stock of net domestic banking sector credit to TOR exceeded limit; zero ceiling on contracting/guaranteeing medium- to long-term nonconcessional external debt breached with a US$40 million loan from Nigeria (resulted in a US$25 million penalty, 0.3 percent of GDP).
- Fiscal anchor and medium-term guidance:
  - Domestic debt-to-GDP ratio remains the nominal fiscal anchor; 2005 target: reduce ratio to 11½ percent by year-end.
  - Staff urged further sizeable reduction in domestic debt-to-GDP primarily via cuts in low-priority expenditures and reduction in the wage bill relative to GDP.
  - Civil service wage bill around 9 percent of GDP in 2004; staff urged roll-back toward about 8½ percent of GDP over the medium term.
- 2005 fiscal parameters and budget composition:
  - Budget targets a domestic primary surplus of about 2½ percent of GDP.
  - Total revenue expected to rise ½ percentage point of GDP to 30½ percent (2005 staff projection).
  - Total expenditure projected to decline by 1½ percentage points of GDP to below 32 percent.
  - Wages projected to rise to 9.1 percent of GDP in 2005 (including 0.2 percent GDP payments due in 2004 but paid in 2005); program includes quarterly limit on total wages and salaries.

### Monetary policy and banking sector reforms
- Monetary stance and operations:
  - Monetary policy remained firm; reserve money growth maintained at about 17 percent in 2004.
  - MPC lowered policy-controlled interest rate by 200 basis points to 16½ percent after its May meeting (2005).
  - 2005 monetary objectives: contain expansion of reserve money and broad money at about 18 and 23 percent, respectively.
- Reserve requirements and recent reform:
  - Secondary reserve requirement reduced from 35 percent to 15 percent, effective July 1, 2005; removal of requirement that banks hold 15 percent of deposits in medium-term securities.
  - Directors endorsed reduction as consistent with improving transmission of monetary policy while urging firm control over liquidity.
- Financial sector soundness and progress:
  - All commercial banks meet the capital adequacy requirement of 6 percent and most are above 10 percent.
  - Nonperforming loans fell to 16.1 percent from a 2002 peak of 22.7 percent; provisioning increased.
  - Interest margins remain wide but expected to narrow with increased competition and lower public sector borrowing requirement.
  - Financial Sector Strategic Plan and FSAP follow-up largely implemented; outstanding FSAP weakness: quality of external audit controls.

### Structural reforms — petroleum sector deregulation, SOEs, and civil service
- Petroleum sector deregulation and pricing mechanism:
  - Automatic adjustment mechanism established; petroleum prices adjusted on February 23, 2005 (about a week later than envisaged).
  - Pricing formula: maximum retail prices = ex-refinery price (c.i.f. import price benchmark using a three-month moving average of Mediterranean Platt prices) + taxes/levies + distributor margins; tenders determine supply.
  - National Petroleum Authority (NPA) to monitor pricing mechanism and tender process; legislation passed in June 2005 with NPA chairperson appointed.
  - TOR subsidies prior to deregulation: required subsidies amounted to 2.2 percent of GDP in 2004; TOR outstanding debt to Ghana Commercial Bank nearly 1 percent of GDP.
- State-owned enterprises and public enterprise reform:
  - Full cost-recovery pricing for public utilities is a quarterly structural performance criterion.
  - Authorities to develop capacity to monitor financial and operating performance of SOEs and submit annual financial plans.
  - Divestiture program ongoing; projected proceeds from sale of shares in 12 joint-venture companies about 0.6 percent of GDP (not included in 2005 budget).
- Civil service reform:
  - Objective: establish a professional civil service, determine appropriate size and structure, and design transition.
  - Cabinet to approve final civil service reform plan by year’s end; implementation to begin in January 2006.
  - Authorities not prepared to set explicit medium-term wage bill target until costing is completed.

### External sector, reserves, and access to markets
- External outcomes and projections:
  - Gross international reserves: US$1,816 million end-2004; staff project reserves to rise to about 4.1 months of imports over the medium term.
  - External current account after official transfers: deficit of 2.7 percent of GDP in 2004; projected to widen to about 5 percent of GDP a year over the medium term (reflecting higher oil import payments and increased investment-related imports).
  - Exports projected (US$ millions): 2,929 (2005), 3,067 (2006), 3,295 (2007).
  - Imports projected (US$ millions): -4,696 (2005), -4,968 (2006), -5,379 (2007).
- External financing and debt outlook:
  - Ghana reached completion point under the enhanced HIPC Initiative in July 2004; most creditors signed stock cancellation agreements.
  - NPV of total government debt (percent of GDP): 50.5 (2003), 43.5 (2005).
  - Debt sustainability: external and public debt projected sustainable under baseline; risk if grants fall or shocks persist.
  - Authorities favor exhausting concessional financing before considering nonconcessional market access; staff urged strengthening debt-management capacity and building a macro track record post-HIPC.

### Program conditionality, performance criteria, and TMU reporting
- Key performance criteria and indicative benchmarks (selected exact values and rules preserved):
  - Program exchange rate for monitoring: 9,177 cedis per dollar (average interbank rate end-March 2005).
  - Net domestic financing (ceiling; cumulative flows, billions of cedis): -119, -237, -1,374, -1,374, -996 (test dates as specified in MEFP tables).
  - Net international reserves of the Bank of Ghana (floor; in millions of U.S. dollars): -132, -217, -283, 218, 130.
  - Stock of net domestic banking sector credit to TOR (ceiling; billions of cedis): 918, 568, 600, 600.
  - Wage bill of the central government (ceiling; cumulative, billions of cedis): 1,825, 3,747, 6,447, 8,832.
  - Continuous zero ceiling on contracting or guaranteeing new nonconcessional external debt (exceptions and footnotes in TMU).
- TMU data reporting requirements (selected):
  - Fiscal data: central budget operations — monthly within six weeks.
  - Monetary data: net domestic assets and net international reserves — weekly within two weeks.
  - Balance of payments: quarterly with a maximum lag of two months.
  - External debt concessionality: monthly within four weeks of end of each quarter.
  - All quantitative performance criteria and benchmarks evaluated in cumulative flows from December 31, 2004; data to be provided monthly with lag no more than eight weeks (exceptions in Table I.3).

### Statistics, data quality, and capacity-building
- Data gaps and improvements:
  - Data provision adequate for program monitoring but quality and timeliness need improvement; participation in GDDS under way.
  - Notable lags: International transactions last reported for 2000 in IFS; government finances last reported for 1998; national accounts last reported for 1997 in IFS.
  - GSS planned publications: revised national accounts (1990 onward) and updated CPI to be published in December 2005.
- Recent TA and system upgrades:
  - Monetary and international reserve data redefined and automated bridge tables established; BOG reports monthly with four- to six-week lag.
  - New BSD2 commercial bank report form adopted; BOG reporting lag for commercial banks 8 to 10 weeks.
  - Reforms in public expenditure reporting: BPEMS deployment and commitment control system functioning; improved reporting of internally generated funds, grants, and loans by MDAs.

### Millennium Development Goals and medium-term social financing needs
- MDG status (selected exact figures and assessments):
  - Proportion below US$1 a day: 44.8 percent.
  - Population below extreme poverty line: declined from 52 percent in 1992 to about 35 percent in 2003.
  - Gross primary enrollment rate: 86 percent and on track for 100 percent.
  - Under-5 mortality: 111 per 1,000 live births (2003) — goal unlikely to be reached on current projections.
  - Maternal mortality modeled estimate: 250 per 100,000 live births (2003) — off track.
  - HIV prevalence (female ages 15-24): 3.6 percent (2003) — off track.
- Resource needs:
  - Authorities’ and UNDP recent estimates suggest additional amounts of US$2.5 billion (28 percent of GDP) annually over the next 10 years needed for public investment and outlays in critical areas to meet MDG-related objectives.

### 2005 program implementation priorities and monitoring
- Program objectives for 2005:
  - Maintain real GDP growth at 5.8 percent.
  - Contain inflation at about 14 percent by year-end (inclusive of petroleum price adjustment).
  - Build international reserves to about four months of projected imports.
- Key structural priorities:
  - Public sector reform and civil service restructuring.
  - Strengthening financial sector intermediation and supervision.
  - Improve performance and cost recovery of state-owned enterprises.
  - Complete implementation of petroleum sector deregulation with independent oversight (National Petroleum Authority established; prior action met).
- Monitoring and next steps:
  - Authorities requested PRGF extension to October 31, 2006 to complete reviews and disbursements.
  - IMF Executive Board completed third review; made SDR 26.4 million immediately available and waived the nonobservance of three quantitative and one structural performance criteria based on remedial measures.

*Source: IMF staff report content provided in the document (_cr05292)._

### Appendix III. This report is accompanied by a Letter of Intent, with attached Memorandum of Economic

### Appendix III. This report is accompanied by a Letter of Intent, with attached Memorandum of Economic and Financial Policies for 2005 and Technical Memorandum of Understanding (www.imf.org), and a Statistical Appendix.

### Executive Summary
- Real GDP growth outpaced program projections for the second consecutive year.
- Buildup in international reserves was faster than envisaged.
- Inflation declined by one-half by the end of 2004 from 23.6 percent at end-2007.
- Three fiscal-related quantitative performance criteria for the third review were not observed because of fiscal slippages, although technical factors contributed.
- Progress in structural reform was satisfactory, but:
  - The pricing mechanism for petroleum products was adopted about a week past the deadline.
  - Establishment of the associated oversight body is pending (resulting in nonobservance of a structural performance criterion).
- Policy focus and objectives:
  - Domestic debt to GDP remains the nominal fiscal anchor; government aims in 2005 to achieve the medium-term target of reducing this ratio to half the level at end-2002.
  - Authorities concerned that a further substantial reduction in domestic debt may be undesirable given resources needed to meet the Millennium Development Goals (MDGs); staff stressed benefits of further bold reduction.
  - Bank of Ghana’s main objectives: reduction of inflation by maintaining a firm monetary policy and building international reserves.
  - Structural policies: measures to encourage private-sector-led growth, removal of impediments, and public sector role in creating conducive conditions.
- Program for 2005: further consolidation of gains in macroeconomic stability and intensification of structural reform; growth projected to continue at current strong pace and inflation should be well contained (inclusive of the impact of a recent petroleum price adjustment).
- Structural reform priorities: public sector reform, strengthening the financial sector, restructuring the civil service, improving financial and operating performance of state-owned enterprises, and removing rigidities to enhance financial intermediation.
- Staff supports authorities’ request for:
  - waivers for nonobservance of three quantitative and one structural performance criteria,
  - completion of the third review,
  - extension of the PRGF arrangement.

*Main issues raised in the staff appraisal*
- Macroeconomic performance broadly satisfactory, but macroeconomic stability remains fragile.
- Economic prospects driven by export of a few commodities and high oil prices, contributing to vulnerability.
- Fiscal challenge: prevent further slippages that would undermine market confidence; increasing fiscal space is high priority to provide room for growth-enhancing and poverty-reducing expenditures aimed at achieving the MDGs.
- Desirability of further sizeable reduction in ratio of domestic debt to GDP, primarily through cuts in low-priority expenditures and in the public sector wage bill relative to GDP.
- Bank of Ghana’s inflation target within reach but vigilance required; refinements to instruments have increased efficacy of monetary policy; a firm stance needed to avoid upward shift of inflation in light of high world oil prices.
- Intensification of structural reform in key areas will support growth; critical element in petroleum sector deregulation is automatic and independent adjustment of petroleum product prices and elimination of government involvement.
- Enhancing financial intermediation together with reform of the civil service and public enterprises will support private sector development.

### I. Retrospective
- Since the early 1980s, Ghana experienced relatively strong economic growth and poverty reduction compared with other countries in sub-Saharan Africa.
- Real GDP growth averaged almost 4½ percent a year over two decades despite external shocks and stop-and-go policies.
- Poverty declined from more than half of the population to an estimated 35 percent; the link between growth and poverty reduction has strengthened.
- Per capita income remains low at about US$435.
- Economic reform began in earnest in the 1980s: devaluations, removal of price controls, liberalization of trade and investment, market-oriented and financial sector reforms, and an ambitious divestiture program in the late 1990s.
- 1990s saw serious imbalances and volatile inflation due to weak macroeconomic policies (especially lax fiscal stance) and deterioration in external terms of trade from rising world oil prices and depressed cocoa and gold prices.
- Since 2000, improved macroeconomic management and a favorable external environment supported stronger performance:
  - Inflation being reduced through firm monetary policy.
  - Total public debt declined substantially due to enhanced HIPC Initiative and fiscal prudence.
  - Gross international reserves reached record-high levels.
  - Exchange rate vis-à-vis the U.S. dollar and real effective terms remained relatively stable since late-1999 adjustment.
  - Structural reforms began yielding benefits, particularly in agriculture, and private sector activity is strengthening.

### Box 1. Fund Relations (summary)
- At the conclusion of the Article IV consultation in May 2003, Executive Directors endorsed Ghana’s Poverty Reduction Strategy (GPRS).
- At the second review of the PRGF arrangement in July 2004, Directors commended authorities for strengthening macroeconomic management but regretted the decision to leave petroleum prices unchanged ahead of the December 2004 elections.
- Ghana generally receptive to Fund advice; strong program ownership; delays usually due to lack of capacity rather than reticence.
- Authorities were somewhat reluctant to adjust domestic petroleum prices ahead of elections because of perceived difficult socio-political environment.

### II. Recent Developments and Performance Under the Program
- Real GDP growth reached 5.8 percent in 2004, more than a percentage point higher than the average during 2001–03.
  - Agriculture main contributor; cocoa productivity improvements led to record-high production.
  - Services and construction picked up, helped by increased bank credit and private inward remittances (mainly from the United States, Canada, and United Kingdom).
- Private remittances in 2004 amounted to the equivalent of 15 percent of GDP (Table 2).
  - In 2004, remittances amounted to about US$1.3 billion or 15 percent of GDP, compared with about US$600 million in official flows.
  - Remittances attributable mainly to diaspora estimated at about 3 million, or 15 percent of resident population; preliminary 2004 data show about half of inflows originate in the United States and Canada, with one fourth from the United Kingdom.
- Inflation:
  - Declined sharply in 2004, falling by half to 11.8 percent from the end-2003 rate.
  - Following petroleum price increases averaging 50 percent in late-February 2005, inflation accelerated to around 16½ percent in March-April.
  - Bank of Ghana’s core measure of inflation (excluding energy and utilities) broadly stable.
- External sector:
  - Gross international reserves built up to US$1.8 billion (equivalent to 3.7 months of imports) by end-2004, significantly above program target.
  - Private remittances, expanding cocoa and gold export receipts, and increased donor support helped reserve buildup.
  - External current account (after official transfers) moved to a deficit of 2.7 percent of GDP in 2004, reflecting increased capital imports tied to donor inflows and a larger oil import bill (by nearly 2½ percentage points of GDP) owing to higher world oil prices.
  - Volume of exports expanded rapidly in 2004 reflecting higher cocoa and gold exports and continued growth in nontraditional exports.
  - Real effective exchange rate for the cedi remained relatively stable.
- Monetary policy:
  - Monetary policy remained firm; monetary aggregates were in line with program targets and performance criteria (Table 5).
  - Monetary stance unchanged so far in 2005, with growth in reserve money maintained at same rate as in 2004 (about 17 percent).
  - Monetary Policy Committee (MPC) of the Bank of Ghana lowered its policy-controlled interest rate by 200 basis points to 16½ percent after its May meeting, signaling intention to ease policy stance since indirect effects of petroleum price deregulation largely absorbed.
- Fiscal execution:
  - Overall budget deficit narrowed by 0.8 percentage points of GDP to 3.6 percent in 2004, but was 2 percentage points of GDP larger than programmed.
  - Total revenue and grants higher than projected; tax revenue to GDP ratio reached 23.8 percent of GDP.
  - Improvements reflect strong growth, new tax measures, more efficient revenue administration, and a significant rise in grants.
  - Additional resources were more than offset by unanticipated capital outlays, increased petroleum subsidies due to higher world oil prices, and an overrun in wages.
  - Envisaged repayment of domestic debt did not transpire; programmed reduction in ratio of domestic debt to GDP achieved only as a result of faster GDP growth.
- Three fiscal-related quantitative performance criteria not observed by end-December 2004:
  - Net domestic financing of the budget: limit exceeded by about 1 percent of GDP, mainly because of higher expenditure for poverty reduction and infrastructure, petroleum-related subsidies, and a wage overrun for subvented agencies (resulting from failure to fully account for all such employees in the program and weak monitoring).
  - Credit to the state-owned Tema Oil Refinery (TOR): limit on stock of net domestic banking sector credit to TOR exceeded due to delay in subsidy transfers from the government; transfer effected in early 2005 after verification. Subsidies to TOR have ended as a result of petroleum sector deregulation.
  - Contracting or guaranteeing of medium- to long-term nonconcessional external debt: zero ceiling breached with a US$40 million loan from Nigeria to finance Ghana’s participation in the World Bank-supported West African Gas Pipeline. Authorities had mistakenly expected concessional financing and could not make alternative arrangements in time to avoid a US$25 million (0.3 percent of GDP) penalty.

*Appendix III. This report is accompanied by a Letter of Intent, with attached Memorandum of Economic and Financial Policies for 2005 and Technical Memorandum of Understanding, and a Statistical Appendix. Principal authors: Samuel Itam and Robert York.*

### 10.      Some progress was made in structural reforms, with a majority of the structural

### _cr05292 - 10.      Some progress was made in structural reforms, with a majority of the structural

### Structural reforms and financial sector progress
- A majority of the structural performance criteria and benchmarks were met (Table 11).
- The financial sector has strengthened considerably since the late 1990s:
  - Commercial banks are generally liquid, meet prudential requirements, and many are highly profitable.
  - Improvements reflect regulatory and legislative reforms, implementation of reform measures, and incipient macroeconomic stability.
- A project of economic importance was not consulted with Fund staff in a timely manner; mechanisms have been instituted for regular meetings between government officials and the Resident Representative on program monitoring.

### Box 2 — Progress in Financial Sector Reform (summary findings)
- An FSAP for Ghana was undertaken in 2000–01, with an update published in December 2003.
- Main FSAP conclusion: past macroeconomic instability undermined the functioning of the financial sector and partly explained the low level of intermediation.
- FSAP recommendations addressed corporate governance, laws and prudential regulations, private property rights, and timely payment of government obligations; nearly all key FSAP policy recommendations have now been completed (Table 12).
- Bank of Ghana safeguards assessment in 2003 revealed vulnerabilities in financial, audit and internal controls; all but one weakness have been addressed (outstanding: quality of external audit controls).
- Financial soundness indicators for the banking sector have improved (Table 13):
  - All commercial banks meet the capital adequacy requirement of 6 percent, and most are above 10 percent.
  - Ratio of nonperforming loans to total loans fell to 16.1 percent from a peak of 22.7 percent in 2002.
  - Provisioning for bad loans has increased.
  - Interest rate margins are wide but expected to narrow due to increased bank competition following:
    - Recent decline in the public sector borrowing requirement.
    - Entry of two foreign-owned banks in the market.

### Public expenditure and financial management reforms
- Public expenditure and financial management enhanced with FAD technical assistance:
  - Cash management and commitment control system is fully functioning.
  - Budget and public expenditure management system operating in 10 of 38 ministries.
  - Regular reporting of internally generated funds, grants and loans by ministries, departments, and agencies.
  - Implementation and enforcement of Financial Administration, Procurement, and Internal Audit Agency Act have advanced.
- Reforms intended to reduce budget fragmentation over the medium term.
- Public enterprise reform ongoing:
  - Full cost-recovery pricing for public utilities is a quarterly structural performance criterion.
  - Settlement of all cross-debts between state-owned enterprises pursued.

### Box 3 — The Petroleum Sector and Product Pricing (findings and design of deregulation)
- Prior to 2004, Tema Oil Refinery (TOR) was the only sanctioned importer of petroleum products; restriction lifted in 2004 allowing oil-marketing companies and market traders to bid competitively for crude and refined products.
- Previously, government involvement in pricing prevented the automatic formula from functioning; infrequent adjustments and budget subsidies to TOR occurred.
- In 2004, required subsidies to TOR amounted to 2.2 percent of GDP.
- TOR’s outstanding debt to Ghana Commercial Bank amounts to nearly 1 percent of GDP.
- Government committed in mid-2004 to deregulate the petroleum sector and remove itself from pricing.
- Elements of deregulation and pricing mechanism:
  - Maximum retail prices determined by adding all applicable taxes, levies, and adequate distributor margins to the ex-refinery price; ex-refinery price is the c.i.f. import price of refined products and sets an upper limit for TOR’s price.
  - Supply determined by competitive tender; tenders as needed; retail price adjustments automatic but implemented with a lag reflecting delivery time (about six to eight weeks after the tender).
  - National Petroleum Authority (NPA) will monitor application of the pricing mechanism, operate the tender process, and ensure maximum price is observed; NPA to include government, private sector, and nongovernmental organization representatives.
  - NPA will use a three-month moving average of Mediterranean Platt prices (published in the Platt’s Oilgram) as a benchmark; pricing above this benchmark must be justified by the retailer.
- Implementation status:
  - The automatic adjustment mechanism was established and petroleum prices were adjusted on February 23, 2005 (about a week later than envisaged).
  - An independent oversight body to monitor the pricing mechanism is expected to be established in June 2005 after parliament passes enabling legislation.
- Structural performance criterion on deregulating petroleum pricing was not adopted as scheduled.

### Debt relief and HIPC completion
- Ghana reached the completion point under the enhanced HIPC Initiative in July 2004; all multilateral creditors agreed to offer debt relief.
- Most creditors have signed stock cancellation agreements; remaining Paris Club creditor agreements to be completed shortly.
- Ghana received additional debt relief beyond the enhanced HIPC Initiative from most bilateral creditors.

### Policy discussions — macroeconomic objectives
- GPRS (early 2003) laid foundation for recent economic improvement.
- Broad macroeconomic goals in the three-year PRGF arrangement (2003–05):
  - Raise real GDP growth to an average of 5 percent a year.
  - Reduce inflation to single digits.
  - Build gross international reserves to three months of import coverage.
  - Reduce domestic debt as a share of GDP.
- Performance under the program broadly satisfactory.
- Main challenges: accelerate growth to reduce poverty faster; bring down inflation closer to major trading partners’ rates; contain civil service wage bill to free resources for productive public expenditure; intensify structural reforms; improve management of public enterprises.
- GPRS update planned to cover 2006-09 and align better with MDGs; most MDGs Ghana is on track to reach but progress lagging in certain areas, including health (Tables 14 and 15).
- More resources required to achieve all MDGs; authorities aware they will need foreign assistance but must first try to find resources domestically.
- Recent estimates by Ghanaian authorities and UNDP suggest additional amounts of US$2.5 billion (28 percent of GDP) annually over the next 10 years for public investment and outlays in critical areas such as health, education, and infrastructure.

### Fiscal policy discussions and medium-term strategy
- Fiscal policy focus: appropriate medium-term level of domestic debt, scope for increasing fiscal space, raising quality of public expenditures, and enhancing governance.
- Authorities indicated ratio of domestic debt to GDP remains the anchor of the fiscal strategy; staff argued further reduction beyond the 2005 target may be desirable but must be balanced against resources needed for MDGs.
- Staff case for further debt reduction: would
  - Enlarge durable fiscal space for additional priority spending and growth-enhancing tax cuts.
  - Enhance potential for lower interest rates and “crowding-in” of private investment.
  - Provide room to borrow against unpredictable external assistance disbursements.
- Potential for additional domestic resource mobilization limited; tax burden has risen sharply and is higher than other countries in the region.
- Scope to increase tax revenue marginally by broadening the base, eliminating exemptions and loopholes, and strengthening tax administration (customs and informal sector).
- Staff recommended containing expenditure and shifting composition toward productive investment; establish explicit linkages between GPRS, the medium-term expenditure framework, and the annual budget.
- Civil service wage bill around 9 percent of GDP; staff urged roll-back to about 8½ percent of GDP over the medium term in context of civil service reform.

### Box 4 — Summary of Medium-Term Fiscal Strategy discussions (illustrative projections and authorities’ alternative)
- Fundamental premise: maintain sustainability and provide enduring “fiscal space” for productive and pro-poor spending aligned to MDGs.
- Specific points:
  - Domestic debt-to-GDP ratio should remain the nominal fiscal anchor.
  - Low priority current expenditure needs to be reduced (example: removing government involvement in petroleum pricing and ensuring full cost recovery).
  - Focus on increasing productive capital spending (health, education, infrastructure).
- Mission’s illustrative projections (Table 16) suggest:
  - By reducing debt sharply, domestic debt service will be lowered significantly, creating room for other spending.
  - Gradual increase in capital spending allowed.
  - Assumptions: ratio of revenue to GDP will gradually decline (reflecting some reduction in tax rates); recurrent expenditure as share of GDP declines (lower wage bill and domestic debt service).
- Authorities’ alternative illustrative scenario assumes:
  - Revenue to GDP ratio remains constant (no reduction in overall tax burden).
  - Ratio of recurrent expenditure to GDP declines only modestly; wage bill remains constant at 9 percent of GDP.
  - Capital expenditure including “additional productive expenditure” relative to GDP increases more substantially.
  - “Other payments” including arrears clearance and the float remain large.
- Implications:
  - Authorities’ projections underscore need to improve public expenditure and financial management as part of arrears clearance.
  - Not reducing domestic debt-to-GDP aggressively limits relief from debt service, an important source of fiscal room in the mission’s projections.
  - Both projections agree on desirability of increasing productive capital expenditure.
- Authorities and staff will continue reviewing these issues in close consultation.

### Civil service reform objective
- Main objective: enhance delivery of services to the public.
- Government will determine appropriate size and structure of the civil service and design the transition.
- Until design and costing are completed, authorities are not prepared to set an explicit medium-term wage bill target.

### Monetary and financial sector policies
- Monetary policy focused on reducing inflation to single digits over the medium term.
- Authorities describe framework as a “variant’’ of an inflation targeting regime using open market operations to achieve desired growth of monetary aggregates consistent with the inflation objective.
- In environment of strong foreign exchange inflows, Bank of Ghana is vigilant about balancing monetary expansion and competitiveness.
- Instruments and institutional improvements:
  - Introduction of central bank bills refined liquidity management.
  - Improvements in liquidity forecasting.
  - Regular and candid economic assessments by the Monetary Policy Committee (MPC) strengthen credibility.
  - Market interest rates have begun to track the central bank’s prime rate more closely.
- Staff concern about the secondary reserve requirement set at 35 percent of banks’ deposits directing bank assets toward government securities.
  - Primary reserve requirement is 9 percent of banks’ deposits.
  - Secondary reserve requirement was initially adopted in September 1996 (at 52 percent) and has been at 35 percent since April 1997.
  - Banks must meet the secondary reserve requirement by holding various government (and central bank) securities.
- Authorities’ view on secondary reserve:
  - Banks currently hold excess reserves; secondary reserves are fully remunerated.
  - Limited opportunity to expand banks’ loan portfolios at this time.
  - Secondary reserve requirement would be reexamined when firmer control over liquidity and low inflation are achieved.
- Staff noted not all banks hold excess reserves and that the requirement may inhibit economic efficiency and prevent banks from exploiting market opportunities; authorities concerned about capacity to control short-term liquidity impacts of reform.

*Source: Selected excerpts from the chapter provided in the PDF content unit.*

### 24.      The Financial Sector Strategic Plan continues to provide the medium-term

### The Financial Sector Strategic Plan continues to provide the medium-term

### Financial sector reform: direction and constraints
- More than 20 pieces of legislation (bills) are in various stages of preparation to:
  - support the legal and regulatory framework;
  - strengthen governance; and
  - increase access to, and reduce the cost of, credit.
- Authorities expect these measures to set the ground for an expansion in private sector credit, a key element of the overall development strategy.
- Current constraints on credit extension:
  - banks are wary of lending to small and medium-size enterprises and consumers because of lack of information on borrowers’ creditworthiness; and
  - weak in-house capacity in banks to assess risks.

### Banking sector competition and key institutions
- Policy actions to increase competition and efficiency in the banking sector include:
  - licensing of two well-capitalized foreign banks;
  - raising of capital requirements; and
  - introduction of real-time gross settlement and central security depository systems.
- Authorities consider the financial sector generally sound, but note vulnerabilities:
  - Ghana Commercial Bank (GCB), the largest commercial bank with about 20 percent of the sector’s financial assets, may need further strengthening;
  - GCB’s exposure to TOR is a source of concern; petroleum sector deregulation will reduce TOR’s financing needs going forward, but the current stock of TOR’s debt to GCB must be reduced in a timely manner.

### External policies and exchange rate management
- Exchange rate regime:
  - Ghana maintains a managed floating exchange rate regime with no preannounced path;
  - central bank intervention aims to smooth short-term fluctuations and achieve targeted international reserves.
- Reserve accumulation and inflation:
  - authorities accumulated reserves at an accelerated pace during strong inflows, contributing to relative stability of the nominal exchange rate;
  - staff concurred with accelerated reserve accumulation given good progress on dis-inflation.
- Exchange rate and competitiveness indicators:
  - real effective exchange rate depreciated by about 50 percent in late 1999, reached a low in mid-2000, then appreciated by only 11 percent over the subsequent five-year period;
  - gross international reserves are at a record-high level; cedi exchange rate and Ghana’s price competitiveness do not appear under pressure; nontraditional exports have expanded strongly.
- Foreign exchange market functioning:
  - central bank retains a surrender requirement for a limited number of enterprises to avoid potential FX market volatility from releasing earnings of large earners;
  - staff urged continued development of a computerized real-time foreign exchange trading system; implementation has been delayed due to concerns over institutional capacity to operate it without undue risk to exchange rate stability.
- Trade policy:
  - National Trade Policy (December 2004) emphasizes expanding access to regional and global markets to bolster domestic competition, encourage export growth, and accelerate technology transfer;
  - authorities reject high-tariff protection and assert intent to foster domestic competition via multilateral trade liberalization and a level playing field for imports and exports.
- External financing strategy:
  - authorities favor continued reliance on concessional external financing but see potential benefits from eventual access to international capital markets, citing Ghana’s B+ sovereign rating and expected support from international investment banks;
  - they argue market access would supplement official assistance, increase market discipline, boost investment and employment potential, and establish market benchmarks.
- Staff view on borrowing:
  - Ghana should first exhaust concessional borrowing avenues and strengthen debt-management capacity;
  - establish a longer track record of good macroeconomic performance after reaching enhanced HIPC completion point to obtain better financing terms;
  - authorities undertook to observe the zero ceiling on nonconcessional debt but requested future reconsideration of this conditionality.

### Structural reforms: civil service, SOEs, and statistics
- GPRS update refocused to prioritize private sector–led growth, with emphasis on financial sector development and public sector performance through civil service and state-owned enterprise (SOE) reform.
- Civil service reform:
  - government aims to form a “professional” civil service; low productivity and poor service delivery are recognized problems;
  - staff encouraged rapid action once a comprehensive strategy is developed by midyear.
- State-owned enterprises:
  - SOEs account for a sizable share of economic activity; staff found a lack of comprehensive and timely information for most SOEs;
  - authorities agreed to develop capacity to monitor financial and operating performance of all SOEs and ensure commercially oriented entities maintain or adopt pricing policies reflecting full cost recovery;
  - authorities will strengthen a monitoring unit in the Ministry of Finance and Economic Planning before developing quantitative performance indicators.
- Statistics and data provision:
  - Ghana’s data provision is adequate for program monitoring and surveillance, but quality and timeliness need improvement;
  - Fund provides technical assistance; improvement will mainly involve building capacity in Ghana’s Statistical Service and financing that activity;
  - Ghana should complete participation in the GDDS as a framework for needed statistical improvements.

### Medium-term prospects and risks (baseline projections)
- Growth and inflation:
  - annual growth of about 6 percent is projected under the medium-term baseline scenario, supported by strong private-sector investment and public investment in infrastructure;
  - after an initial rise in 2005 due to petroleum price deregulation, headline inflation is expected to decline to about 6 percent in 2008.
- External sector:
  - external current account deficit (after official grants) projected to widen to about 5 percent of GDP a year over the medium term, reflecting higher oil import payments and increased imports of capital and intermediate goods associated with higher investment;
  - gross international reserves projected to rise gradually to the equivalent of 4.1 months of imports.
- Poverty and MDGs:
  - authorities indicate that even with expected foreign assistance in the baseline, Ghana would be unable to achieve all the MDGs; for more pronounced poverty impact, real GDP growth would need to be much faster—about 8–10 percent a year.
- Risks highlighted:
  - rise in world oil prices could retard growth, widen the external current account deficit, and delay single-digit inflation;
  - drawdown of reserves would reduce the shock cushion;
  - deterioration in commodity prices coupled with higher oil prices could undermine macro gains;
  - diversification of exports and improved agricultural productivity would reduce vulnerability and assist poverty alleviation.
- Fiscal and debt risks:
  - further fiscal slippages would endanger macroeconomic stability; staff urged vigilance and strengthened fiscal discipline;
  - debt relief under enhanced HIPC improved debt service indicators, projected to remain manageable;
  - updated debt sustainability analysis shows external and public debt sustainable over the projection period;
  - debt will gradually build up by approximately US$350 million a year, with new loans expected on concessional terms;
  - sensitivity analysis: external debt sustainability robust to most non-persistent shocks, but a temporary reduction in grants would sharply increase the NPV of the debt-to-GDP ratio over the medium term; long-term sustainability could be jeopardized by sustained deterioration in key variables, especially significant reduction in grants.

### Program for 2005: objectives and key policy measures
- Macroeconomic objectives for 2005:
  - maintain real GDP growth at 5.8 percent;
  - contain inflation at about 14 percent (inclusive of the impact of petroleum price adjustment) by year end;
  - build international reserves to about four months of projected imports of goods and services.
- Policy orientations:
  - fiscal policy: achieve targeted reduction in ratio of domestic debt to GDP (11½ percent by year-end);
  - monetary policy: contain expansion of reserve money and broad money at about 18 and 23 percent, respectively, consistent with inflation and reserve targets;
  - structural reforms: enhance conditions for private sector development and deepen financial intermediation;
  - economic governance: reform civil service and SOEs.
- Budget and fiscal composition:
  - 2005 budget targets a domestic primary surplus of about 2½ percent of GDP, consistent with net domestic repayment to reach the targeted reduction in net domestic debt to GDP;
  - total revenue expected to rise ½ percentage point of GDP to 30½ percent, mainly from higher indirect taxes on imports of goods and petroleum (driven by administrative improvements) and full-year impact of the health levy introduced in 2004;
  - revenue increase helps offset a decline of grants (by about ½ percent of GDP), reduction of corporate income taxes, and increase in personal income tax threshold;
  - total expenditure to decline by 1½ percentage points of GDP to below 32 percent, mainly due to lower domestic debt service and outlays for goods and services, and elimination of TOR subsidies;
  - expenditure cuts amount to about 2¾ percentage points of GDP and more than offset a slight increase in capital and poverty-related spending and measures to cushion vulnerable households from higher petroleum prices (increased grants for education and health, expanded rural electrification, extended public transportation to less developed areas).
- Wages and payroll management:
  - wage bill projected to rise to 9.1 percent of GDP—including 0.2 percent of GDP in payments due in 2004 but paid in 2005—compared with 8.7 percent last year;
  - program includes a limit on total wages and salaries (inclusive of all allowances) in 2005 to be monitored quarterly (quantitative performance criteria in MEFP Table I.1);
  - government to create comprehensive and computerized personnel and payroll databases covering all employees of government and subvented agencies (structural performance criterion detailed in MEFP Table I.2).
- Monetary and credit objectives:
  - central bank goal remains reduction of inflation; maintain firm monetary policy to achieve inflation objective even with high oil prices;
  - combined with fiscal consolidation, envisaged expansion of broad money should allow further expansion in bank credit to the private sector.
- Structural program components:
  - increased focus on reforming SOEs and civil service, and strengthening financial sector intermediation;
  - measures to enhance monitoring of SOEs’ financial and operating performance, increase accountability, and press commercially oriented SOEs to adopt full cost recovery pricing where appropriate;
  - Cabinet to approve final civil service reform plan by year’s end (structural performance criterion); implementation to begin in January 2006.
- IMF program implementation:
  - authorities requested an extension of the current PRGF arrangement to October 31, 2006, to complete the sixth and final review and all disbursements under the arrangement.

*Source: IMF staff report content provided in the supplied document.*

### 48.      Ghana’s macroeconomic performance continued to be broadly satisfactory in

### _cr05292 - 48.      Ghana’s macroeconomic performance continued to be broadly satisfactory in

### Macroeconomic performance in 2004
- Broadly satisfactory performance with achievement of most program objectives.
- Boosted business confidence and increased foreign inflows, including a substantial rise in private inward remittances.
- Record-high cocoa exports combined with remittances to provide strong support for aggregate demand.

### Fiscal slippages and remedial measures
- Nonobservance: three quantitative and one structural performance criteria were not met.
- Authorities reviewed causes and implemented measures to achieve original program objectives:
  - (i) a ceiling on total public sector wages and salaries (a performance criterion);
  - (ii) the creation of comprehensive and computerized public-sector personnel and payroll databases (a structural performance criterion);
  - (iii) the establishment of an independent body to oversee the petroleum product pricing mechanism as a prior action for Executive Board consideration of the third review under the PRGF arrangement.

### Near-term outlook and vulnerabilities
- Outlook: near-term outlook remains favorable but macroeconomic stability is still fragile.
- Key vulnerabilities:
  - Economic prospects driven by the export of a few commodities (narrow economic base).
  - High world oil prices.
- Policy preference: staff agrees with authorities’ caution about eliminating the requirement for foreign exchange surrender and banks’ secondary reserves, favoring stability.

### 2005 program objectives and implementation challenge
- Program aims:
  - Maintain the pace of real GDP growth.
  - Contain inflation.
  - Accumulate further international reserves to strengthen the buffer against shocks.
  - Implement structural reforms to improve the environment for private sector-led growth, bolster productivity, and strengthen competitiveness, especially of nontraditional exports.
- Main implementation challenge: execute the budget as envisaged and avoid further fiscal slippages, which could:
  - Undermine market confidence in government policies.
  - Have adverse macroeconomic effects.
  - Slow realization of the “fiscal dividend” in terms of a further decline in short-term interest rates.
  - Crowd out the flow of resources to the private sector.

### Fiscal policy anchor and staff recommendations
- Fiscal anchor: retain the ratio of domestic debt to GDP as the fiscal anchor.
- Staff urges:
  - Reduce the ratio of domestic debt to GDP further in a bold manner over the medium term.
  - Achieve reductions primarily by cutting low-priority expenditures and reducing the wage bill relative to GDP.
- Civil service reform guidance:
  - Understand the need to establish a professional and productive civil service, with tightly contained costs that should lead to prospective fiscal savings.
  - Demand for savings to fund poverty-reducing and pro-growth activities is very high.

### Monetary policy, inflation, and exchange rate policy
- Inflation:
  - The inflation target is within reach, but vigilance is required.
  - Credibility of the Bank of Ghana bolstered by refinements to its instruments that increased the efficacy of monetary policy.
  - A firm stance is needed to avoid an upward shift of inflation given high world oil prices and high foreign exchange inflows.
- Exchange rate:
  - The managed floating exchange rate regime has served Ghana well.
  - A managed float is an effective buffer against shocks.
  - Authorities should move ahead with measures to increase the depth and effective functioning of the interbank foreign exchange market.

### Structural reforms to support growth
- Priority reforms:
  - Petroleum sector deregulation: ensure automatic and independent adjustment of petroleum product prices and avoid government involvement.
  - Enhance financial intermediation to foster private sector activity.
  - Reform public enterprises to improve overall economic performance.
  - Complete civil service reform to safeguard scarce resources and ensure public expenditure is transparent, accountable, efficient, and effective.

### Data quality and statistical capacity
- There is room to improve the quality and timeliness of economic data.
- Government should make necessary budgetary provision to strengthen the operation of the Ghana Statistical Service and hasten Ghana’s participation in the GDDS.

### IMF support and next steps
- Staff supports the authorities’ request for:
  - (i) waivers for the nonobservance of three quantitative and one structural performance criteria,
  - (ii) the completion of the third review, and
  - (iii) the extension of the current PRGF arrangement to October 31, 2006.
- Support is based on remedial actions taken for 2004 slippages and the strength of the authorities’ program for 2005.
- Proposed timing: next Article IV consultation to be held in accordance with the decision on consultation cycles approved on July 14, 2002.

*Source: IMF staff report text as provided in the content unit.*

### 14.6 percent lower than the World Economic Outlook projected price.

### _cr05292 - 14.6 percent lower than the World Economic Outlook projected price.

### Public debt indicators (Figures and simulations)
- Figure 4 presents indicators of public debt under alternative scenarios, 2004-2023 (in percent), including:
  - NPV of public debt-to-GDP ratio (series for Baseline; Low growth; Low grants; Low cocoa price) for 2004–2023.
  - NPV of public debt-to-revenue ratio 2/ (series for Baseline; Low growth; Low grants; Low cocoa price) for 2004–2022.
  - Public debt service-to-revenue ratio 2/ (series for Baseline; Low growth; Low grants; Low cocoa price) for 2004–2022.
- Notes:
  - Source: IMF staff projections and simulations.
  - 1/ Public sector debt is NPV of external public debt and central government net domestic debt. In all cases except for baseline, temporary shocks are applied to the period of 2005-2008.
  - 2/ Revenue including grants.

### Selected economic and financial indicators (Table 1: 2001–05 highlights)
- National accounts and prices (annual percentage change unless otherwise specified):
  - Real GDP: 4.2, 4.5, 5.2, 5.2, 5.8, 5.8
  - Real GDP per capita: 1.6, 1.9, 2.6, 2.6, 3.2, 3.2
  - Nominal GDP: 40.2, 28.3, 35.4, 18.9, 20.7, 21.5
  - GDP deflator: 34.6, 22.8, 28.6, 13.0, 14.1, 14.8
  - Consumer price index (annual average): 32.9, 14.8, 26.7, 10.8, 12.6, 14.3
  - Consumer price index (end of period): 21.3, 15.2, 23.6, 7.7, 11.8, 14.1
- External sector (annual percentage change; levels):
  - Exports, f.o.b.: -3.6, 10.2, 20.1, 8.1, 12.7, 5.2
  - Imports, f.o.b.: 2.6, -4.1, 20.1, 11.0, 31.9, 9.3
  - Terms of trade: 4.8, 9.4, 14.8, -7.0, -15.0, -6.1
  - Cedis per U.S. dollar (avg.): 7,179; 7,944; 8,681; ...; 9,021; ...
  - Cedis per U.S. dollar (end of period): 7,322; 8,439; 8,852; ...; 9,054; ...
- Government budget (percent of GDP where indicated):
  - Domestic revenue (excluding grants): 43.5, 27.5, 56.2, 32.3, 38.2, 25.9
  - Total expenditure: 65.5, 2.4, 49.3, 17.5, 39.7, 16.4
  - Current expenditure: 50.5, 28.8, 34.4, 15.1, 27.2, 12.5
  - Capital expenditure and net lending: 95.7, -38.7, 97.8, 22.3, 67.2, 23.0
- Money and credit:
  - Credit to the private sector 2/: 14.2, 18.2, 16.4, 17.7, 10.1, 22.1
  - Broad money (excluding foreign currency deposits): 48.4, 49.6, 40.9, 19.2, 26.6, 23.1
  - Reserve money: 31.3, 42.6, 33.4, 20.5, 18.8, 18.0
  - Treasury bill yield (end of period): 28.9, 28.1, 18.1, ..., 16.4, ...
- Investment and saving:
  - Gross investment: 26.6, 19.7, 22.9, 23.1, 27.9, 29.6
  - Gross national saving: 21.3, 20.2, 24.6, 23.5, 25.2, 25.6
- Fiscal balances:
  - Total revenue (percent of GDP): 18.1, 18.0, 20.8, 23.1, 23.8, 24.6
  - Grants (percent of GDP): 6.9, 3.1, 4.7, 4.3, 6.4, 5.8
  - Total expenditure (percent of GDP): 32.7, 26.1, 28.8, 28.6, 33.3, 31.9
  - Overall balance (excluding grants) 5/: -14.6, -8.1, -8.0, -5.5, -9.5, -7.3
  - Overall balance (including grants) 6/: -9.0, -6.8, -4.4, -1.6, -3.6, -2.6
  - Domestic primary balance: 4.8, 2.4, 2.3, 1.6, 0.7, 2.6
  - Net foreign financing 8/: 5.5, 0.9, 3.3, 2.6, 3.3, 3.4
  - NPV of total government debt 9/: 95.4, 88.0, 89.8, 50.9, 50.5, 43.5
    - Domestic debt (net) 10/: 20.9, 23.9, 18.3, 14.8, 15.2, 11.4
    - NPV of external debt outstanding 9/: 74.5, 64.1, 71.5, 36.1, 35.3, 32.1
- External sector balances:
  - Current account balance 11/: -5.3, 0.5, 1.7, 0.3, -2.7, -4.0
  - NPV of external debt outstanding (percent of exports of goods and services) 9/: 161.4, 157.4, 175.7, 93.5, 89.6, 92.3
  - External debt service due, including to the Fund: 8.5, 7.8, 5.9, 6.3, 6.4, 4.7
    - (percent of exports of goods and services): 18.9, 18.4, 14.5, 14.1, 16.2, 13.5
    - (percent of government revenue): 34.1, 37.1, 23.2, 18.8, 21.2, 15.4
  - Gross international reserves (end of period, millions of U.S. dollars): 340, 632, 1,427, 1,541, 1,816, 1,971
    - (in months of imports): 1.2, 1.9, 3.2, 3.9, 3.7, 3.9
  - Nominal GDP (billions of cedis): 38,071; 48,862; 66,158; 78,650; 79,865; 97,018
    - (in million of U.S. dollars): 5,303; 6,151; 7,621; ...; 8,854; 10,531
  - Domestic debt (net; billions of cedis): 7,972; 11,690; 12,089; 11,654; 12,133; 11,019

### Private remittances and foreign exchange flows (Table 2)
- Private remittances (net, in millions of U.S. dollars): 496; 600; 680; 801; 1,287 (2000–2004).
- Private capital (net, in millions of U.S. dollars): 658; 850; 75; 332 (2000–2003); 2004: (not shown for 2004 in series).
- Official transfers (net, in millions of U.S. dollars): 154; 263; 221; 393; 544 (2000–2004).
- Official capital (net, in millions of U.S. dollars): 97; 104; -115; 86; 52 (2000–2004).

### Performance criteria, program monitoring, and fiscal targets (program table highlights)
- Key program performance criteria and indicative benchmarks covered net domestic financing, net domestic assets of the Bank of Ghana, stock of net domestic banking sector credit to TOR, net international reserves of the Bank of Ghana, contracting of new nonconcessional external debt, outstanding short-term external debt, and stock of external payment arrears.
- Memorandum items and outcomes included:
  - External program support (loans and grants) cumulative flows: 41; ...; 227; ...; 255; ...; 299 (periods shown).
  - Paid public and publicly guaranteed debt service (after debt relief): 33; ...; 25; 70; ...; 49; 88; ...; 95; 95; 122; ...; 124
  - Average petroleum spot price (APSP in U.S. dollars/barrel): 32; ...; 32; 31; ...; 34; 31; ...; 36; 31; ...; 38
  - Petroleum subsidy (in billions of cedis): 192; ...; 727; 313; ...; 626; 320; ...; 625; 300; ...; 614

### Balance of payments and external flows (Table 4, 2001–05)
- Exports f.o.b. (in millions of U.S. dollars): 1,867; 2,057; 2,471; 2,672; 278; 563; 41; 1,267; 1,876; 2,929 (2001–2005 cumulative by quarter).
  - Cocoa beans and cocoa products: 381; 463; 818; 927; 107; 115; 0; 300; 425; 995
  - Gold: 618; 689; 830; 929; 840; 231; 463; 694; 925
- Imports f.o.b. (in millions of U.S. dollars): -2,831; -2,714; -3,259; -3,617; -429; -787; -1,890; -3,067; -4,696
  - Oil imports: -517; -508; -563; -662; -775; -166; -321; -746; -995
- Trade balance, services, private transfers, and current account:
  - Trade balance: -964; -657; -788; -944; -151; 3; -254; -622; -1,192; -1,767
  - Private transfers (net): 600; 680; 801; 875; 128; 732; 364; 696; 81; 1,291
  - Current account balance, including official transfers: -283; 301; 272; 24; -236; 324; 5; -95; -417
- Gross international reserves (end of period, millions of U.S. dollars): 340; 632; 1,427; 1,541; 1,816; 1,673; 1,611; 1,535; 1,971
  - Cocoa exports (volume, thousands of tons): 370; 367; 403; 560; 665; ...; 645
  - Cocoa exports (price, U.S. dollars per ton): 1,021; 1,266; 1,950; 1,650; 1,589; ...; 1,518

### Monetary aggregates and banking sector (Tables 5–6, monetary survey and banking)
- Monetary survey (end-period, in billions of cedis and percent changes):
  - Net foreign assets (in millions of U.S. dollars): 204; 783; 1,195; 1,556; 1,429; 1,350; 1,290; 1,709 (2001–2004 quarterly/projections).
  - Net domestic assets and domestic credit levels show increases in broad money (M2+): 10,188; 15,336; 21,174; 26,686; 27,176; 27,933; 29,010; 32,959
  - Broad money (M2) growth rates: 48.4; 50.7; 40.9; 26.6; 28.0; 25.3; 27.4; 23.1
  - Reserve money growth rates: 31.3; 42.6; 33.4; 18.8; 24.8; 20.7; 22.1; 18.0
  - Velocity (GDP/end-of-period M2+): 3.7; 3.2; 3.1; 3.0; 3.1; 3.2; 3.2; 2.9
- Bank of Ghana and deposit money banks (Table 6):
  - Bank of Ghana reserve money (RM) levels: 4,044; 5,767; 7,693; 9,136; 8,087; 8,313; 8,633; 10,777
  - Deposit money banks: total deposits 7,075; 10,625; 14,740; 19,247; 20,570; 21,212; 22,137; 24,193
  - Credit to nongovernment (deposit money banks): 6,420; 7,102; 10,493; 13,319; 13,854; 14,408; 14,985; 18,184

### Central government budgetary operations (Tables 7–10)
- Table 7 summary (2001–05, in billions of cedis and percent of GDP):
  - Total revenue and grants (billions of cedis): 9,532; 10,333; 16,862; 21,537; 24,073; 29,578 (2001–05).
  - Total revenue (billions of cedis): 6,904; 8,800; 13,743; 18,187; 18,994; 23,911
  - Grants (billions of cedis): 2,627; 1,533; 3,119; 3,350; 5,080; 5,667
  - Total expenditure (billions of cedis): 12,451; 12,753; 19,035; 22,505; 26,584; 30,950
  - Recurrent expenditure (billions of cedis): 7,578; 9,763; 13,123; 15,251; 16,696; 18,783
  - Capital expenditure (total, billions of cedis): 4,873; 2,990; 5,912; 7,254; 9,888; 12,166
  - Overall balance (billions of cedis): -3,433; -3,313; -2,884; -1,253; -2,836; -2,549
  - Total financing (billions of cedis): 2,565; 2,762; 3,023; 1,575; 2,941; 2,549
- Revenue composition (Table 8):
  - Tax revenue (billions of cedis): 6,557; 8,542; 13,346; 16,761; 17,341; 20,973
    - Direct taxes: 2,124; 2,790; 4,057; 4,918; 5,287; 5,849
    - Indirect taxes: 2,865; 3,757; 6,128; 7,938; 8,245; 10,476
    - Trade taxes: 1,568; 1,995; 3,160; 3,905; 3,809; 4,648
  - Nontax revenue (billions of cedis): 348; 258; 397; 1,098; 1,194; 1,599
  - Health levy and SSNIT-related revenue in 2004: 328; 459; 1,339 (2004 measures noted).
- Expenditure composition (Table 9):
  - Wages and salaries (billions of cedis): 2,317; 4,142; 5,567; 6,632; 6,988; 8,683
  - Interest (billions of cedis): 2,985; 3,001; 4,092; 3,425; 3,473; 3,745
  - Capital expenditure (domestic, billions of cedis): 1,341; 1,338; 3,015; 4,658; 5,077; 6,281
  - VAT refunds and arrears clearance figures reported across years.

### Central government financing (Table 10)
- Financing composition (billions of cedis):
  - Total financing: 2,565; 2,762; 3,023; 1,575; 2,941; 2,549
  - Divestiture receipts: 125; 421; 408; 286; 388
  - Foreign (net): 1,428; -781; 398; -436; 1,546; 1,716
    - Project loans: 1,966; 1,185; 1,860; 1,562; 2,547; 2,999
    - Program loans: 1,056; 160; 1,097; 946; 920; 1,368
    - Amortization due: -1,593; -2,125; -2,559; -2,945; -1,920; -2,651
  - Exceptional financing: 659; 1,241; 1,805; 2,474; 1,065; 1,559
  - Domestic (net): 467; 2,100; -82; -1,101; 393; -996

### Structural performance criteria, benchmarks, and implementation status (Tables 11–12)
- Performance criteria and outcomes:
  - Implement new petroleum pricing regime by February 15, 2005: Partially done. New pricing mechanism effective February 23, 2005, with an average increase in the price of petroleum products of about 50 percent. Legislation to establish an independent oversight body presented to parliament in May 2005 and expected to be passed in June 2005.
  - Ensure electricity and water tariffs in line with automatic quarterly adjustment formulas: Being met. Public Utilities Regulatory Commission indicated no tariff adjustments required during February 1, 2005–April 30, 2005 quarter.
- Benchmarks achieved or in progress:
  - Introduce Bank of Ghana bills by September 30, 2004: Met. Bank of Ghana bills introduced in mid-September 2004.
  - Complete share flotation for Ghana Commercial Bank (GCB) by March 31, 2005: In progress. Prospectus expected end-June 2005; floatation in third quarter 2005; government position reduced to 34 percent through local sales.
  - Hire transactions advisor for a management contract with GCB by September 30, 2004: Met.
  - Quarterly financial reporting by ministries, departments, and agencies as required by the Financial Administration Act (2003): Met.
  - Settle all cross-debts as of December 31, 2003, for ECG, GWCL, TOR, VRA, and government, and submit monitorable financial plans by June 30, 2004: Met.

### Financial Sector Assessment Program (FSAP) recommendations — progress (Table 12)
- Banking supervision:
  - Reduce TOR exposures and review risk management: In progress. Most TOR exposures converted into government securities in 2001 and 2002; at end-March 2005, one bank’s exposure to TOR amounted to nearly US$110 million with off-balance-sheet exposures of US$189 million; that bank’s exposure exceeds its net worth.
  - Risk-management approaches reviewed; three banks closed in 2000; Banking Act 2004 strengthened Bank of Ghana enforcement powers.
- Insurance supervision:
  - Update insurance legislation and strengthen supervisory practices: Insurance Law under review by Attorney General; five insolvent companies closed; on-site inspection program and new inspection manual adopted.
- Pension system:
  - Reform SSNIT governance, investment policy, and audited financial statements: In progress; new board and director appointed; new SSNIT Law drafted and submitted for review; investment policies and auditing procedures still need improvement.
- Securities regulation:
  - Implement securities legislation, concentrate oversight in SEC, raise capital requirements: Done. Central Securities Depository System established in December 2004.
- Legal and judicial system:
  - Anti–money laundering legislation: In progress; Bank of Ghana finalizing a draft law.
  - Improve contract enforcement and court procedures: In progress; commercial court began operations in March 2005 to fast-track commercial claims.
- Bank of Ghana institutional reforms:
  - Reinforce independence, focus responsibilities, withdraw from development/commercial activities, improve transparency, separate debt management, strengthen capital, introduce central bank bills and longer-term government bonds, and liquidate ownership in banks: Reported as Done across multiple items, with exception of shares in Ghana International Bank (London) which remain.

### Financial soundness indicators (Table 13, banking sector, 2000–04)
- Capital adequacy and capital ratios:
  - Regulatory capital to risk-weighted assets: 11.6; 14.7; 13.4; 9.3; 13.7
  - Percentage of banks >= 10 percent CAR: 62.5; 64.7; 52.9; 66.7; 61.0
  - Capital (net worth) to assets: 11.9; 13.1; 12.6; 12.5; 12.6
- Asset quality:
  - Past-due loans to gross loans: 16.2; 28.0; 28.6; 24.4; 19.1
  - Nonperforming loans: 11.9; 19.6; 22.7; 18.3; 16.1
  - Provision as percent of past-due loans: 58.6; 46.4; 63.6; 64.6; 68.6
- Earnings and profitability:
  - Net profit (before tax)/net income: 52.4; 45.9; 43.4; 39.1; 40.2
  - Return on assets 3/: 9.7; 8.7; 6.8; 6.4; 6.2
  - Return on equity 4/: 65.7; 49.7; 36.9; 42.8; 40.8
  - Expense/income: 32.0; 35.9; 40.9; 46.3; 47.1
  - Interest rate spreads (lending minus deposit rates): lending minus demand deposit rates: 30.5; 30.5; 30.5; 23.3; 21.3
- Liquidity:
  - Actual reserve ratio (percent of total deposits): 49.5; 59.8; 55.2; 68.8; 56.7
  - Loan/deposit: 64.0; 63.9; 50.1; 57.4; 55.4

### Program implementation, reform priorities, and monitoring
- Structural reform implementation shows partial completion and ongoing steps across petroleum pricing, utility tariffs, public enterprise financial plans, bank restructuring and supervision, insurance and pension reforms, securities market modernization, legal/judicial improvements, and Bank of Ghana institutional reforms.
- Monitoring metrics include extensive fiscal, monetary, external, and financial-sector indicators with quarterly program adjusters and memorandum items for APSP, petroleum subsidies, HIPC relief, and divestiture receipts.

*Source: IMF staff projections, simulations, and tables as presented in the provided content.*

### 1.    Eradicate extreme poverty and

### _cr05292 - 1.    Eradicate extreme poverty and 

### Millennium Development Goals (MDGs): Overall assessment
- MDG 1 — Eradicate extreme poverty and hunger: 
  - Proportion of population below the extreme poverty line declined from 52 percent in 1992 to about 35 percent in 2003.
  - At the current pace of growth, the goal of halving income poverty could be reached before 2015.
  - Prevalence of child malnutrition: currently about 23 percent; progress slow and goal unlikely to be achieved on current projections.
- MDG 2 — Achieve universal primary education:
  - Gross primary enrollment rate has reached 86 percent and is on track for 100 percent.
- MDG 3 — Promote gender equality:
  - Proportion of female to male enrollment in primary schools increased to 0.93.
- MDG 4 — Reduce child mortality:
  - Under-5 mortality: current rate 111 per 1,000 live births; goal of 78 per 1,000 appears unlikely to be reached.
- MDG 5 — Improve maternal health:
  - Maternal mortality rates have declined, but the goal of a three-fourths reduction by 2015 (i.e., to 54 per 100,000 live births) is unlikely to be achieved.
- MDG 6 — Combat HIV/AIDS, malaria, and other diseases:
  - Incidence of malaria has declined.
  - Incidence of HIV/AIDS continues to rise and the goal is unlikely to be met.
- MDG 7 — Ensure environmental sustainability:
  - Access to safe water has increased substantially and this goal can be met.
- MDG 8 — Develop a Global Partnership for Development:
  - Debt service ratio has declined and will remain at a sustainable level with prudent and effective debt management.

*Source: Ghanaian authorities.*

### MDG indicators and status (selected figures, 1990–2003)
- Eradicate extreme poverty and hunger (Status: On track)
  - Population below US$1 a day (percent): 44.8
  - Poverty gap at US$1 a day (percent): 17.3
  - Percentage share of income or consumption held by poorest 20 percent: 5.6
  - Prevalence of child malnutrition (percent of children under 5): 30.3 (1990), 27.3 (1995), 24.9 (2001), 23.3 (2003) — Off track
  - Population below minimum level of dietary energy consumption (percent): 35.0 (1990), 17.0 (1995), 12.0 (2001)
- Achieve universal primary education (Status: On track)
  - Net primary enrollment ratio (percent of relevant age group): 60.2 (1990), 69.9 (2003) — On track
  - Percentage of cohort reaching grade 5 (percent): 80.5 (1990), 66.3 (2001)
  - Youth literacy rate (percent of ages 15-24): 81.8 (1990), 87.1 (1995), 91.6 (2001), 92.2 (2003)
- Promote gender equality (Status: On track)
  - Ratio of girls to boys in primary education (percent): 82.0 (1990), 87.0 (1995), 90.0 (2001), 93.0 (2003)
  - Ratio of girls to boys in primary and secondary education (percent): 76.7 (1990), 88.6 (2001) — On track
  - Ratio of young literate females to males (percent of ages 15-24): 85.5 (1990), 90.9 (1995), 95.2 (2001), 95.7 (2003) — On track
- Reduce child mortality (Status: Off track)
  - Under-5 mortality rate (per 1,000): 125.0 (1990), 110.0 (1995), 100.0 (2001), 97.0 (2002), 111.0 (2003) — Off track
  - Infant mortality rate (per 1,000 live births): 78.0 (1990), 69.0 (1995), 62.0 (2001), 60.0 (2002), 64.0 (2003) — Off track
  - Immunization, measles (percent of children under 12 months): 61.0 (1990), 70.0 (1995), 81.0 (2001), 81.0 (2002), 83.2 (2003)
- Improve maternal health (Status: Off track)
  - Maternal mortality rate (modeled estimate, per 100,000 live births): 280.0 (1995), 250.0 (2003) — Off track
  - Births attended by skilled health staff (percent of total): 40.2 (1990), 43.8 (1995)
- Combat HIV/AIDS, malaria, and other diseases (Status: Off track)
  - Prevalence of HIV, female (percent ages 15-24): 3.0 (2001), 3.0 (2002), 3.6 (2003) — Off track
  - Contraceptive prevalence rate (percent of women ages 15-49): 12.9 (1990), 20.3 (1995)
  - Number of children orphaned by HIV/AIDS: 200,000.0
  - Incidence of malaria (percent): 44.0 (1990), 41.0 (2003)
  - Incidence of tuberculosis (per 100,000 people): 201.0 (2001), 210.6 (2003)
  - Tuberculosis cases detected under DOTS (percent): 14.0 (1995), 44.0 (2001), 40.8 (2003)
- Ensure environmental sustainability (Status: Off track for some indicators, On track for water)
  - Forest area (percent of total land area): 33.1 (1990), 27.8 (2001)
  - Nationally protected areas (percent of total land area): 4.8 (1995), 4.9 (2001), 5.6 (2003)
  - GDP per unit of energy use (PPP $ per kg oil equivalent): 3.8 (1990), 4.3 (1995), 5.0 (2001)
  - CO2 emissions (metric tons per capita): 0.2 (1990), 0.3 (1995), 0.3 (2001)
  - Access to an improved water source (percent of population): 49.0 (1990), 73.0 (2001), 74.1 (2003) — On track
  - Access to improved sanitation (percent of population): 61.0 (1990), 72.0 (2001)
- Develop a Global Partnership for Development (Status: On track)
  - Debt-service-to-GDP ratio (percent): 6.2 (1990), 2.4 (2003)
  - Fixed lines and mobile telephones (per 1,000 people): 2.9 (1990), 4.1 (1995), 20.8 (2001), 33.4 (2003)
  - Personal computers (per 1,000 people): 0.0 (1990), 1.2 (1995), 3.3 (2001), 3.8 (2003)

### Fiscal projections and central government budget (illustrative, 2005–08; percent of GDP)
- Total revenue and grants: 30.5 (2005 staff), 29.4 (2006 staff), 30.3 (2007 staff), 29.2 (2008 staff), 30.3 (2005 auth.), 28.6 (2006 auth.), 30.3 (2007 auth.)
- Revenue: 24.6 (2005), 23.9 (2006), 24.8 (2007), 23.6 (2008), 24.8 (2005 auth.), 23.1 (2006 auth.), 24.8 (2007 auth.)
- Grants: 5.8, 5.5, 5.5, 5.5, 5.5, 5.5, 5.5
- Total expenditure: 31.9, 30.8, 33.6, 30.4, 33.2, 30.3, 32.9
- Recurrent expenditure: 19.4, 17.8, 18.7, 16.9, 18.5, 16.2, 18.3
- Wages and salaries: 8.9, 8.7, 9.0, 8.5, 9.0, 8.4, 9.0
- Domestic interest: 2.8, 1.9, 2.7, 1.3, 2.7, 0.8, 2.7
- Capital expenditure: 12.5, 13.0, 12.8, 13.5, 12.8, 14.0, 12.8
- Overall balance: -2.6 (2005 staff), -1.6 (2006 staff), -4.6 (2007 staff), -1.3 (2008 staff), -4.2 (2005 auth.), -1.9 (2006 auth.), -3.9 (2007 auth.)
- Financing: 2.6, 1.6, 4.6, 1.3, 4.2, 1.9, 3.9
- Memorandum items:
  - Real GDP (annual percentage change): 5.8 (2005), 5.8 (2006), 6.0 (2007), 5.9 (2008), 6.0 (2005 auth.), 5.8 (2006 auth.), 6.0 (2007 auth.)
  - GDP deflator (annual percentage change): 14.8 (2005), 10.1 (2006), 12.7 (2007), 8.1 (2008), 9.7 (2005 auth.), 7.7 (2006 auth.), 7.7 (2007 auth.)

### Medium-term and long-term macro assumptions (selected)
- Real GDP growth of 5.5 percent a year.
- Inflation (GDP deflator) averaging 4.4 percent a year.
- Export and import growth of 7.6 and 5.5 percent, respectively, a year.
- Central government revenue of 23 percent of GDP a year.
- Noninterest current expenditure of 14.5 percent of GDP a year.
- Official grants of 4 percent of GDP a year.

### Balance of payments projections (2005–09; US$ millions)
- Exports f.o.b.: 2,929 (2005), 3,067 (2006), 3,295 (2007), 3,523 (2008), 3,669 (2009)
  - Cocoa beans and cocoa products: 995 (2005), 1,058 (2006), 1,057 (2007), 1,056 (2008), 1,055 (2009)
  - Gold: 925 (2005), 1,000 (2006), 1,200 (2007), 1,350 (2008), 1,418 (2009)
  - Timber and timber products: 224 (2005), 242 (2006), 257 (2007), 274 (2008), 291 (2009)
  - Others: 785 (2005), 767 (2006), 781 (2007), 842 (2008), 905 (2009)
- Imports f.o.b.: -4,696 (2005), -4,968 (2006), -5,379 (2007), -5,718 (2008), -6,012 (2009)
  - Non-oil: -3,701 (2005), -4,006 (2006), -4,455 (2007), -4,770 (2008), -5,032 (2009)
  - Oil: -995 (2005), -963 (2006), -923 (2007), -947 (2008), -980 (2009)
- Trade balance: -1,767 (2005), -1,902 (2006), -2,084 (2007), -2,195 (2008), -2,342 (2009)
- Services (net): -557 (2005), -579 (2006), -589 (2007), -604 (2008), -619 (2009)
  - Of which: interest payments: -150 (2005), -111 (2006), -107 (2007), -104 (2008), -108 (2009)
- Private transfers (net): 1,291 (2005), 1,305 (2006), 1,319 (2007), 1,332 (2008), 1,347 (2009)
- Current account balance, excluding official transfers: -1,033 (2005), -1,176 (2006), -1,353 (2007), -1,467 (2008), -1,614 (2009)
- Official transfers (net): 616 (2005), 650 (2006), 713 (2007), 782 (2008), 807 (2009)
  - Of which: HIPC grants: 126 (2005), 113 (2006), 122 (2007), 115 (2008), 91 (2009)
- Current account balance, including official transfers: -417 (2005), -526 (2006), -640 (2007), -684 (2008), -807 (2009)
- Capital account: 506 (2005), 586 (2006), 679 (2007), 761 (2008), 857 (2009)
  - Official capital (net): 151 (2005), 206 (2006), 272 (2007), 326 (2008), 391 (2009)
    - Medium- and long-term loans inflows: 474 (2005), 510 (2006), 550 (2007), 592 (2008), 636 (2009)
    - Amortization: -323 (2005), -304 (2006), -277 (2007), -267 (2008), -245 (2009)
  - Private capital: 355 (2005), 380 (2006), 407 (2007), 435 (2008), 466 (2009)
- Other capital and errors and omissions: -93 (2005), -44 (2006), -35 (2007), -370 (2008)
  - Of which: change in net foreign assets of money deposit banks: -22 (2005), -34 (2006), -25 (2007), -27 (2008), 0 (2009)
- Overall balance: -416 (2005), 439 (2006), 50 (2007)
- Financing: 4 (2005), -16 (2006), -4 (2007), -39 (2008), -50 (2009)
  - Debt deferral: -35 (2005), -35 (2006), 0 (2007), 0 (2008), 0 (2009)
  - Net international reserves (negative is increase): -130 (2005), -220 (2006), -174 (2007), -186 (2008), -181 (2009)
    - Of which: use of Fund credit: 25 (2005), 38 (2006), -63 (2007), -68 (2008), -58 (2009)
      - disbursements (PRGF): 80 (2005), 80 (2006), 0 (2007), 0 (2008), 0 (2009)
      - repayments (PRGF): -55 (2005), -43 (2006), -63 (2007), -68 (2008), -58 (2009)
  - Exceptional financing: 169 (2005), 238 (2006), 170 (2007), 146 (2008), 132 (2009)
- Memorandum items:
  - Current account balance (percent of GDP) excluding official transfers: -9.8 (2005), -10.0 (2006), -10.5 (2007), -10.4 (2008), -10.5 (2009)
  - Including official transfers: -4.0 (2005), -4.5 (2006), -5.0 (2007), -4.8 (2008), -5.2 (2009)
  - Gross international reserves end of period (US$ millions): 1,971 (2005), 2,229 (2006), 2,341 (2007), 2,458 (2008), 2,581 (2009)
  - Reserves in months of imports: 3.9 (2005), 4.1 (2006), 4.1 (2007), 4.0 (2008), 4.1 (2009)
  - Cocoa exports volume (thousands of tons): 645 (2005–2009)
  - Cocoa export price (US$ per ton): 1,518 (2005), 1,620 (2006), 1,616 (2007), 1,612 (2008), 1,608 (2009)
  - External debt service paid in percent of exports of GNFS: 5.6 (2005), 2.8 (2006), 3.8 (2007), 4.2 (2008), 4.3 (2009)
  - External debt service paid in percent of government revenue: 8.0 (2005), 3.8 (2006), 5.1 (2007), 5.5 (2008), 5.4 (2009)
  - GDP (in U.S. dollars): 10,531 (2005), 11,746 (2006), 12,858 (2007), 14,127 (2008), 15,409 (2009)

### IMF program, PRGF disbursements, and Fund relations
- Revised Schedule of Disbursements under PRGF, 2003-06:
  - Multiple disbursements of 26,350,000 SDR representing 7.1 percent of quota occurred on May 2003, November 2003, May 2004, November 2004, May 2005, and other dates; totals reported as 184,500,000 SDR (50 percent of quota) under both original and revised schedules.
  - Ghana's quota is SDR 369 million.
- Membership and arrangements:
  - Joined IMF: September 20, 1957; Article VIII.
  - PRGF arrangement approved on May 9, 2003: amount approved SDR 184.50 million; amount drawn SDR 79.05 million (as of data provided).
- Outstanding purchases and loans:
  - PRGF arrangements outstanding: 294.807 SDR million (79.89 percent of quota).
- Projected obligations to Fund (before HIPC assistance; SDR millions):
  - Principal: 29.41 (2005), 28.04 (2006), 41.07 (2007), 44.86 (2008), 38.22 (2009)
  - Charges/interest: 2.38 (2005), 2.58 (2006), 2.40 (2007), 2.18 (2008), 1.97 (2009)
  - Total: 31.79 (2005), 30.62 (2006), 43.47 (2007), 47.04 (2008), 40.18 (2009)
- Projected payments with Board-approved HIPC assistance (SDR millions):
  - Principal: 17.32 (2005), 20.73 (2006), 24.38 (2007), 31.92 (2008), 31.53 (2008)
  - Charges/interest: 2.38 (2005), 2.58 (2006), 2.40 (2007), 2.18 (2008), 1.97 (2008)
  - Total: 19.71 (2005), 23.31 (2006), 26.78 (2007), 34.10 (2008), 33.49 (2008)
- HIPC initiative (Enhanced Framework):
  - Decision point date: 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
  - Disbursements of IMF assistance (SDR million) to member: 90.05
    - Interim assistance: 25.06
    - Completion point: 64.99
  - Additional disbursement of interest income: 4.25
  - Total disbursements: 94.30

### IMF conditionality, structural conditionality, and program priorities
- IMF (PRGF) structural conditionality focuses on macro-relevant areas:
  - Supporting fiscal consolidation through effective central government payroll management and civil service reform.
  - Addressing quasi-fiscal activities of state-owned enterprises by: (i) monitoring government involvement; (ii) ensuring full cost-recovery pricing for commercially oriented enterprises; (iii) requiring annual financial plans submitted to the Ministry of Finance and Economic Planning.
  - Strengthening the financial sector through regulatory and legislative changes, and reducing the cost of capital through competition and other measures.
  - Structural performance criteria and benchmarks established for 2005 with test dates at end-June and end-December.
- World Bank conditionality (Poverty Reduction Support Credits, about US$125 million each) emphasizes:
  - Infrastructure (including roads), community water and sanitation, urban and local government development, agriculture and rural development, and human and private sector development.
  - A number of triggers were set for 2004-05 with a program review in March/April 2005.
- Multi-Donor Budget Support (MDBS) conditionality focuses on:
  - Governance and public sector financial and expenditure management, and social sectors.
  - Eleven donors plus the World Bank make disbursements tied to macroeconomic performance and performance payments based on triggers; triggers set for 2004-05 with a program review in March/April 2005.

### Safeguards, exchange rate arrangement, and technical assistance
- Safeguard assessment of the Bank of Ghana for the PRGF arrangement completed on October 15, 2003; recommended measures to address vulnerabilities in external audit, financial reporting, internal audit, and internal controls. Authorities implemented all proposed measures except concerning the quality of the external audit.
- Exchange rate arrangement:
  - Ghana accepted Article VIII obligations on February 2, 1994.
  - Maintains a flexible exchange rate (de facto managed float), using the U.S. dollar as the intervention currency, free of restrictions on payments and transfers for current international transactions.
  - Average exchange rate for transactions in the interbank market at end-April 2005: ¢9065 per U.S. dollar.
- Technical assistance (2001–May 2005) highlights:
  - Fiscal Affairs Department: fiscal data quality assessment; external debt including for HIPC; public expenditure management; tax and customs administration; establishment of a large taxpayers’ unit; fiscal ROSC; evaluation of petroleum pricing impacts on poor and vulnerable households.
  - International Capital Markets: pilot study of access to private capital; access to international capital markets.
  - Legal Department: drafting of internal revenue regulations; advice/draft of new income tax laws.
  - Monetary and Financial Systems Department: recording/reporting external debt flows; foreign exchange/monetary operations; accounting and internal audit reform; foreign exchange market and government securities; FSAP follow-up; improving monetary operations, banking supervision, and payment systems.
  - Statistics Department: money and banking statistics; national accounts statistics and prices; government finance statistics.
- Resident Representative:
  - A Fund Resident Representative has been stationed in Accra since June 1985.
  - Mrs. Muttardy assumed the post in April 2004.

*Italicized source: Ghanaian authorities; World Development Indicators database, April 2004; Ghana Poverty Reduction Strategy 2003 Annual Progress Report (March 2004); IMF staff estimates and projections.*

### 1. Ghana’s development objectives are stated in the Ghana Poverty Reduction Strategy

### 1. Ghana’s development objectives are stated in the Ghana Poverty Reduction Strategy

### GPRS objectives and pillars
- Broad objectives: create an environment favorable to private sector-led growth and sustainable poverty reduction; create room within the government’s budget for increased expenditures on education, health, and other priority services.
- Five pillars of the GPRS:
  - (i) achieving macroeconomic stability,
  - (ii) stimulating employment and production,
  - (iii) improving access to basic social services,
  - (iv) strengthening the protection of the vulnerable and excluded,
  - (v) improving public sector performance and governance.
- Status: GPRS approved in February 2003; the 2004 Annual Progress Report is being finalized and the government is working to update the strategy during 2005.

### Bank–Fund coordination and joint assessments
- Joint work includes:
  - “2004 Joint Staff Advisory Note on the GPRS Annual Progress Report”,
  - “2004 HIPC Expenditure Tracking Assessment and Action Plan (AAP)”,
  - mid-2004 assessment of progress toward the completion point under the Enhanced HIPC Initiative,
  - update of findings of the 2000-01 Financial Sector Assessment Program (FSAP).

### Multi-Donor Budget Support (MDBS) and harmonization
- MDBS agreed with the government in June 2003 to align donor assistance with GPRS implementation through the budget.
- On February 25, 2005, government and development partners (nine bilaterals and four multilaterals, including the World Bank) agreed to work together according to the principles in “Harmonization and Alignment in Ghana for Aid Effectiveness: a Common Approach for Ghana and its Development Partners”.

### World Bank Group Country Assistance Strategy (CAS) FY04-07 — objectives and expected results
- CAS discussed by the Bank’s Board on March 16, 2004; prepared jointly with IFC.
- CAS pillars: (i) sustainable growth and job creation, (ii) service provision for human development, (iii) governance for empowerment.
- CAS aims to help the government:
  - maintain macroeconomic stability while pursuing accelerated growth,
  - develop human capital via improved delivery of human development services,
  - promote good governance and public sector reforms.
- Midterm CAS review expected later in 2005; review to be prepared jointly with other development partners to further harmonize responses to the GPRS.
- Specific CAS targets and expected results (2002–2007 and CAS period):
  - achieve an annual average rate of economic growth of at least 5 percent during the CAS period;
  - reduce poverty levels from 40 percent in 1999 to about 32 percent by 2007;
  - increase share of poverty-related spending to about one third of domestically financed expenditures by 2007;
  - bring ratio of domestic debt to GDP down from 26 percent in 2002 to the GPRS target of 14.8 percent by end-2005;
  - reduce land registration time from an average of four years to four months;
  - reduce business registration time from 120 days to 30 days;
  - maintain the HIV prevalence rate among pregnant women below 5 percent;
  - increase Gross Primary Enrollment Rates (GER) in the 40 most deprived districts from about 71 to 89 percent, and the rate for girls from almost 66 to 89 percent;
  - increase immunization coverage from 80 to 90 percent;
  - increase the proportion of births attended by skilled health personnel from 45 to 55 percent.

### Development partner coordination and MDBS role
- Emphasis on deepening collaboration through MDBS, partnership programs such as the Health SWAp, sector programmatic support, and harmonized approaches in analytical work, fiduciary underpinnings, and mission management.
- MDBS provides a framework for policy dialogue and decisions linked to GPRS implementation progress.

### World Bank commitments and portfolio (as of March 31, 2005)
- Cumulative commitments to Ghana: US$5.13 billion across 151 operations.
- Active portfolio: 20 active projects totaling US$1.19 billion, of which US$641.2 million remains undisbursed.
- Portfolio composition: one single-tranche Poverty Reduction Support Credit (PRSC), major programs in health and education, agriculture, energy, roads, community water, and other infrastructure.
- Overall portfolio performance: satisfactory, though implementation in several projects is lagging.

### FY04-07 lending program and recent approvals (FY05 approvals listed)
- Programmatic lending in PRSCs, sectorwide operations, infrastructure investment, private sector development support, community/local government projects in water, sanitation, infrastructure, and services.
- Projects approved in FY05:
  - PRSC 2 (US$125 m, July 2004),
  - Community-Based Rural Development (US$60 m, July 2004),
  - Urban Water (US$103 m, July 2004),
  - Small Towns Water Supply and Sanitation (US$25 m, July 2004),
  - support to the West African Gas Pipeline (WAGP) approved November 2004.
- Planned for Board consideration later in FY05:
  - Micro, Small and Medium Enterprise Development Project (US$43.5 m),
  - West Africa Power Pool, first tranche (US$25 m).
- FY06 planned projects: PRSC 3, Economic Management Capacity Building Operation, SWAp for HIV/AIDS, energy sector investment operation.

### Nonlending services and analytical work
- FY04 nonlending work included:
  - CFAA update,
  - Country Economic Memorandum on public policy, growth, and poverty,
  - Financial Sector Assessment Update,
  - accounting and audit assessment,
  - report on policy options for National Health Insurance Scheme,
  - Public Expenditure Review (PER) in context of MDBS,
  - Poverty and Social Impact Analysis focusing on electricity tariffs.
- FY05 nonlending work includes:
  - Policy Papers on Electricity and Petroleum Sectors,
  - joint WB-DFID-AFD study on Natural Resource Management and Economic Growth,
  - external review of public financial management (ERPFM) prepared jointly with other MDBS donors,
  - analytical work on GPRS update policy options, decentralization, and monitoring and evaluation.

### IMF–World Bank collaboration: division of lead roles
- IMF leads: policy dialogue on macroeconomic policies (fiscal and monetary), support through PRGF arrangements.
  - New three-year PRGF arrangement for 2003-05 put in place in May 2003.
  - Reforms under the PRGF: substantially raise revenue to finance poverty-related spending and development needs; strengthen public expenditure management; reform energy and utility pricing; use monetary policy to achieve single-digit inflation.
  - Second review under the three-year PRGF arrangement completed in July 2004.
- World Bank leads: policy dialogue on economic reforms in infrastructure, agriculture and rural development, human development, private sector development, and public sector reform.

### Sectoral Bank engagement and portfolio shares
- Infrastructure: about 51 percent of commitments; includes roads, energy, water and sanitation, telecommunication re-engagement, PRSC policy agenda links.
- Agriculture and Rural Development: about 13 percent of commitments; supports agricultural productivity, rural financial intermediation, rehabilitation of land/forest/wildlife; includes AgSSIP, Rural Financial Services SIL, Community-Based Rural Development Project; two GEF projects support natural resource management.
- Human Development: five projects account for 19 percent of total lending; includes Education Sector Project (approved February 2004) and Second Health Sector Support Program (approved 12 months earlier); addresses adult literacy, HIV/AIDS prevention/treatment, services for poor/marginalized groups; PRSCs complement sector operations and address financing implications for the poor (e.g., removal of school fees for girls in underserved areas and disabled pupils; fee exemption policy for maternal deliveries).
- Private Sector Development: about 6 percent of commitments; includes Trade and Investment Gateway SIL, Land Administration project, PRSC-supported reforms to reduce high-cost business environment, trade facilitation, financial intermediation; planned Micro, Small and Medium Enterprise Development Project and Economic Management Capacity Building Project.

### Areas of shared responsibility and collaboration
- Shared Bank–Fund collaboration in budgeting, expenditure and financial management, public sector reform and privatization, and the financial sector.
- Bank support for Governance and Public Sector Management primarily through PRSC and sector-level investment projects supporting capacity building and decentralization.

### Budgeting, public expenditure management (PEM), and control
- February 2004 joint Bank-Fund assessment of PEM capacity showed encouraging progress since 2001 but highlighted need for continued improvement.
- FY04 PER and FY05 External Review of Public Financial Management informed PEM priority actions supported by PRSC/MDBS.
- IMF technical assistance and a resident advisor provide advice on budget formulation, monitoring of budget execution, and expenditure control.

### Public sector reform
- Government defining a public sector reform strategy focusing on basic needs of running government, shifting away from technology-driven, all-encompassing reform programs.
- Bank support for implementation provided via PRSC and sector investment projects aimed at capacity building and decentralization.

### Public enterprise reform and divestiture
- Fund monitors financial position of large public enterprises (notably in energy and financial sectors) due to their macroeconomic importance.
- Bank assistance through sectoral projects; energy dialogue emphasizes unbundling of VRA and public-private partnership options for ECG.

### Financial sector assessment and reform agenda
- July 2003 joint IMF–Bank mission updated the 2000-01 FSAP.
- FSAP update conclusions:
  - some progress associated with improved macroeconomic stability;
  - Ghana’s financial sector is diverse compared to its small overall size;
  - existence of strong international connections and local skills able to compete internationally.
- Key problems identified holding back financial sector:
  - inefficiencies of the dominant Ghana Commercial Bank (GCB),
  - crowding out of the private sector,
  - lack of long-term capital due to poor allocation of pension resources,
  - uneven playing field for providers of financial services,
  - need for further implementation of the legislative agenda.
- Government’s Financial Sector Strategic Plan (FINSSP) approved in 2003 to address several FSAP update recommendations.
- PRSC supports implementation of key FINSSP actions; FY06 investment credit planned to support economic management capacity building.
- IMF published the Financial System and Stability Assessment in December 2003.

### Annex 1 — Active Portfolio (as of 31 March 2005) — key figures (in millions of US dollars)
- World Bank commitments to Ghana as of March 31, 2005: US$5.13 billion; total operations: 151.
- Portfolio active projects: number of credits/grants: 20; totals by instrument line show:
  - Total IDA Credit: 994.3
  - Total IDA Grant: 180.4
  - Total GEF Grant: 16.3
  - Total Undisbursed: 641.2
- Selected project entries (project name — fiscal year — IDA Credit/Grant/GEF/Undisbursed as shown):
  - 26820-GH 1995 Ghana Thermal Power — IDA Credit: 175.6 — Undisbursed: 15.1
  - 20412-GH 1998 GEF Forest Biodiversity — GEF Grant: 8.7 — Undisbursed: 4.9
  - 31140-GH 1999 Trade Gateway and Investment — IDA Credit: 50.5 — Undisbursed: 23.3
  - 32370-GH 1999 Community-Based Poverty Reduction — IDA Credit: 5.0 — Undisbursed: 0.5
  - 32460-GH 1999 National Functional Literacy — IDA Credit: 32.0 — Undisbursed: 12.9
  - 32820-GH 2000 Community Water II — IDA Credit: 25.0 — Undisbursed: 1.2
  - 33740-GH 2000 Rural Financial Services — IDA Credit: 5.1 — Undisbursed: 3.0
  - 34050-GH 2001 Agricultural Services — IDA Credit: 67.0 — Undisbursed: 38.7
  - 34580-GH 2001 AIDS Response — IDA Credit: 25.0 — Undisbursed: 5.3
  - 35540-GH 2002 Road Sector Development — IDA Credit: 220.0 — Undisbursed: 153.0
  - 50723-GH 2002 GEF Northern Savanna — GEF Grant: 7.6 — Undisbursed: 5.2
  - 35540-GH 2003 Health Sector Program II — IDA Credit: 57.6 — IDA Grant: 32.4 — Undisbursed: 29.5
  - 37430-GH 2003 Promoting Partnerships w/Traditional Authorities — IDA Credit: 5.0 — Undisbursed: 2.0
  - 38170-GH 2004 Land Administration — IDA Credit: 20.5 — Undisbursed: 20.7
  - 38650-GH 2004 Education Sector — IDA Credit: 78.0 — Undisbursed: 74.2 (note a/)
  - 38890-GH 2004 Urban Environment and Sanitation — IDA Credit: 62.0 — Undisbursed: 60.6
  - 39570-GH 2005 PRSC 2 — IDA Credit: 85.0 — IDA Grant: 40.0 — Undisbursed: 0.0
  - 39620-GH 2005 Urban Water — IDA Credit: 103.0 — Undisbursed: 106.7 (note a/)
  - 39710-GH 2005 Small Towns Water Supply — IDA Credit: 26.0 — Undisbursed: 24.3
  - 39640-GH 2005 Community-Based Rural Development — IDA Credit: 60.0 — Undisbursed: 60.1 (note a/)
- WAGP: IDA Partial Risk Guarantee up to US$50.0 million; IDA commitment requirement equal to 25 percent of total risk amount (US$12.5 million).
- Notes in Annex:
  - a/ Undisbursed amounts are greater than IDA amounts due to exchange rate fluctuations.
  - b/ IDA partial Risk Guarantee up to US$50.0 million (of which 25 percent IDA commitment) to protect commercial parties against sovereign risk.

*Source: World Bank and IMF staff summary as presented in the document.*

### 1.      Ghana’s provision of data to the Fund is adequate for program monitoring and

### _cr05292 - 1.      Ghana’s provision of data to the Fund is adequate for program monitoring and

### Overall assessment and dissemination
- Ghana’s provision of data to the Fund is adequate for program monitoring and surveillance purposes, but the quality and timeliness of the data need to be improved.
- Notable deficiencies in dissemination of statistical information to the public and in reporting for various Fund publications, though publication on the Bank of Ghana’s website of the Monetary Policy Committee Statement and Statistical Releases represents recent improvement.
- Data reported for publication in the International Financial Statistics (IFS):
  - International transactions: last reported for 2000.
  - Government finances: last reported for 1998.
  - National accounts: last reported for 1997.
  - No monthly or quarterly fiscal or BOP data are reported for publication in the IFS.
- Government Finance Statistics Yearbook (GFSY):
  - Latest available data reported relate to 1993.
  - Authorities reported fiscal data for the 1996 GFSY, but the data could not be published because they were not sufficiently detailed for conversion to the government finance statistics format.
- Ghana Statistical Service (GSS) issues:
  - Long delays in release of census and survey results.
  - Irregularity of the quarterly statistical digest.
  - Long lags in dissemination of data.
- Authorities are working toward participation in the General Data Dissemination System (GDDS) and, following a May 2004 STA mission, have started providing GDDS metadata to the IMF.

### National accounts and prices
- A methodological change in the compilation of consumer prices in 1999 may have led to underestimation of both the level of the consumer price index and the rate of inflation for the 1999-2001 period.
- Consequences:
  - Key components of nominal GDP for 1999-2001 are probably understated.
  - Impact on overall GDP is less clear because agriculture production may have been overstated since 1990.
- Technical assistance and revisions:
  - A peripatetic advisor was assigned to Ghana for the period 2001-04 to address price statistics and national accounts problems.
  - Follow-up undertaken as part of the GDDS project for Anglophone Africa.
  - Work on revising the CPI and updating weights using the fourth Ghana Living Standard Survey (1998/1999) is soon to be completed.
- GDP revisions and plans:
  - Overhaul of annual GDP estimates aimed for completion in 2005.
  - Peripatetic STA advisor assisting GSS to update the base year for national accounts to 2002, expand official compilations to include the expenditure side, and improve sources and methods.
  - Ambition to start developing a series of quarterly GDP estimates subsequently.
  - Comprehensive overhaul of basic sources of national accounts data needed because existing surveys are outdated.

### Labor statistics
- Labor statistics are almost nonexistent; available wage indicators come from the Social Security National Insurance Trust (SSNIT).
- Ministry of Employment has received technical assistance from UNDP and ILO in design and compilation of labor statistics.

### Public finance (fiscal statistics)
- Improvements and current practices:
  - Controller Accountant General’s Department (CAGD) currently compiles monthly budget implementation reports, available within six weeks, though reliability is undermined by some factors.
  - Discrepancies between data reported by CAGD and the BOG have narrowed in recent months.
  - Above-the-line data from CAGD are narrower in coverage than below-the-line BOG data.
  - Lack of comprehensive and timely reconciliation of monthly treasury data with bank accounts undermines reliability.
- Reforms and systems introduced:
  - Government formed a committee to define “broad” and “narrow” government.
  - Moved to immediate booking for direct debits and more frequent reporting of government account balances.
  - Implementing a new automated Budget and Public Expenditure Management System (BPEMS) covering ministries, departments and agencies.
  - Economic classification not in sufficient detail to compile data in accordance with GFSM 2001; a recent STA mission proposed introduction of a budget classification in line with international guidelines.
- Coverage gaps:
  - CAGD and BOG have missed substantial parts of central government spending (donor flows disbursed directly to ministries, internally generated funds).
  - Difficulties accounting for expenses by extrabudgetary funds.
  - Operations of SSNIT, Ghana Education Trust Fund (GETF), and District Assemblies Common Fund (DACF) not yet covered by fiscal accounts.
  - Own revenue of local governments, spending financed from these revenues, and transactions financed from the DACF are not yet covered.
  - Extension of coverage to general government is encouraged.
- Ongoing improvements:
  - New system for compiling more comprehensive data by CAGD is being introduced.
  - Commitment Control System operating for a full year; report for fiscal year 2004 generated in January 2005.
  - GDDS project assigned a peripatetic short-term consultant to advise on coverage and implementation issues related to Government Finance Statistics Manual.
- Monitoring practice:
  - Central government fiscal developments primarily monitored from below-the-line BOG data.
  - Absence of comprehensive audited accounts in recent years means above-the-line aggregates are monitored by combination of BOG cash-flow data and identifiable revenue/expenditure components from MOF and CAGD.
  - BOG produces revenue, debt service, and domestic financing data.
  - Aid and Debt Management Unit (MOF) provides external debt data and information on foreign project loan and grant disbursements.
  - CAGD provides data on noninterest recurrent expenditure and domestically financed capital expenditures.
  - Compilation of a full set of integrated accounts recording stocks and flows for all sub-sectors of general government in accordance with GFSM 2001 could largely improve and harmonize fiscal accounts.
- Technical assistance and assessments:
  - Various FAD missions suggested short-term, temporary solutions to alleviate current data quality problems.
  - A long-term FAD advisor working on public expenditure and debt management in the MOF since August 2001.
  - Joint Bank-Fund mission in 2004 assessed progress on monitoring poverty-related spending through HIPC Assessments and Action Plans.
  - A Fiscal Transparency Report on Observance of Standards and Codes (ROSC) undertaken in July 2004.
  - Further technical assistance provided by STA in March 2005.

### Monetary statistics and international reserves
- STA monetary and financial statistics mission in 2000 proposed actions on classification by residency of foreign-currency-denominated deposits in commercial banks and treatment of repurchase agreements between BOG and commercial banks; as a result, gross foreign reserves, net international reserves, and net foreign assets were redefined. Reporting according to new definitions started in 2001.
- Significant revisions and systems:
  - Monetary and international reserve data were significantly revised in early 2002, based on detailed mapping and automated software extracting data directly from BOG’s underlying financial accounts.
  - BOG revised upward reported series on reserve money beginning in November 1999 due to adjustments to data on currency in circulation.
  - Two TA missions in November and December 2001 examined and recompilied reserve money data and encountered difficulty reconciling previously reported data on BOG net credit to government and net foreign assets with underlying financial accounts; many adjustments were not well founded.
  - BOG and Fund staff agreed the most reliable source for monetary and international reserve data would be BOG’s unadjusted financial accounts.
- Bridge table and reporting lags:
  - July 2002 STA mission confirmed the bridge table used to automatically generate data on central bank monetary variables and international reserves from BOG’s underlying financial accounts was complete and reliable.
  - BOG currently reports the data monthly with a lag of four to six weeks.
  - In mid-2003 BOG staff began constructing and testing a more detailed automated bridge table for government accounts associated with BPEMS to facilitate reconciliation and tracking of the budget.
- Commercial bank reporting:
  - Subsequent STA missions detected shortcomings in quality of data submitted by commercial banks (treatment of foreign-currency-denominated assets and liabilities, reporting of government securities).
  - A new report form for commercial banks was drafted and adopted beginning with data published for July 2003.
  - BOG reports data from commercial banks with a lag of 8 to 10 weeks.

### Debt statistics
- External debt recording and payment responsibilities divided among three agencies:
  - MOF (Aid and Debt Management Unit, ADMU): maintains external debt database; records debt-payment obligations; issues payment requests; tracks HIPC debt relief.
  - CAGD: confirms legality of payments, authorizes release of public funds, accounts for debt payments, renders reports to parliament.
  - BOG: payment agent for government; verifies payments made to ADMU and CAGD.
- 2001 FAD TA mission conclusions and recommendations:
  - Institutions needed to improve transparency and accountability of external debt management.
  - Authorities should:
    - develop a single computerized database available to all relevant institutions;
    - formalize procedures for settlement of debt payments (including obtaining debt notification by donors, delegating signing authorities within relevant organizations, and creating registers tracing movement of documents required to effect external debt-payment transactions);
    - improve analytical content and timeliness of data, which are not currently reported on a periodic basis.
- To enable systematic comparison of budget, balance of payments, and BOG cash-flow data, authorities should clearly identify government subsectors for which data are reported and prepare a clear classification of financing, outstanding debt data, and guarantees issued.

### Trade and balance of payments (BOP) statistics
- BOG’s Research Department has primary responsibility for compilation and presentation of annual and quarterly BOP statistics since 1982.
- Main data sources: Customs Excise and Preventive Service (CEPS), administrative data (government ministries and departments within BOG), commercial banks, and GSS; BOG also carries out simple financial surveys of corporate entities involved in transactions with nonresidents.
- Data compiled using Balance of Payments Manual, Fifth Edition (BPM5) framework.
- Current issues and recommendations:
  - GSS is not publishing timely monthly trade statistics, although data are available from CEPS.
  - Staff recommended GSS collaborate with CEPS to process customs data within six weeks and collaborate with MOT and BOG to identify and reduce discrepancies in trade statistics and ensure imports into bonded warehouses are not double counted.
  - CEPS data collection procedures need improvement; room to improve trade volume data collected by CEPS through customs invoices to help GSS develop meaningful import and export unit values.
  - Staff recommended GSS develop export unit values for major export commodities such as gold and cocoa.
  - High coverage of the country’s export bundle can be obtained by including just three major exports—cocoa, gold, and unwrought aluminum.
  - Deflation of imports likely to involve an iterative procedure to balance coverage of the index and its stability due to heterogeneity of the basket.

*Source: IMF staff report content provided in the document*

### 18.      The BOG has initiated work on implementing the recommendations of a TA

### _cr05292 - 18.      The BOG has initiated work on implementing the recommendations of a TA

### Balance of payments statistics and data collection
- The Bank of Ghana (BOG) initiated work to implement recommendations of a TA mission on balance of payments statistics in 2000, including introducing surveys of key establishments.
- A survey of shipping companies was introduced in 2004 but the companies were unable to submit the required data.
- Collaboration among government agencies responsible for data collection has improved.
- A new immigration form to capture travel statistics, aligned with the Tourism Satellite Account developed by an interinstitutional committee, was introduced in March 2005.
- The survey on private capital flows carried out in 2000 has just been published; the BOG intends to implement the second phase of the capital flow project in September 2005.

### Common indicators reporting (selected metadata from table as of May 2, 2005)
- Exchange rates: Date of latest observation April 25, 2005; Date received April 28, 2005; Frequency of Data D; Frequency of Reporting W; Frequency of publication D.
- International reserve assets and reserve liabilities of the monetary authorities: Date of latest observation March 2005; Date received April 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication Q.
- Reserve/base money: Date of latest observation March 2005; Date received April 2005; Frequency of Data W; Frequency of Reporting M; Frequency of publication Q.
- Broad money: Date of latest observation March 2005; Date received April 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication Q.
- Central bank balance sheet: Date of latest observation March 2005; Date received April 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication Q.
- Consolidated balance sheet of the banking system: Date of latest observation March 2005; Date received April 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication Q.
- Interest rates: Date of latest observation April 25, 2005; Date received April 28, 2005; Frequency of Data W; Frequency of Reporting W; Frequency of publication W.
- Consumer price index: Date of latest observation March 2005; Date received April 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M.
- External current account balance: Date of latest observation Dec. 2004; Date received Feb. 2005; Frequency of Data A; Frequency of Reporting A; Frequency of publication A.
- Exports and imports of goods and services: Date of latest observation 1997; Date received 3/2003; Frequency of Data A; Frequency of Reporting A; Frequency of publication I.
- GDP/GNP: Date of latest observation 2004; Date received Feb. 2005; Frequency of Data A; Frequency of Reporting A; Frequency of publication I.
- Gross external debt: Date of latest observation Dec. 2004; Date received Feb. 2005; Frequency of Data M; Frequency of Reporting I; Frequency of publication A.

### Program performance in 2004 and immediate outcomes
- Real GDP growth in 2004 rose to 5.8 percent, supported by a record cocoa harvest and a broadening of economic activity.
- Credit growth to the private sector reached its highest level of the past five years.
- Twelve-month inflation was halved to 11.8 percent by end-year; nonfood inflation stayed within the single-digit range for most of the year.
- Gross international reserves built up to US$1,816 million (equivalent to 3.7 months of imports of goods and services) by end-2004.
- Fiscal slippages in 2004 were attributed to: higher petroleum-related subsidies due to high world oil prices; increased domestic capital spending linked to higher-than-expected foreign financing (including recent debt relief); and higher-than-projected wage payments to subvented agencies caused by weak payroll management.

### Breaches of program performance criteria and remedial measures
- The ceiling on net domestic financing of government operations was exceeded at end-December 2004 due to:
  - higher poverty-related and infrastructure expenditures linked to higher-than-expected foreign financing (including from recent debt relief);
  - higher petroleum-related subsidies as a result of higher world oil prices;
  - a wage overrun for subvented agencies because their base wage payments were inadvertently not provided for in the program and monitoring was not comprehensive.
  - Remedial measures: strengthen payroll management including computerization to cover all subvented agencies and central government employees; 2005 program includes a quantitative performance criterion on the absolute wage bill for the year (including all allowances).
- The ceiling on the stock of net domestic bank credit to the Tema Oil Refinery (TOR) was exceeded at end-December 2004 because of a lag in verifying and transferring the required petroleum-related subsidy for Q4 2004; transfer made in early 2005 and related bank credit repaid.
  - Remedial measures: subsidies to TOR have ceased with the new petroleum pricing mechanism; 2005 program includes a ceiling on TOR outstanding bank credit and continued monitoring of TOR’s financial performance.
- The (zero) ceiling on contracting or guaranteeing medium- to long-term nonconcessional debt was breached in August 2004 with a US$40 million loan from Nigeria to finance Ghana’s participation in the West African Gas pipeline.
  - Consequence: a US$25 million penalty (0.3 percent of GDP) arose because expected financing did not materialize and alternative arrangements were not made in time.
  - Remedial measures: institute mechanisms to ensure early consultation on all matters related to program monitoring, including regular meetings between officials and the IMF Resident Representative.
- A structural performance criterion—the automatic adjustment mechanism to price petroleum products—was implemented with a week’s delay (February 23, 2005, against February 15, 2005).
  - Establishment of an independent oversight board (the National Petroleum Authority) to monitor the pricing mechanism was expected by end-May 2005 (against February 15, 2005).
  - Rationale for delays: allow adequate consultation to ensure durability of a politically sensitive reform.
  - Commitment: government committed to full implementation of the pricing mechanism and provisions of petroleum sector deregulation legislation once the Bill is passed.

### 2005 objectives and policy measures
- Macroeconomic objectives for 2005:
  - maintain real GDP growth of 5.8 percent;
  - contain inflation at an average of 14½ percent (inflation accelerated to 16.7 percent in March 2005 in response to petroleum deregulation and a 50 percent increase in petroleum product prices in February);
  - accumulate US$130 million in net international reserves.
- Fiscal policy:
  - 2005 budget targets a domestic primary surplus of about 2½ percent of GDP to achieve a reduction in the ratio of net domestic debt to GDP to half the level at end-2002.
  - The fiscal space of 2½ percent of GDP from lower domestic debt service and elimination of petroleum subsidies is allocated to increased capital expenditures (infrastructure) and a slight increase in poverty spending (health and education).
  - Expenditure measures include outlays to ameliorate the impact of petroleum deregulation on vulnerable households: increased grants for education and health services in rural areas, expanded electrification, and extension of public transportation to less developed areas.
- Wage policy and civil service reform:
  - The wage bill is expected to reach 9.1 percent of GDP in 2005 because of the budgeted public sector wage increase, slippage in wages in 2004, and clearance of arrears from 2004.
  - Measures to control wages in 2005: establish quarterly ceilings inclusive of all allowances; integrate all government employees into personnel and payroll data bases (with technical assistance).
  - Over the medium term, a comprehensive civil service reform is planned to address employment and wage policies with an expected reduction of the wage bill to around 8.5 percent of GDP.
- Petroleum sector deregulation:
  - On February 23, 2005, the government adopted a mechanism for petroleum product pricing ensuring full recovery of all costs and taxes and ending budget subsidies; pricing based on import-parity ex-refinery prices plus distribution margins, taxes, and levies.
  - Parliament is expected to pass legislation to establish the National Petroleum Authority and to deregulate the petroleum sector, promote competition, and encourage entry of new downstream participants.

### Other program actions and requests
- The government requested completion of the third PRGF program review and disbursement of the fourth loan installment in an amount equivalent to SDR 26.35 million.
- The government requested an extension of the current PRGF arrangement to October 31, 2006, so the final and sixth review (based on June 2006 test date) and disbursement could be completed.

*Source: _cr05292 - 18.      The BOG has initiated work on implementing the recommendations of a TA*

### 11.      On the revenue side, the budget provides for a reduction of corporate income taxes to

### _cr05292 - 11.      On the revenue side, the budget provides for a reduction of corporate income taxes to

### Revenue and fiscal stance
- Budget measures:
  - Reduction of corporate income taxes to spur investment.
  - Increase in the personal income tax threshold to reduce the tax burden on low-income earners.
- Offsetting and additional revenue:
  - Loss of revenue from the two tax measures will be more than offset by the yield from petroleum taxes consequent upon the high oil prices and the full-year impact of the national health insurance levy introduced in August 2004.
  - Following improvements in administration and with the strict enforcement of the FAA, nontax revenue will rise further this year.
  - Thus, total tax revenue is set to increase to 24½ percent of GDP.
- Foreign financing:
  - At the same time, foreign financing is expected to be about the same as last year.

### Public expenditure management and transparency
- Recent and ongoing reforms:
  - Fiscal reporting has been expanded to include the internally generated funds of ministries, departments, and agencies (MDAs), financial statements of statutory funds, and the Social Security and National Insurance Trust.
  - Legislative framework strengthened.
  - Budget and public expenditure management system (BPEMS) deployed in a significant number of MDAs.
- Implementation priorities:
  - Proper enforcement and implementation of key legislation, in particular the FAA, the Financial Administration Regulations, the Procurement Act, and the Internal Audit Agency Act.

### Monetary policy and inflation control
- Objective:
  - Continue to reduce inflation.
- Operational targets and conduct for 2005:
  - Annual growth of reserve and broad money (excluding foreign-currency deposits) of 18 and 23 percent, respectively, during 2005.
  - The Bank of Ghana (BOG) added bank bills to complement treasury securities for open market operations.
  - The Monetary Policy Committee in March 2005 left the BOG’s prime rate unchanged at 18.5 percent.
- Policy stance:
  - Maintain a firm stance to contain indirect effects of petroleum price deregulation and prevent an upward spiral of inflation.
  - Promote transparency via regular reports from the Monetary Policy Committee.

### Exchange rate policy and foreign exchange market
- Regime:
  - Managed floating exchange rate for the cedi with no preannounced path.
  - Interventions limited to short-term smoothing, liquidity management, and achievement of international reserves objectives.
- Concerns and reserves:
  - Transmission of exchange rate effects through prices is strong; BOG concerned about potential for sharp fluctuations.
  - International reserves are at a record-high level; a further buildup may provide an added cushion against shocks such as the recent surge in world oil prices.
- Interbank market reform:
  - Planned computerized interbank foreign exchange market delayed due to capacity concerns; to be launched once institutional capacity (mainly through training) exists.
  - BOG does not consider it prudent to eliminate the surrender requirement for foreign exchange at this time because annual foreign exchange receipts have reached US$1 billion (about 10 percent of GDP).

### Structural policies — overview
- GPRS refocused to promote private sector–led growth and alleviate poverty.
- Main thrust for 2005: promote private-sector-led growth, strengthen financial intermediation, improve debt management, and reform public enterprises and the civil service.

### Financial sector reforms and intermediation
- Capital and prudential measures:
  - Enforce compliance with increased capital and capital adequacy requirements: 10 percent of risk-weight assets as of April 2005, up from 6 percent earlier.
  - Adopt international norm of classifying non-performing loans.
  - Pass a law to establish a credit bureau.
- Supporting legislation and reforms:
  - Implement Long-Term Saving Bill and the Venture Capital Fund Bill to mobilize domestic savings.
  - Pass Insolvency Bill and Companies Code to clarify creditor and borrower rights.
  - Accelerate judicial and legal processes to secure land tenure (primary collateral for SMEs).
- Secondary reserve requirement:
  - Secondary reserve requirement of 35 percent of deposits serves as an effective macroprudential tool but prevents optimal asset allocation for some banks.
  - For the system as a whole, the requirement is not binding (existence of free reserves).
  - BOG will move to reduce, and eventually eliminate, the secondary reserve requirement when there is firmer control over liquidity through more robust policy instruments.
- Financial Sector Strategic Plan emphasis:
  - Regulatory and judicial reform, institutional capacity building, protection of private property rights, and competition.

### External policies, debt management, and access to markets
- Trade policy:
  - National Trade Policy finalized in December 2004 to foster FDI, open domestic market to competition, and transfer technology.
  - Priority actions: harmonize external tariffs with ECOWAS members; establish a trade sector support program; implement President’s Special Initiatives to broaden export base (manufactured products such as garments and textiles, salt, industrial starch, and oil palm).
- Debt relief and management:
  - Reaching the completion point under the enhanced HIPC Initiative made Ghana’s external debt sustainable.
  - Nearly all bilateral negotiations with Paris Club creditors completed; nearly all creditors committed additional relief beyond HIPC.
  - Measures to improve debt management: monthly reconciliation of external debt data among relevant agencies; shift focus from data collection to debt sustainability analysis; integrate analyses into external borrowing decision-making.
- Access to international capital markets:
  - Decision to access nonconcessional international capital market funds will be contingent on:
    - (i) assurance that such borrowing would not worsen its debt-service profile over the medium term;
    - (ii) strengthening of debt management capacity to assess and design loan proposals;
    - (iii) maintenance of good macroeconomic performance track record to obtain better financing terms.
  - Will seek to exhaust concessional assistance; government will avoid contracting or guaranteeing nonconcessional debt as defined in the technical memorandum of understanding (TMU) attached to the MEFP.

### Public enterprise reform and divestiture
- Public enterprise profile:
  - 35 SOEs and about 200 other entities partially owned by the government; concentrated in service, energy, and financial sectors.
  - Majority operate at a loss due to technical and operational inefficiencies.
- Reform strategy elements:
  - Expand mandate of the Nontax Revenue Unit in the Ministry of Finance and Economic Planning by end-2005 to monitor quarterly the financial and operating performance of the 35 SOEs now reporting to the State Enterprise Commission (which is being restructured).
  - Require each entity to submit annual financial plans (investment program, borrowing requirements, projected performance, prospective dividend payments) in time for national budget preparation.
  - Ensure commercial entities adopt pricing policies that reflect full cost recovery.
- Divestiture proceeds:
  - Divestiture Implementation Committee projects revenue from sale of shares in 12 joint-venture companies of about 0.6 percent of GDP by end of this year; these proceeds were not included in the 2005 budget due to timing and amount uncertainty. Proceeds, if realized, will be used to increase poverty-related spending and finance civil service reform without creating unsustainable recurrent obligations.
- Ghana Airways and new airline:
  - Ghana Airways debt currently estimated at US$172 million; debt-restructuring committee to complete audit of liabilities in September 2005, after which government will devise a strategy.
  - Task force created to resolve severance payment issues; budget allocation made to accommodate this eventuality.
  - New airline, Ghana International Airlines (GIA), established as a joint venture between the government (70 percent stake) and a U.S.-based investor; 2005 budget provides government equity contribution amounting to US$4.9 million.

### Civil service reform
- Policy document:
  - "Towards a New Public Service for Ghana" developed to inform reform.
- Shortcomings of past reforms:
  - (i) inability to tackle system-wide issues (public sector pay, rightsizing, HR development);
  - (ii) capacity constraints at managerial and professional levels;
  - (iii) fragmented, technology-driven, and uncoordinated modernization programs;
  - (vi) lack of synergy of reforms between different levels of government.
- Key issues to address:
  - (i) establish human resource policy emphasizing professional and career development;
  - (ii) review organization and structure of the civil service;
  - (iii) address wage policy and payroll management (including pensions);
  - (iv) bolster service delivery to ensure value for money.
- Implementation timetable:
  - Minister of State appointed to accelerate reform.
  - With development partner help, draft action plan to be presented to cabinet by end-June 2005.
  - After cabinet approval, implementation to begin no later than January 2006.

### Statistics and data dissemination
- Progress:
  - Improvements in quality, timeliness, and availability of economic data.
  - Ghana working towards participation in the IMF’s General Data Dissemination System and has started providing metadata to the IMF.
  - Authorities intend to make Ghana’s economic and financial data available on the internet.
- Publications scheduled:
  - In December 2005, GSS will publish revised national accounts (from 1990 onward), including by expenditure-based categories.
  - A revised consumer price index reflecting current consumption patterns will also be published at that time.

### Program monitoring, conditionality, and quantitative targets
- Reviews and test dates:
  - Fourth review of the program expected by November 2005, with end-June 2005 as the test date for quantitative performance criteria.
  - Fifth review expected in March 2006, with December 2005 as the test date for quantitative performance criteria.
  - Review focus: payroll management, progress in civil service and financial sector reform, establishment of SOE performance monitoring, pricing mechanisms for utilities and petroleum products (including oversight by the Public Utility Regulation Commission and proposed National Petroleum Authority).
- Data and reporting:
  - Detailed definitions and reporting requirements in the TMU attached to the memorandum.
  - Government will make available to Fund staff all core data, appropriately reconciled and on a timely basis, as specified in the TMU.

### Selected quantitative performance criteria and indicative benchmarks (values as presented)
- Performance criteria (In billions of cedis; cumulative flows from beginning of calendar year 2005 to end of month indicated, unless otherwise indicated):
  - Net domestic financing of government (ceiling): -119, -237, -1,374, -1,374, -996
  - Net domestic assets of the Bank of Ghana (ceiling) 2/: 166, 1,170, 2,095, -1,287, 444
  - Stock of net domestic banking sector credit to TOR (ceiling): 918, 568, 600, 600
- Performance criteria (In millions of U.S. dollars):
  - Net international reserves of the Bank of Ghana (floor): -132, -217, -283, 218, 130
- Other continuous/per year measures:
  - The contracting or guaranteeing of new nonconcessional external debt with original maturity greater than or equal to 1 year by the government or the Bank of Ghana (ceiling) 3/: 00  00
  - Outstanding stock of external debt with original maturity of less than one year owed or guaranteed by the government or the Bank of Ghana (ceiling): 0, 100, 100, 100
  - Stock of external payment arrears (ceiling): 0, 0, 0, 0
- Wage bill of the central government (ceiling) 6/ (In billions of cedis; cumulative): 1,825, 3,747, 6,447, 8,832
- Indicative benchmarks (In billions of cedis):
  - Government domestic primary balance (floor): 660, 1,598, 2,109, 2,109, 2,532
  - Reserve money stock (ceiling): 8,087, 8,313, 8,633, 8,633, 10,777
  - Government revenue, excluding grants and divestiture proceeds (floor): 5,061, 10,646, 16,886, #####, 23,911
  - Poverty related expenditures (floor): 1,713, 3,549, 5,758, 8,014

*Source: Technical Memorandum of Economic and Financial Policies and attached program Tables in the MEFP (Ghana, 2005).*

### 1.      This technical memorandum of understanding contains definitions that are intended

### This technical memorandum of understanding contains definitions that are intended

### Provision of data to the Fund
- All quantitative performance criteria and benchmarks will be evaluated in terms of cumulative flows from December 31, 2004 (unless otherwise specified).
- Data with respect to all variables subject to performance criteria and indicative benchmarks will be provided to Fund staff on a monthly basis with a lag of no more than eight weeks (except for select data for which the reporting lag is explicitly specified in Table I.3).
- Authorities will transmit promptly to Fund staff any data revisions.
- For any information (and data) relevant for assessing performance against program objectives but not specifically defined in this memorandum, the authorities will consult with Fund staff, including the Fund’s Resident Representative.

### Definitions — Government scope and fiscal aggregates
- Government for the purposes of this memorandum comprises:
  - The central government;
  - All special funds (the Education Trust Fund, the Road Fund, the District Assembly Common Fund, and the National Health Insurance Fund);
  - Various subvented and other government agencies that are classified as government in the Bank of Ghana (BOG) Statement of Accounts (SOA).
- Excluded from the definition of government:
  - The Social Security and National Insurance Trust (SSNIT);
  - Public enterprises, including Cocobod.
- BOG’s definition of government, circulated to commercial banks in May 2004, will apply for program purposes regarding government deposits in commercial banks.

- Government domestic revenue:
  - Comprises all tax and nontax revenues of the government (in domestic and foreign currency), excluding foreign grants and divestiture receipts.
  - Measured on a cash basis as gross inflows to the government’s uncommitted treasury collections accounts (as reported by the BOG).

- Government domestic expenditure:
  - Comprises all spending from uncommitted accounts for Items 1-4, captured by the Controller Accountant General’s Department (CAGD) accounts.
  - Reporting based on the National Expenditure Tracking System (NETS) accounting system and its 15-digit chart of accounts.
  - Fully reconciled with BOG bank statements on spending (outflows) from the 42 newly created ministries, departments, and agencies’ (MDA’s) operational accounts (plus any residual use of existing treasury drawing/overdraft accounts).
  - Verified by comparison with Budget and Public Expenditure Management System (BPEMS) accounts until BPEMS becomes fully operational.

- Poverty-related expenditures:
  - Government will continue to report poverty-related expenditures, including use of funds from the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.
  - Budgeted poverty spending taken from each year’s final appropriations bill; includes spending financed by the government, donors, or internally generated funds.
  - Actual poverty-related spending identified using the last 3 digits of the 15-digit NETS chart of accounts and the HIPC-financed subcomponent.
  - Supplemented with the proportion of transfers to the District Assembly Common Fund, the Ghana Educational Trust Fund, and the Road Fund deemed by those entities to be poverty-related.
  - Excludes some donor-supported expenditure not currently captured by the CAGD (including pooled donor health fund).

- Domestic primary balance:
  - Defined as government domestic revenue minus noninterest domestic government expenditure as reported by the CAGD.
  - Excludes foreign-financed capital expenditure (data reported by the Aid and Debt Management Unit (ADMU)).
  - Measurement on a cash basis, with any positive (negative) discrepancy between above- and below-the-line overall balance added to (subtracted from) the domestic primary balance (including unspent balances remaining in committed accounts).

- Wage bill:
  - Sum of personal emoluments and Item 1 under contingency expenditure, provided by the CAGD in “Report and Financial Statements on the Public Accounts of Ghana (Consolidated Fund).”
  - Includes all remunerations (plus the Additional Duty Hourly Allowance) paid to civil servants covered under the Ghana Universal Salary Structure (GUSS) and subvented agencies.

- Program exchange rate:
  - 9,177 cedis per dollar (average interbank transaction rate prevailing at end-March 2005).

### Definitions — Monetary aggregates and BOG positions
- Reserve money:
  - Sum of currency in circulation (BOG SOA codes 901 plus 902) plus cedi-denominated currency deposits at the BOG (excluding accounts overdrawn, blocked, or owned by banks in liquidation) of: commercial banks, other financial institutions, private sector entities, public institutions, and public enterprises.
  - Detailed listing of included accounts in the monetary template referred to in paragraph 7.
  - If aggregate reserves fall below the legal reserve requirement of 9 percent of bank deposits (as reported in the quarterly STCRBB), then reserve money will be adjusted upward to the extent of any shortfall in compliance with that reserve requirement.

- Net foreign assets (monetary survey definition):
  - Short- and long-term foreign assets minus liabilities of the BOG contracted with nonresidents.
  - Short-term foreign assets include: monetary gold (valued at the spot market rate for gold, US$/fine ounce, London), holdings of SDRs, reserve position and HIPC Initiative trust investment in the IMF, the HIPC Initiative Umbrella SDR account (as reported by the IMF), foreign notes and travelers checks, foreign securities, positive balances with correspondent banks, and other positive short-term or time deposits.
  - Short-term foreign liabilities include: foreign currency liabilities contracted by the BOG at original maturities of one year or less (including overdrafts), outstanding liabilities to the IMF, and deposits of international institutions at the BOG.
  - Long-term foreign assets and liabilities comprise: other foreign assets (BOG SOA code 303), investments abroad (subset of 60201), other long-term liabilities to nonresidents (subset of 1103), and bilateral payment agreements (305).
  - All values not in U.S. dollars are to be converted to U.S. dollars at the exchange rates prevailing at end-March 2005 and then into cedis at the program exchange rate indicated in paragraph 13.
  - Detailed listing of accounts in the monetary template referred to in paragraph 7.

- Net international reserves of the BOG (program monitoring and BoP definition):
  - Short-term foreign assets of the BOG minus short-term external liabilities.
  - Exclude short-term foreign assets that are not fully convertible external assets readily available to and controlled by the BOG (e.g., pledged or encumbered external assets, including the HIPC umbrella SDR account).
  - Include net swap transactions (receivable less payable).
  - Exclude all positive foreign currency deposits at the BOG held by resident deposit money banks, public institutions, nonfinancial public enterprises, other financial institutions, and the private sector.
  - All values not in U.S. dollars converted to U.S. dollars at end-March 2005 exchange rates and then into cedis at the program exchange rate in paragraph 13.
  - Detailed listing of included accounts in the monetary template.

- Net domestic assets of the Bank of Ghana:
  - Defined as reserve money minus net foreign assets of the BOG, excluding the HIPC Umbrella SDR account, converted from U.S. dollars to cedis at the program exchange rate.

- Outstanding net credit to the government by the BOG:
  - Sum of claims on government (SOA codes 0401 and 050101-4), including overdrafts of the government with the BOG and deferred accrued interest on BOG holdings of inflation-indexed bonds, less government deposits (1101 including the main HIPC Initiative receiving account, and 1202) as defined in the monetary template.

- Outstanding net credit by deposit money banks:
  - DMB holdings of government securities at cost of purchase value (as reported by the BOG Treasury Department’s Debt Registry) plus overdrafts less government deposits as reported by DMBs in the revised BSD2 report forms (and defined in the Monetary Template), plus deferred accrued interest on their holdings of inflation-indexed bonds.

- Net domestic financing (NDF) of government:
  - Change in net credit to government by the banking system (BOG plus deposit money banks) plus net change in holdings of treasury bills and other government securities by the nonbank sector, including deferred accrued-interest payments on inflation-indexed bonds but excluding divestiture receipts.
  - Excludes treasury bills issued for open market operation purposes from January 1, 2003 onward (holdings excluded from the BOG Treasury Department’s Debt Registry of central government securities; proceeds sterilized in deposits held as other BOG liabilities, as defined in the monetary template provided to the IMF on December 3, 2003).

- Nonbank financing:
  - Difference between total net cash receipts to the treasury main cash account (issues/redemptions account when it becomes operational) from sale/repurchase of government securities, less the corresponding net cash value received from the BOG and DMBs as indicated on the Debt Registry by holder at discount value, plus deferred accrued interest on holdings of inflation-indexed bonds.
  - For each test date, any adjustment by the BOG to data reported by individual DMBs (on account of misclassification of government or other reasons) will be reported to the Fund.

### External debt, arrears, concessionality, and debt-management procedures
- Short-term external debt performance criterion:
  - Refers to outstanding stock of external debt with original maturity of one year or less, including overdraft positions and debt owed or guaranteed by the government or the BOG.
  - Data on the BOG’s short-term external debt reported from statement of accounts template as short-term liabilities to nonresident commercial banks (BOG SOA code 1201 plus 301 overdrafts plus Crown Agent).

- Nonconcessional medium- and long-term external debt performance criterion:
  - Refers to contracting or guaranteeing of external debt with an original maturity of more than one year by the government or Bank of Ghana.
  - Medium- and long-term debt and its concessionality reported by the Aid and Debt Management Unit of the Ministry of Finance and Economic Planning, measured in U.S. dollars at current exchange rates.
  - Footnote exclusions and conditions apply as specified in the memorandum (see paragraph 19 and associated footnotes in the document).

- External payment arrears:
  - Deemed to accrue when undisputed interest or amortization payments of the government are not made within contractual terms, or in conformity with the terms for interim relief provided under the enhanced HIPC Initiative and the Paris Club deferral agreed December 10, 2001.

- Debt-management and verification measures instituted and to be maintained:
  - ADMU designated as the only entity authorized to contract or guarantee external debt; leases with total value above US$100,000 should be submitted to ADMU for authorization. ADMU will report to the IMF with a lag of not more than one month on concessionality of all new loans contracted.
  - Ministerial circular requesting donor desks to inform ADMU of correspondence with creditors, disbursement information, project financing developments, and notices of payment due; new loan documents should state ADMU as main initial contact for settlement.
  - Donors and creditors asked to confirm debt-payment obligations with ADMU in advance of payment due dates.
  - Formal delegations in MoFEP and CAGD to ensure absence of signing authority does not delay payment requests; a register of timing of formal debt-payment actions to be kept and signed by institutions involved.
  - Procedures from early 2003 on prior authorization and fiscal booking of external and other payments by direct debit to be maintained.
  - If foreign exchange shortages cause queuing of debt-service obligations at the BOG, MoFEP responsible for issuing instructions to revise payment priorities and maintaining record of payment arrears.
  - Formal reporting/follow-up procedures for BOG to confirm transactions to CAGD and ADMU daily; reports copied to BOG governor, Minister of Finance and Economic Planning and senior officials, and IMF staff monthly.
  - Procedures for verifying BOG data to the Fund formalized; a senior officer delegated responsibility for compilation and verification of data on program conditionality. Reconciliation procedures amended to include periodic checks.
  - Two BOG accounts established for receipt and disbursement of HIPC Initiative relief:
    - When each debt-service payment falls due, government (or BOG for IMF repurchases) will transfer to the account that proportion of the amount due that under HIPC terms does not have to be paid to the creditor.
    - For debt owed by public enterprises under HIPC, government will transfer to the HIPC Initiative account the debt-relieved portion of the debt service payment if the enterprise fails to do so on the due date.
    - ADMU to issue, in advance of due dates, payment requests to CAGD indicating portions due to the creditor and the HIPC Initiative account.
    - ADMU will prepare a monthly report indicating for the coming month: (i) total debt service due by creditor, (ii) amount of HIPC Initiative relief on each transaction, and (iii) debt service paid and transfers to the HIPC Initiative account by creditor for the previous month. Report provided within two weeks of the end of the month to the CAGD and the IMF.

### Data reporting requirements (summary from Table I.3)
- Fiscal data (to be provided by MOFEP):
  - Central budget operations for revenues, expenditure and financing: Monthly within six weeks of the end of each month.
  - Functional breakdown by MDAs of expenditure authorizations, payment vouchers issued, payment vouchers liquidated, and arrears; identification of poverty-related expenditures and HIPC-financed subcomponents; inflows and disbursements from HIPC receiving and drawing accounts at the BOG: Monthly within six weeks of the end of each month.
  - Divestiture receipts received by the budget (in cedis and foreign exchange, net of divestiture transaction costs): Monthly within six weeks of the end of each month.

- Monetary data (to be provided by the BOG):
  - Net domestic assets and net international reserves of the BOG: Weekly within two weeks of the end of each week.
  - Detailed balance sheet of the monetary authorities: Monthly within four weeks of the end of each month.
  - Monetary survey detailing consolidated balance sheet of commercial banks using the new BSD2 Report Form: Monthly within six weeks of the end of each month.
  - Summary position of government committed and uncommitted accounts at BOG, and total financing from BOG; accompanying table showing composition of other receipts and other expenditure: Monthly within four weeks of the end of each month.
  - Composition of banking system and nonbanking system net claims on government: Monthly within four weeks of the end of each month.
  - Debt registry showing structure and holders of domestic government debt, at face value and at discount; similar table showing holders of treasury bills for open market operations: Monthly within four weeks of the end of each month.
  - Supervisory Technical Committee Review of Banking Business quarterly report showing aggregate reserves of the banking system: Quarterly within eight weeks of the end of each quarter.

- Balance of Payments (to be provided by the BOG):
  - Export and import data on value, volume, and unit values, by major categories and other major BoP variables: Quarterly with a maximum lag of two months.
  - Foreign exchange cash flow: Monthly within four weeks of the end of the month.

- External debt and foreign assistance data (to be provided by MOFEP):
  - Information on the concessionality of all new external loans contracted by the government or with a government guarantee: Monthly within four weeks of the end of each quarter.
  - For the coming quarter: (i) total debt service due by creditor, (ii) amount of HIPC Initiative relief on each transaction, and (iii) debt service paid and transfers to the HIPC Initiative account by creditor for the previous month — covering government and government-guaranteed debt: Quarterly within four weeks of the end of each quarter.
  - External debt and external debt service incurred by enterprises with government ownership above 50 percent, even if loans have not been explicitly guaranteed by the government: Quarterly, within three weeks of the end of each quarter.
  - Disbursements of grants and loans by creditor: Quarterly, within four weeks of the end of each quarter.

- Other data (to be provided by GSS):
  - Overall consumer price index: Monthly within two weeks of the end of each month.
  - National accounts by sector of production, in nominal and real terms: Annual within three months of the end of each year (switching to quarterly when they become available).

*Source: Technical Memorandum of Understanding attached to the Memorandum of Economic and Financial Policies (MEFP), June 2005.*

### 1.      A prior action for Executive Board consideration of the third review under the PRGF

### A prior action for Executive Board consideration of the third review under the PRGF

### Establishment of independent oversight body and legal steps
- A prior action for Executive Board consideration of the third review under the PRGF arrangement was the establishment of an independent oversight body to monitor application of the petroleum product pricing mechanism adopted on February 23, 2005 (Table I.2 of the Staff Report, 6/8/05).
- On June 14, 2005, the National Petroleum Authority Bill, 2005, was passed by Parliament and the chairperson of the Board of the National Petroleum Authority was appointed.
- Accordingly, the prior action has been met.

### Implementation and transmission of pricing mechanism
- The adoption of the pricing mechanism for petroleum products was an important structural reform.
- The first tenders for petroleum crude and products—following the implementation of the pricing mechanism in February 2005—were held in March 2005 and May 2005, respectively.
- Given the required period for shipment, refining, and delivery, the transmission of the tender prices to retail prices is expected in early July 2005 for petroleum products and mid-July 2005 for petroleum crude.

*Source: _cr05292 - 1.      A prior action for Executive Board consideration of the third review under the PRGF*

### 3.      In order to increase the efficiency of the transmission of monetary policy, the Bank of

### 3.      In order to increase the efficiency of the transmission of monetary policy, the Bank of

### Monetary policy reform and immediate assessment
- The Bank of Ghana announced that the secondary reserve requirement for deposit money banks will be reduced from 35 percent to 15 percent, effective July 1, 2005.
- The reform was accompanied by the removal of the requirement that banks hold 15 percent of deposits in the form of medium-term securities (government and central bank obligations).
- These measures are described as broadly consistent with staff advice.
- Assessment: the near term effects on lending and inflation should not be significant; currently, opportunities are limited for banks to expand their loan portfolios.
- Expected outcome: significant efficiency gains are expected over the medium term.

### IMF Executive Board observations and support
- Directors supported the authorities’ recent move to reduce banks’ secondary reserve requirements as a way of strengthening the efficiency in the transmission of monetary policy.
- A firmer control over liquidity and low inflation would provide the framework to continue this reform to further enhance economic efficiency and allow all banks to take full advantage of market opportunities.
- Directors welcomed the decline in inflation during 2004 and encouraged the central bank to maintain a firm stance to avoid an upward shift of inflation in light of high world oil prices and high foreign exchange inflows.
- Directors agreed that the managed floating exchange rate has served Ghana well as a buffer against external shocks; they considered the level broadly appropriate but recognized tension in inflation and exchange rate objectives.

### Macroeconomic context and recent performance
- Real GDP growth reached 5.8 percent in 2004.
- Poverty rate estimated at about 35 percent of the population.
- Inflation declined to 11.8 percent at the end of 2004, but remained above the central bank’s single-digit target.
- Petroleum product prices were deregulated and raised by an average of 50 percent in February 2005, contributing to a jump in consumer prices in early 2005.
- Gross international reserves built up to US$1.8 billion (equivalent to 3.7 months of imports) at the end of the year.
- External current account (including official transfers) moved from surplus into deficit in 2004, reflecting a significant increase in capital imports tied to donor inflows and a larger oil import bill.

### Fiscal policy, debt, and risks
- The overall budget deficit narrowed to 3.6 percent of GDP in 2004, but was still 2 percentage points of GDP larger than expected.
- Total revenue and grants were higher than projected due to a significant rise in grants, strong growth, new tax measures, and more efficient revenue administration.
- Offsetting factors: unanticipated capital outlays, increased subsidy for petroleum products as world oil prices rose, and an overrun in wages.
- The envisaged repayment of domestic debt did not occur; instead there was domestic borrowing; faster GDP growth generated the targeted reduction in the domestic debt-to-GDP ratio (the anchor of fiscal policy).
- Directors urged avoidance of further fiscal slippages and emphasized establishing institutional capacity to control wages and salaries.
- Directors stressed the need to increase fiscal space for growth-enhancing and poverty-reducing expenditures and recommended reducing the ratio of domestic debt to GDP primarily through cuts in low-priority expenditures and reduction in the government wage bill relative to GDP.
- Directors called for continuing concessional assistance from development partners and strengthening debt management capacity; Ghana’s debt sustainability remains vulnerable to external shocks and to a significant reduction in grants.

### Structural reforms and financial sector
- Progress reported: regulatory and legislative reforms, strengthened financial sector, commercial banks generally more liquid and profitable.
- Reforms noted: public expenditure and financial management enhancements; reform of public enterprises with full cost recovery pricing for public utilities and settlement of cross-debts between major state-owned enterprises.
- Adoption of a new pricing mechanism for petroleum products in February 2005 to reduce the budget’s exposure to world oil prices and government involvement in pricing.
- Establishment of the National Petroleum Authority to monitor the pricing mechanism and safeguard against unfair and anti-competitive behavior.
- Directors encouraged enhancing financial intermediation, improving access to credit for small- and medium-sized enterprises, implementing the Financial Sector Strategic Plan, and adopting recommendations of the Financial Sector Assessment Program.
- Recommendation: introduce a computerized real-time foreign exchange trading system to enhance the interbank foreign and exchange market as soon as participants have the required capacity.

### PRGF review and IMF financial actions
- The Executive Board completed the third review of Ghana's performance under a PRGF arrangement and made immediately available SDR 26.4 million (about US$38.7 million).
- Ghana’s three-year PRGF arrangement was approved on May 9, 2003 for SDR 184.5 million (about US$271.3 million); so far Ghana has drawn SDR 79.1 million (about US$116.2 million).
- The Executive Board extended the PRGF arrangement to October 31, 2006 to allow completion of the sixth and final review and all disbursements.
- The Board waived the nonobservance of three quantitative and one structural performance criteria, accepting authorities’ remedial measures.
- PRGF loan terms: annual interest rate of 0.5 percent, repayable over 10 years with a 5 ½-year grace period on principal payments.

### Key statistics (selected exact figures from the text)
- Secondary reserve requirement change: from 35 percent to 15 percent, effective July 1, 2005.
- Requirement removed: 15 percent of deposits in medium-term securities.
- Real GDP growth 2004: 5.8 percent.
- Poverty rate: about 35 percent of the population.
- Inflation end-2004: 11.8 percent.
- Petroleum price deregulation increase: average of 50 percent in February 2005.
- Gross international reserves end-2004: US$1.8 billion (equivalent to 3.7 months of imports).
- Overall budget deficit 2004: 3.6 percent of GDP.
- PRGF disbursement on review: SDR 26.4 million (about US$38.7 million).
- PRGF original amount approved: SDR 184.5 million (about US$271.3 million).
- PRGF amount drawn to date: SDR 79.1 million (about US$116.2 million).
- PRGF loan terms: annual interest rate of 0.5 percent; repayable over 10 years with a 5 ½-year grace period.

*Source: IMF Public Information Notice and related materials in the supplied content.*

### 14.5 percent. Further accumulation of gross reserves would bring the import cover to

### _cr05292 - 14.5 percent. Further accumulation of gross reserves would bring the import cover to

### Reserve position and import cover
- Gross reserves at 14.5 percent.
- Further accumulation of gross reserves would bring the import cover to 3.9 months.

### Fiscal policy framework and objectives
- Authorities agree on creating fiscal space for priority spending while keeping the domestic debt-to-GDP ratio as the anchor.
- Domestic primary surplus will be increased to allow a reduction in the net domestic debt ratio to less than half its level at end-2002.
- Expected fiscal outcomes and measures:
  - Lower interest rates and room for strengthened support for private sector activities and for growth-enhancing and poverty-related spending.
  - Public expenditure management strengthened by tightening controls and increasing transparency and accountability.
  - Wage bill, on an accrual basis, will be maintained at 8.9 percent despite the wage award to foster capacity building and productivity.
  - The 2004 arrears will be eliminated.
- Revenue policy changes and offsets:
  - Reduction of corporate tax to spur investment.
  - Increase in the personal income threshold to reduce the burden on low-income earners.
  - Offsets: improved tax administration, larger yield of petroleum taxes from high oil prices, and the full-year impact of the national health insurance levy.
  - Revenue-to-GDP ratio is projected to rise to 24.5 percent.

### Monetary policy stance and exchange rate regime
- Monetary policy tailored to achieve inflation and reserve targets; monetary growth will be kept in line with nominal income growth.
- Bank of Ghana (BOG) actions and posture:
  - Maintain a firm monetary stance to prevent secondary effects of inflation from petroleum sector deregulation.
  - Continue to develop and gear policy instruments to reinforce open market operations.
  - Maintain an open policy by regularly communicating assessments and MPC decisions to the public.
  - Proceed with building institutional capacity for an effective interbank foreign exchange market.
  - Keep the foreign exchange surrender requirement system under review to balance stability and efficiency.
- Exchange rate regime: managed floating exchange rate maintained for absorbing shocks, safeguarding competitiveness, and building reserves.
- Consideration of a phased reduction of the secondary reserve requirement as liquidity control takes hold (to facilitate increased private sector credit at competitive cost).

### Structural reforms and financial sector development
- Priority areas for structural reform to sustain robust growth:
  - Strengthening public resource management.
  - Improving environment for private sector activity, including investment in human and physical capital and deepening financial intermediation.
  - Reinforcing economic governance, particularly through public sector reform.
- Public expenditure management improvements via legislation in fiscal reporting, public procurement, and audit.
- Financial sector strengthening measures:
  - Stricter enforcement of prudential regulations.
  - Institutional capacity building.
  - Reinforced competition and corporate governance.
  - Promote long-term savings through legislation.
  - Reinforce creditor and borrower rights; accelerate judicial and legal processes regarding collateralized lending.
  - Facilitate access to credit and reduce lending risks.

### Public sector reform and state-owned enterprises (SOEs)
- Public sector reform as a vehicle for enhancing economic efficiency and supporting private sector-led growth.
  - A Minister of State appointed to accelerate the process.
  - Comprehensive civil service reform contemplated, addressing employment and wage policies based on an action plan from the policy document, Towards a New Public Service; implementation to begin by January 2006.
- Continued reduction of government involvement in economic activities through fiscal consolidation and divestiture of several SOEs; further reduction envisaged.
- Privatization efforts will be intensified.
- Enhanced financial performance and monitoring of largest SOEs; reduction of their current and contingent liabilities to government.
- Immediate focus on largest SOEs, particularly public utilities, the oil refinery, and the railway corporation.
- Government will ensure commercial entities adopt cost-recovery pricing policies to avoid dependence on budget subsidies.

### Petroleum sector deregulation
- Authorities determined to complete deregulation of the petroleum sector by ensuring the automatic pricing formula is implemented without government involvement.
- Establishment of the independent National Petroleum Authority cited as a prior action for this review.

### Trade policy, external debt, and HIPC completion
- Authorities committed to an open trade policy to foster FDI and technology transfer.
- Initiatives toward enhancing regional trade integration, including adopting the common external tariff system of the Economic Community of West African States.
- Export base to be broadened within Presidential Special Initiatives to reduce economy’s vulnerabilities.
- Completion point under the enhanced HIPC Initiative has improved Ghana’s external debt profile significantly.
  - Agreement reached with Paris Club creditors on required debt stock relief, with almost all pledging additional relief.
  - Ghana seeking to restructure some external liabilities on more favorable terms while reinforcing debt management capability.
- Recognition of need for additional resources to increase investment, particularly in infrastructure, to sustain high growth and achieve the MDGs in accordance with the GPRS.

### Statistics and data dissemination
- Progress made in improving quality, timeliness, and availability of statistics; further improvements planned.
- Ghana working towards participation in the GDDS and already providing metadata to the Fund.
- Intention to make economic and financial data available on the internet to enhance dissemination.
- Planned publications:
  - In December 2005, the Ghana Statistical Service will publish revised national accounts (from 1990 onwards), including by expenditure-based categories.
  - A Consumer Price Index reflecting current consumption patterns will also be published at the same time.

### Conclusion and international support
- Ghana making important strides in promoting macroeconomic discipline, implementing structural reforms, improving governance, enhancing private sector role, accelerating growth, and alleviating poverty.
- International community support described as instrumental and crucial while Ghana consolidates gains and moves to a higher growth path capable of delivering durable poverty alleviation and other MDGs.
- Ghana appreciates Fund policy advice and support in catalyzing assistance from the international community.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05292.pdf_