## GHANA: IMF Staff Report — Key Findings and Policy Recommendations (April 21, 2014)

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### Fiscal position and public debt
- Budget outcome: 10.9 percent of GDP, versus a target of 9 percent.
- Projection: In the absence of additional measures, the 2014 deficit is projected at 10¼ percent of GDP.
- Past deterioration: Fiscal (cash) deficit rose to 12 percent of GDP in 2012, driven by a large public sector wage bill and costly energy subsidies.
- Consequence: High twin deficits and large interest payments on rising public debt are crowding out priority expenditure and private sector activity.
- Debt levels and dynamics:
  - Central government debt (gross, percent of GDP): 2014: 64.2; 2015: 67.2; 2016: 68.1; 2017: 63.9; 2018: 60.9; 2019 Proj.: 59.6.
  - Central government debt (net, percent of GDP): 2014: 61.9; 2015: 65.1; 2016: 66.2; 2017: 61.1; 2018: 57.1; 2019 Proj.: 55.1.
  - Public debt service: projected to absorb some 40-50 percent of revenue; total public debt service-to-revenue ratio projected to increase to 45 percent in the long run.
- Policy focus: Reallocate resources from current to capital spending; use Petroleum Revenue Management Act allocations (at least 70 percent of benchmark oil revenue to priority investments).

### Growth, external sector, and outlook
- Growth developments:
  - Staff assumes growth deceleration to 5½ percent in 2013.
  - Real GDP growth (selected): 2012: 7.9; 2013: 5.4; 2014: 4.8; 2015: 5.4; 2016: 8.1; 2017: 7.5; 2018: 6.8; 2019: 3.8 (table entries).
  - Authorities reported revised 2013 annual growth of 7.1 percent; 2012 revised to 8.8 percent.
- External imbalances:
  - Current account deficit: estimated above 13 percent of GDP in 2013; staff baseline projects around -10.5 to -10.6 percent of GDP in 2014 (variably reported across tables).
  - Financing: FDI financed about 7¼–7½ percent of GDP in 2013–2014.
  - Gross international reserves (GIR): US$4.7 billion at end‑March 2014, covering 2.7 months of prospective imports.
- Outlook risks: Continued large fiscal and current account deficits, thin reserve cover, and constrained foreign financing threaten macroeconomic stability and the transformation agenda.

### Monetary policy and inflation
- Policy response:
  - Monetary policy rate raised to 18 percent (February 2014 increase of 200 basis points).
  - Reserve requirements increased from 9 to 11 percent in April 2014.
  - Tightening of limits on banks’ net open positions.
- Inflation:
  - Inflation ended 2013 at 13½ percent (above 9.5+/-2 target range).
  - Staff estimate of core inflation: 15 percent.
  - Projections (selected): CPI, eop: 2013: 13.5; 2014: 12.3; 2015: 9.8.
- Trade-offs and guidance:
  - High interest rates and rising import costs from depreciation are depressing private sector activity.
  - Staff suggests further monetary tightening may be warranted; recommends BOG refrain from direct government financing and lengthen maturity structure of swaps and bridging loans.
  - Suggested operational change: shift BOG transactions toward the interbank rate.

### Financial sector soundness and risks
- Condition: Financial sector adequately capitalized and liquid; regulatory capital ratio around 18.5 percent in 2013.
- Stress tests (end-2013 data) results:
  - Only one bank would have negative capital under various stress tests.
  - About two-thirds of banks (about two-thirds of total assets) would stay above regulatory minimum capital.
- Selected stress test numeric excerpts (as presented):
  - Baseline: 18.500
  - Credit Risk—Deterioration of loan quality 1/: 15.440
  - Credit Risk—Concentration (Failure of the largest borrower): 12.951
  - Exchange rate shock (51.2 percent depreciation of cedi): 18.400
  - Interest rate shock (Increase in 91 day T-bill rate to 38.4 percent): 1261
  - Multi-factor shock: Exchange rate depreciation and credit risk: 1280
  - 1/ Assumes a migration/reclassification of 17 percent of all loans to a riskier category.
- Emerging risks:
  - Asset quality likely to decline if macro imbalances persist.
  - Banks’ significant sovereign securities holdings expose them to interest rate and sovereign risks.
  - Short-term foreign borrowing more than tripled in 2013; FX risk largely covered by swap contracts with BOG.
- Recommendations:
  - Strengthen crisis prevention and management: stronger off-site supervision, contingency planning, crisis simulation exercises.
  - Expedite adoption of new banking sector legislation and a deposit insurance act.

### Key policy recommendations (short-term and medium-term)
- Short-term fiscal measures and targets:
  - Staff recommended additional fiscal adjustment of about 1¾ percent of GDP in 2014.
  - Authorities’ 2014 budget envisages: primary current spending targeted to fall by about 3 percentage points of GDP in 2014; revenue projected to increase by 2½ percentage points of GDP.
  - Authorities’ budget envisages a deficit of 8.5 percent of GDP in 2014; staff baseline projects 10¼ percent of GDP unless more measures are taken.
- Staff-proposed short-term revenue measures (scope ~1¾ percent of GDP):
  - Introduction/increase of selective tax rates (e.g., higher ad valorem tax, or VAT, on fuel).
  - Higher excises on specific products.
  - Higher tax rate on real estate with stepped up registration/valuation.
  - Better identification and targeted auditing of large taxpayers.
  - Immediate freeze on new tax exemptions.
- Staff-proposed short-term expenditure measures:
  - Reduction in wage costs through streamlining of allowances (starting at higher income levels).
  - Non-replacement of departing public sector employees in overstaffed areas.
  - Further prioritization of capital spending; reduce transfers to statutory funds to lowest permissible level.
  - Reduction or elimination of transfers to the Ghana National Petroleum Corporation (GNPC).
- Medium-term structural measures (selected):
  - Legislative revisions to streamline exemptions and constrain granting authority.
  - Review of tax regime for free zones.
  - Multi-year wage agreements consistent with consolidation plans.
  - Program to reduce public workforce and streamline subvented agencies.
  - Strengthen tax administration and integrate statutory funds spending into overall investment program.
  - Accelerate GIFMIS, Treasury Single Account, and payroll/HR reforms.
- Short-term enforcement priorities:
  - Enforce budget discipline, tight wage limits, and no aggregate subsidies on fuel and utilities.
  - Electricity tariffs may need to rise temporarily above cost-recovery levels—once gas comes on stream—to compensate for current under-pricing.

### Reserve adequacy, external financing needs, and scenarios
- Gross international reserves (GIR): US$4.7 billion at end-March 2014, covering 2.7 months of prospective imports.
- Reserve adequacy benchmarks (standardized):
  - Reserves should have covered 3.4-4.7 months of imports in 2013 under a 50 percent default probability.
  - Reserves should be 4.1-5.6 months of imports for a 60 percent shock probability.
- Specific vulnerabilities:
  - A drop in gold prices to US$1,000 per ounce could wipe off an additional US$800 million in reserves.
  - Ghana’s gross external financing need in 2014: $4.3 billion (sum of non-FDI financed current account deficit, amortization on foreign loans, maturing domestic bonds held by non-residents, and maturing swaps and bridging loans) — about three-quarters of the reserve stock at end-2013.
  - About one-fourth (GH¢5.6 billion) of domestic debt at end-2013 held by foreigners; about GH¢870 million will mature in 2014 (nearly all by June).
  - GIR includes US$600 million of oil funds, use of which may require parliamentary approval.
- Staff baseline and alternative projection highlights:
  - Staff baseline assumes current account deficit contraction by 2½ percentage points of GDP in 2014 and growth slowing to a projected 4¾ percent due to high interest rates and depreciation.
  - Staff alternative scenario: additional consolidation of close to 2 percentage points of GDP in 2014 could lower fiscal deficits, reduce interest rates, and improve medium-term growth and debt indicators.

### Debt sustainability, stress tests, and key diagnostics
- External and public debt risk:
  - Public debt ratio projected to remain close to 60 percent of GDP under authorities’ gradual adjustment.
  - Staff assessment: external debt risk moderate; public debt vulnerabilities increased since last DSA.
- Selected DSA indicators (as presented):
  - Medium-term current account benchmarks for Ghana in 2019 range from -4.4 to -2.1 percent of GDP.
  - Model-based benchmark: current account benchmark of -4.3 percent of GDP in 2019; optimal narrowing to 4¼ percent of GDP implies additional adjustment of 2½ percent of GDP over staff’s baseline projections.
- Stress-test findings:
  - External debt service-to-revenue ratio increases above 30 percent under a one-time 30 percent real depreciation relative to baseline in 2015.
  - Public debt scenarios: fixing primary balance at 2013 level or historic averages could push PV public debt-to-GDP toward 74 percent benchmark for strong performers.
  - Staff conclusion: standardized shocks show moderate risk of debt distress; further consolidation would improve indicators and lower debt-service burdens.

### Risks and Risk Assessment Matrix (selected items)
- Principal risks and likelihood/impact (1–3 year horizon):
  - Surges in global financial market volatility: Likelihood Medium; Impact High.
  - Sustained decline in commodity prices (gold/cocoa): Likelihood Medium; Impact High.
  - Delayed fiscal adjustment: Likelihood High (in absence of additional measures); Impact High.
- Transmission channels highlighted:
  - Reliance on foreign financing (Eurobonds, foreign participation in domestic bonds) increases vulnerability to portfolio outflows and reserve erosion.
  - Commodity price shocks would sharply squeeze exports, fiscal revenue, and reserves.
  - Failure to meet budget targets would prolong high real interest rates, depreciation pressures, and double-digit inflation.

### Selected macro-fiscal and monetary projections (selected exact figures)
- Authorities' budget scenario (selected items, percent of GDP):
  - Total revenue and grants: 2013: 21.0; 2014: 18.1; 2015: 21.2; 2016: 21.2; 2017: 21.2.
  - Wages and salaries: 2013: 8.4; 2014: 9.6; 2015: 8.5; 2016: 7.5; 2017: 7.0.
  - Interest costs: 2013: 3.6; 2014: 5.0; 2015: 5.9; 2016: 5.2; 2017: 4.6.
  - Capital expenditure: 2013: 8.5; 2014: 6.4; 2015: 8.3; 2016: 9.6; 2017: 9.9.
  - Overall balance (financing): 2013: -9.0; 2014: -10.8; 2015: -8.5; 2016: -7.5; 2017: -6.0.
- Macroeconomic indicators (selected):
  - Real GDP growth (Prel./Baseline/Proj. as in table): 2012: 7.9; 2013: 5.4; 2014: 4.8; 2015: 5.4; 2016: 8.1.
  - Inflation, eop: 2012: 8.8; 2013: 13.5; 2014: 12.3; 2015: 9.8.
  - Overall fiscal balance (financing): 2012: -12.0; 2013: -10.9; 2014: -10.2; 2015: -9.2.
  - Current account balance (percent of GDP): 2012: -12.2; 2013: -13.2; 2014: -10.5; 2015: -7.8.
- Monetary and financial indicators (selected):
  - Policy rate (end of period): 2014: 15.0; 2015: 16.0 (table entries).
  - Banks' lending rate (weighted average): 2014: 25.7; 2015: 25.6 (selected entries).
  - Gross international reserves (millions of US$): 2014: 4,706; 2015: 5,478; 2016: 6,912.

### Staff appraisal — summary priorities
- Urgent need: Restore macroeconomic stability to preserve medium-term outlook and transformation agenda.
- Fiscal policy: Undertake consolidation to reduce the deficit from projected 2014 levels and limit crowding out of priority expenditure and private sector credit.
- Monetary policy: Use policy instruments to address inflation while being mindful of adverse effects of high interest rates on private activity.
- Financial sector: Monitor exposures, strengthen crisis prevention and management, and ensure buffers remain adequate given exchange rate and credit risks.
- Data and operations: Strengthen timely provision of high-frequency data; continue PFM and monetary operational reforms (GIFMIS, Treasury Single Account, move toward unified market-determined exchange rate).

*International Monetary Fund staff report, April 21, 2014.*

### 10.9 percent of GDP, versus a target of 9 percent. In the absence of additional

### GHANA: IMF Staff Report — Key Findings and Policy Recommendations (April 21, 2014)

### Fiscal position and public debt
- Budget outcome: 10.9 percent of GDP, versus a target of 9 percent.
- Projection: In the absence of additional measures, the 2014 deficit is projected at 10¼ percent of GDP.
- Past deterioration: The fiscal (cash) deficit rose to 12 percent of GDP in 2012, fueled by a large public sector wage bill and costly energy subsidies.
- Consequence: High twin deficits and large interest payments on rising public debt are crowding out priority expenditure and private sector activity.
- Policy focus: Reallocate resources from current to capital spending to support economic diversification, shared growth, and job creation, as envisioned in the Petroleum Revenue Management Act.

### Growth, external sector, and outlook
- Growth slowdown: Staff assumes a growth deceleration to 5½ percent in 2013; oil production grew strongly while non-oil growth was affected by disruptions in power supply and falling gold production due to lower world prices.
- External imbalances: A growing current account deficit exceeded significant FDI, loans, and portfolio inflows, weakening international reserves and contributing to currency depreciation.
- Medium-term risk: Current vulnerabilities put Ghana’s transformation agenda at risk; macroeconomic stability will need to be restored to preserve a positive medium-term outlook.

### Monetary policy and inflation
- Policy response: To address rising inflation, the monetary policy rate was raised to 18 percent and reserve requirements were tightened.
- Trade-offs: High interest rates and rising import costs due to depreciation began to depress private sector activity.

### Financial sector soundness and risks
- Condition: The financial sector is adequately capitalized and liquid; Bank of Ghana stress tests suggest buffers are adequate in most banks and the system in aggregate.
- Emerging risks: Weaker macroeconomic outlook and currency depreciation expose the financial sector to credit and foreign exchange risks.
- Recommendation: Strengthen crisis prevention and management capabilities and closely monitor increasing exposures.

### Political and structural context
- Political environment: Political uncertainty resolved after the supreme court confirmed the December 2012 election results in September; President Mahama’s National Democratic Congress was reelected and holds a sizeable parliamentary majority.
- Structural agenda: Government transformation agenda emphasizes economic diversification, social inclusion, and macroeconomic stability, with a major shift of public expenditure from current to capital spending to channel oil and gas resources into productive investment.
- Constraints on private sector: Lack of access to affordable credit and unreliable electricity supply identified as principal constraints for businesses, especially small and medium-sized, labor-intensive enterprises.

### Staff appraisal and policy priorities
- Urgent need: Restore macroeconomic stability to preserve the medium-term outlook and protect the transformation agenda.
- Fiscal policy: Undertake consolidation to reduce the deficit from projected 2014 levels and limit crowding out of priority expenditure and private sector credit.
- Monetary policy: Use policy instruments to address inflation while being mindful of adverse effects of high interest rates on private activity.
- Financial sector: Monitor exposures, strengthen crisis prevention and management, and ensure buffers remain adequate given exchange rate and credit risks.

*International Monetary Fund staff report, April 21, 2014.*

### Box 2.  Inclusive Growth and Economic Transformation

### Box 2. Inclusive Growth and Economic Transformation

### Overview
- Ghana has experienced strong and broadly inclusive growth over the past 20 years, evidenced by significant improvements in poverty and social indicators and its transition to lower middle-income status.
- About a quarter of the population still lives below the poverty line.
- An estimated 6–7 million jobs (more than half of the current labor force) will need to be created in the next two decades to absorb new entrants into the labor market.
- Success will hinge on complementing rising production from extractive industries with diversified, private sector-led growth in more labor-intensive sectors.

### Government transformation agenda (three broad objectives)
- Economic diversification
  - Ghana’s economy, and particularly employment, still relies heavily on agriculture, and some 80 percent of jobs are in the informal sector.
  - Exports are concentrated in three commodities (gold, cocoa, and oil), leaving the economy vulnerable to terms-of-trade shocks.
  - The government’s strategy is to leverage Ghana’s new oil and gas resources toward the creation of a robust manufacturing sector and higher-value agriculture.
  - This will require significant infrastructure investments and removal of main bottlenecks: inadequate electricity supply and lack of affordable financing.
  - Ghana’s Petroleum Revenue Management Act dedicates at least 70 percent of benchmark oil revenue to investments in identified priority areas, including road and infrastructure improvements, agricultural modernization, and capacity building (including in the oil and gas sector).
- Social inclusion
  - The government intends to further strengthen Ghana’s social safety net and continue investments in utilities, health, and education to make further advancements in poverty reduction and build a workforce ready for higher-skilled jobs.
- Macroeconomic stability
  - The government is targeting a gradual fiscal consolidation to reduce the twin deficit and lower inflation over the medium term.

### Recent macroeconomic outcomes and pressures
- Fiscal developments
  - The fiscal target was missed despite significant measures to contain the deficit.
  - Cash deficit reached an estimated 10.9 percent of GDP, versus a 9 percent target.
  - On a commitment basis, the deficit was slightly smaller at 10.8 percent of GDP due to a marginal decline in domestic arrears.
  - Faced with shortfalls in tax collection and grants and overruns in the wage bill, the government:
    - imposed levies on certain imports and on profits of specific sectors mid-year;
    - reinstated the fuel-price adjustment mechanism to eliminate subsidies;
    - sharply raised electricity and water tariffs (electricity by 60 percent);
    - compressed other spending.
  - Spending containment: overruns in wages and interest payments persisted while some previous arrears were reduced but new arrears accumulated, mainly to statutory funds.
- Inflation and monetary policy
  - Inflation ended the year at 13½ percent, above the 9+/-2 percent target range.
  - Staff’s estimate of core inflation was 15 percent (excluding high administered, but also low food price increases).
  - The Bank of Ghana:
    - raised the policy rate in February 2014 by 200 basis points to 18 percent;
    - increased reserve requirements from 9 to 11 percent in April;
    - tightened limits on banks’ net open positions.
  - Government bond rates declined to 19 percent during 2013 (helped by a US$1 billion Eurobond) but climbed to 23 percent in early 2014.
- External sector and exchange rate pressures
  - Weaker gold and cocoa exports contributed to an estimated current account deficit above 13 percent of GDP in 2013.
  - Some 7 percent of GDP of the current account deficit was financed by FDI.
  - The cedi depreciated by close to 15 percent in 2013 and by 18 percent in the first quarter of 2014.
  - Spreads on Ghana’s Eurobonds are the highest among SSA frontier markets.
  - An exchange market pressure index—combining changes in the exchange rate, interest rates, and reserves—has recently risen above 2009 levels, but remains below 2012 peaks.
  - Gross international reserves are around 3 months of imports, but reserves have been declining in recent months.

### Key policy implications and risks
- Restoring macroeconomic stability is critical to preserve a positive medium-term outlook and to safeguard the government’s transformation agenda.
- Areas requiring sustained policy attention include:
  - Stronger and earlier fiscal consolidation to meet fiscal targets and reduce liquidity pressures stemming from high fiscal deficits.
  - Continued removal of infrastructure bottlenecks (notably electricity) and improving access to affordable financing to support private sector-led, labor-intensive growth.
  - Strengthening social safety nets and human capital investment (utilities, health, education) to ensure broad-based inclusion and readiness for higher-skilled jobs.
- Rising vulnerabilities pose serious risks to the transformation agenda and warrant close policy action.

*Source: Box 2. Inclusive Growth and Economic Transformation, IMF staff summary.*

### 6.      The government’s policy is guided by a gradual reduction in macroeconomic imbalances

### 6.      The government’s policy is guided by a gradual reduction in macroeconomic imbalances

### Overview of the 2014 budget and official projections
- Primary current spending targeted to fall by about 3 percentage points of GDP in 2014 through tight limits on the wage bill and elimination of subsidies.
- Revenue projected to increase by 2½ percentage points of GDP reflecting tax policy measures and revenue administration reforms.
- Based on these plans and projected growth of 8 percent, the budget envisages:
  - a deficit of 8.5 percent of GDP this year
  - a medium-term deficit of 6 percent of GDP in 2016
- Adjustment is expected to allow a larger capital budget, higher interest payments, and clearance of arrears, and to be mirrored by:
  - a gradual reduction in external imbalances
  - stabilization of the currency
  - a declining inflation path, with continued strong growth

### Staff baseline, risks, and alternative projection
- Staff concerns and baseline assumptions:
  - Government targets at risk without additional fiscal measures due to macroeconomic costs of large fiscal imbalances.
  - Constrained foreign financing and limited short-term scope to boost exports will keep pressure on the cedi and inflation high.
  - Staff baseline assumes a contraction in the current account deficit by 2½ percentage points of GDP in 2014.
  - High interest rates and the depreciation slow growth to a projected 4¾ percent.
  - Projected fiscal deficit under staff baseline: 10¼ percent of GDP.
  - Any slippages in primary current spending projections would raise the deficit further.
- More adverse external environment implications:
  - Ghana’s gross external financing need in 2014: $4.3 billion (sum of non-FDI financed current account deficit, amortization on foreign loans, maturing domestic bonds held by non-residents, and maturing swaps and bridging loans).
  - This $4.3 billion corresponds to about three-quarters of the reserve stock at end-2013.
  - A weakening in the terms of trade or larger outflows of foreign financing could significantly reduce reserves, force more drastic depreciation, require higher interest rates, lower revenue, and widen fiscal deficits—raising large economic costs.

### Reserve adequacy and balance of payments pressures (Box 3)
- Gross international reserves (GIR) declined to US$4.7 billion at end-March 2014, covering 2.7 months of prospective imports.
- Standardized approach indicates reserves below adequate levels:
  - Reserves should have covered 3.4-4.7 months of imports in 2013 under a 50 percent default probability of a shock.
  - Reserves should be 4.1-5.6 months of imports for a 60 percent shock probability.
- Specific reserve vulnerabilities and potential shocks:
  - A drop in gold prices to US$1,000 per ounce could wipe off an additional US$800 million in reserves.
  - Bond rollovers: About one-fourth (GH¢5.6 billion) of domestic debt at end-2013 held by foreigners; about GH¢870 million will mature in 2014 (nearly all by June).
  - Commercial banks had reduced net foreign assets in 2013 by borrowing from foreign affiliates—early reversal could add seasonal pressures.
  - Gross reserves are subject to rollover risks from BOG swaps and bridging loans with commercial banks and foreign institutions.
- Note: GIR includes US$600 million of oil funds, the use of which may require parliamentary approval.

### Medium-term vulnerabilities and debt dynamics
- The authorities’ gradual fiscal adjustment would:
  - keep fiscal and current account deficits elevated and above external sustainability benchmarks
  - prolong the need for a tight monetary policy stance and leave external buffers low
- Risk of debt distress:
  - Public debt ratio would remain close to 60 percent of GDP
  - Debt service would absorb some 40-50 percent of revenue
- Staff alternative scenario (more ambitious adjustment) findings:
  - Additional consolidation of close to 2 percentage points of GDP in 2014, combined with larger medium-term adjustment, could:
    - lower fiscal deficits and falling interest rates
    - create room for higher social and infrastructure spending and crowd in private sector activity
    - in the short run, contractionary impact of consolidation is assumed fully neutralized by lower interest rates and contained depreciation
    - in the medium term, higher growth and significantly lower debt and debt-service ratios are expected

### Quantitative projections and indicators (selected figures from projections)
- Authorities' budget scenario (2013–16), selected items (In percent of GDP):
  - Total revenue and grants: 21.0 (2013), 18.1 (2014), 21.2 (2015), 21.2 (2016), 21.2 (2017)
  - Revenue: 19.5 (2013), 17.6 (2014), 20.1 (2015), 19.9 (2016), 20.4 (2017)
  - Oil revenue: 1.2 (2013), 1.9 (2014), 1.6 (2015), 1.4 (2016), 1.4 (2017)
  - Nonoil revenue: 18.3 (2013), 15.8 (2014), 18.5 (2015), 18.5 (2016), 19.0 (2017)
  - Grants: 1.4 (2013), 0.5 (2014), 1.1 (2015), 1.2 (2016), 0.8 (2017)
  - Total expenditure: 28.0 (2013), 26.5 (2014), 26.6 (2015), 26.2 (2016), 26.0 (2017)
  - Wages and salaries: 8.4 (2013), 9.6 (2014), 8.5 (2015), 7.5 (2016), 7.0 (2017)
  - Interest costs: 3.6 (2013), 5.0 (2014), 5.9 (2015), 5.2 (2016), 4.6 (2017)
  - Other recurrent expenditure: 7.4 (2013), 5.5 (2014), 4.0 (2015), 4.0 (2016), 4.5 (2017)
  - Capital expenditure: 8.5 (2013), 6.4 (2014), 8.3 (2015), 9.6 (2016), 9.9 (2017)
  - Arrears clearance and VAT refunds: -2.0 (2013), -2.5 (2014), -3.1 (2015), -2.5 (2016), -1.2 (2017)
  - Overall balance (financing): -9.0 (2013), -10.8 (2014), -8.5 (2015), -7.5 (2016), -6.0 (2017)
- Macroeconomic indicators, Prel./Baseline/Proj. (selected):
  - Real GDP growth: 7.9 (2012), 5.4 (2013), 4.8 (2014), 5.4 (2015), 8.1 (2016), 7.5 (2017), 6.8 (2018), 3.8 (2019)
  - Inflation, eop: 8.8 (2012), 13.5 (2013), 12.3 (2014), 9.8 (2015), 9.2 (2016), 8.8 (2017), 8.2 (2018), 8.0 (2019)
  - Overall fiscal balance (financing): -12.0 (2012), -10.9 (2013), -10.2 (2014), -9.2 (2015), -7.6 (2016), -5.3 (2017), -4.6 (2018), -4.3 (2019)
  - Central government debt (net): 49.1 (2012), 54.8 (2013), 61.9 (2014), 65.1 (2015), 66.2 (2016), 61.1 (2017), 57.1 (2018), 55.1 (2019)
  - Current account balance (percent of GDP): -12.2 (2012), -13.2 (2013), -10.5 (2014), -7.8 (2015), -7.4 (2016), -6.9 (2017), -6.7 (2018), -6.7 (2019)

### External sustainability diagnostics (Box 4)
- Medium-term current account benchmarks for Ghana in 2019 range from -4.4 to -2.1 percent of GDP across approaches.
- Model-based benchmark (Araujo et al. calibrated to Ghana) provides:
  - current account benchmark of -4.3 percent of GDP in 2019
  - an “optimal” narrowing of the current account deficit to 4¼ percent of GDP, implying an additional adjustment of 2½ percent of GDP over staff’s baseline projections
- Main part of the optimal adjustment would come from lower public expenditure (2¾ percent of GDP), with the optimal breakdown between consumption and investment depending on public capital efficiency.
- Under modest improvements in public investment efficiency (increase by 5 percentage points), benchmark capital expenditure could rise to currently projected levels, suggesting consolidation should come mainly from lower public consumption.

### Policy recommendations: short-term and medium-term measures
- Staff recommended a comprehensive package to restore confidence and build resilience that:
  - targets additional fiscal adjustment of about 1¾ percent of GDP in 2014
  - entrenches structural and legislative reforms for more significant and durable consolidation over the medium term
- Authorities’ implemented and planned measures (already underway):
  - Revenue mobilization: VAT rate raised by 2.5 percentage points and coverage broadened; ad valorem tax on fuel introduced; taxes raised on rent for non-residential accommodation, management and technical services fees, and free zone companies selling on the local market
  - Wage bill control: tight budget limits, proposed freeze on wage increases and net hiring in most sectors; improved payroll database, audits, electronic payment voucher system; implementation of HRMIS and integration with GIFMIS
  - Prioritized capital spending: moratorium on new contracts; alignment of investment programs of statutory funds; planned creation of a Ghana Infrastructure Fund (GIF)
- Staff argued for deeper irreversible reforms to entrench medium-term consolidation:
  - credible program for reducing public wage bill, including streamlining of subvented agencies
  - accelerate public financial management reforms and relax rigid earmarking of tax revenue
  - raise revenue by reducing tax expenditure and increasing compliance
  - increase transparency of revenue and expenditure allocations at all levels
- Staff-proposed menu of additional short-term adjustment measures (estimated scope of about 1¾ percent of GDP in 2014):
  - Revenue measures:
    - Introduction or increase of selective tax rates (e.g., higher ad valorem tax, or VAT, on fuel)
    - Higher excises on specific products
    - Higher tax rate on real estate along with stepped up registration and valuation efforts
    - Better identification and targeted auditing of large taxpayers
    - Immediate freeze on new tax exemptions
  - Expenditure measures:
    - Reduction in wage costs through streamlining of allowances (starting at higher income levels)
    - Non-replacement of departing public sector employees in overstaffed areas
    - Further prioritization of capital spending, combined with reduction in transfers to statutory funds to lowest permissible level
    - Reduction or elimination of transfers to the Ghana National Petroleum Corporation (GNPC)
- Staff-proposed menu of additional medium-term structural measures:
  - Revenue-side:
    - Legislative revisions to streamline exemptions permanently and to strictly constrain the power to grant them
    - Thorough review of tax regime for free zones to reduce tax expenditures
    - Reconsideration of a windfall profit tax on mining
  - Expenditure-side and institutional:
    - Multi-year wage agreements consistent with fiscal consolidation plans
    - Specific program to reduce the public workforce, while improving its skill mix
    - Streamlining of subvented agencies, with time-bound targets for removing them from the public payroll through closure or commercialization
    - Strengthening of tax administration, focused on improved compliance—particularly of large taxpayers
    - Full integration of spending by statutory funds in the overall investment program, combined with a review of possible legislative changes to replace rigid transfer rules
    - Acceleration of various public financial management reforms, including GIFMIS, the Treasury Single Account, and payroll and HR management
- Short-term enforcement priorities stressed by staff:
  - Enforce budget discipline in all areas
  - Rigorously enforce existing commitments such as tight wage limits and no aggregate subsidies on fuel and utilities
  - Electricity tariffs may need to rise temporarily above cost-recovery levels—once gas comes on stream—to compensate for current under-pricing

*Source: _cr14129 - 6.      The government’s policy is guided by a gradual reduction in macroeconomic imbalances*

### 14.      In early April, the government issued a policy statement to parliament, aimed at

### In early April, the government issued a policy statement to parliament, aimed at

### Fiscal Policy: Medium-term consolidation and 2014 measures
- Government issued a policy statement to parliament and provided a more detailed report on its Economic and Financial Policies for the Medium Term to the Fund and other development partners.
- The policy document:
  - Maintains the government’s fiscal targets.
  - Clarifies the 2014 budget measures.
  - Outlines additional reforms to safeguard the medium-term consolidation path, including intentions to:
    - Rationalize the public service.
    - Restructure statutory funds to reduce budget rigidities.
    - Enhance revenue administration through ongoing GRA reforms and a revision of tax laws.
- Staff views:
  - Welcomes the government’s homegrown strategy and the clear, comprehensive description of the reform agenda.
  - Calls for translation of policies into specific, quantified, and time-bound actions, particularly for the planned rationalization of the public service and tax policy measures.
  - Strongly encourages targeting a larger and more frontloaded fiscal consolidation in light of Ghana’s significant fiscal and external imbalances.
- Key fiscal numbers cited:
  - The 2014 fiscal deficit of 8½ percent of GDP is unlikely to be met without further measures.
  - Direct government financing amounted to 7½ percent of current-year revenue in 2013 (exceeding the BOG’s own target of 5 percent).
  - BOG agreed it will be important to keep its deficit financing at, or below, the 5 percent target in 2014.

### Monetary Policy: Supporting macroeconomic stability
- Staff supported tightening of monetary policy and recent policy rate adjustment; anticipated that further tightening may be warranted given rising inflation and a depreciating currency.
- Inflation guidance:
  - Steering inflation back toward the end-year target band of 9.5+/-2 percent may require further rate hikes due to second-round effects of large administered price increases and rising inflation expectations.
- Exchange rate and reserves guidance:
  - A tight monetary stance will support a smooth adjustment of the exchange rate, which should be allowed to adjust to prevent further erosion of an already low reserve buffer.
  - To contain short-term pressures, staff advised the BOG to continue efforts to lengthen the maturity structure of its existing swaps and bridging loans beyond the third quarter of 2014.
  - Once external pressures subside, reserves should be rebuilt, and the volume of swaps should be reduced and limited to management of seasonal balance of payments volatility.
- Operational and transparency recommendations:
  - Welcome improvements in monetary policy operations; advocated against direct government financing and for more transparent foreign exchange operations.
  - Commended enhanced use of a model-based inflation forecasting tool to support Monetary Policy Committee decisions and recommended reducing the gap between the BOG’s transaction and interbank exchange rate and shifting toward the interbank rate for BOG transactions.
- Staff suggested to:
  - Reduce direct government financing (7½ percent of current-year revenue in 2013) toward the BOG target of 5 percent.
  - Adopt a unified market-determined exchange rate; BOG is working with banks following the introduction of an electronic platform to establish more frequent adjustments in the interbank rate.
  - Increase the inflation target horizon by replacing the end-year inflation target with a rolling target set for a 1-2 year policy horizon; BOG will consider this proposal.
- Foreign exchange regulations:
  - Staff expressed reservations about new FX regulations (repatriation requirements, ban on foreign-currency denominated loans to non-foreign exchange earners, margin accounts for import bills, tightened procedures for forex bureaus, circumscribed use of FX in foreign currency accounts).
  - Recommended review of all measures after an appropriate evaluation period to mitigate unintended consequences such as reduced FX inflows due to rising transaction costs.
  - BOG agreed to review the measures and to remove specified restrictions following a planned review in May.
  - Staff noted de-dollarization is best achieved in a stable macroeconomic environment and does not recommend approval of exchange restrictions not imposed for balance of payments reasons.
- Operational change noted:
  - The BOG previously conducted transactions using the weighted average of reported bank-customer exchange rates of the previous day (transaction rate); it now uses the average interbank rate of the previous day for most of its own transactions.

### Financial Sector: Containing exposure to short-term risks
- System condition:
  - Financial sector is adequately capitalized and liquid, but increasing exposures need close monitoring.
- Stress test results (based on end-2013 data):
  - Only one bank would have negative capital under various stress tests.
  - About two-thirds of all banks (representing about two-thirds of total assets) would stay above the regulatory minimum capital requirement.
  - Potential recapitalization needs based on direct impact estimates would likely be small, relative to GDP.
  - Staff welcomed the authorities’ new stress-testing model and encouraged further development to test a wider range of shocks, including tail risk scenarios.
- Emerging vulnerabilities:
  - Asset quality is likely to decline if macroeconomic imbalances persist and the economy slows down.
  - Banks’ significant holdings of government securities expose them to interest rate and sovereign risks.
  - Banks’ (mainly short-term) foreign borrowing more than tripled in 2013; much originates from parent institutions and foreign exchange risk is largely covered by swap contracts with the BOG.
  - Direct exposure to FX risk was curtailed in April by a reduction in net open position limits to 5 percent of capital for single currency and 10 percent for aggregate exposure.
  - BOG’s ban on on-lending to non-foreign exchange earners should contain indirect exposures.
- Recommendations to authorities:
  - Strengthen crisis prevention and management capabilities, including:
    - Stronger off-site supervision to complement on-site inspections.
    - Improved communication with banks on emergency liquidity provision and modalities of BOG or government support.
    - Conduct contingency planning and crisis simulation exercises to identify gaps.
  - Expedite completion and adoption of new banking sector legislation (drafted with IMF technical assistance) to clarify and enhance BOG powers on consolidated and cross-border supervision, and crisis management and resolution.
  - A deposit insurance act, recommended in the 2011 FSAP Update, is expected to be submitted to parliament this year.

- Selected stress test numeric excerpts (as presented in table):
  - Baseline 18.500
  - Credit Risk—Deterioration of loan quality 1/ 15.440
  - Credit Risk—Concentration (Failure of the largest borrower) 12.951
  - Exchange rate shock (51.2 percent depreciation of cedi) 18.400
  - Interest rate shock (Increase in 91 day T-bill rate to 38.4 percent) 1261
  - Multi-factor shock: Exchange rate depreciation and credit risk 1280
  - 1/ Assumes a migration/reclassification of 17 percent of all loans to a riskier category.

### Staff Appraisal: Summary findings and policy priorities
- Short-term vulnerabilities:
  - Short-term vulnerabilities have risen significantly amid high fiscal and current account deficits.
  - The international reserve position has weakened alongside mounting public debt.
  - High interest rates and a depreciating currency have begun to depress private sector activity.
  - Spreads on Ghana’s Eurobonds have risen above those of regional peers.
- Policy needs and recommendations:
  - Additional measures are required to contain short-term risks and safeguard the government’s transformation agenda.
  - The authorities’ recent policy documents need to be complemented by additional short-term measures to contain the 2014 deficit and by specific action plans to entrench significant and durable consolidation over the medium term.
  - Swift implementation of a strong package of policy measures is needed to restore confidence and provide space for infrastructure and social priority spending.
  - Medium-term analysis and debt sustainability:
    - Staff’s external stability assessment and debt sustainability analysis support stronger consolidation.
    - The medium-term analysis suggests Ghana’s real effective exchange would be modestly overvalued without further adjustment.
    - A model-based approach confirms the main part of the adjustment should come from lower public expenditure.
    - Further delays in fiscal consolidation would keep public debt and debt service at uncomfortably high levels.
  - Monetary policy:
    - Further monetary policy tightening may be needed to tame inflationary pressures.
    - BOG should continue to manage liquidity tightly and refrain from direct financing of the fiscal deficit.
    - Exchange rate should be allowed to adjust to prevent further erosion of an already low reserve buffer; authorities need to begin rebuilding the buffer as market conditions permit.
  - Foreign exchange regulations:
    - New FX regulations will not be effective unless underlying macroeconomic imbalances are resolved.
    - BOG’s agreement to review measures and to remove exchange restrictions is welcome; staff does not recommend approval of these restrictions.
    - In preparing to move to a fully market-determined exchange rate system, BOG should allow more FX transactions to pass through the market.
  - Financial sector:
    - The sector is adequately capitalized and liquid, but increasing exposures need monitoring.
    - Weaker macroeconomic outlook and currency depreciation expose the financial sector to currency and credit risks, warranting strengthening of crisis prevention and management capabilities.
  - Data:
    - Data provision, while broadly adequate for standard surveillance, should be strengthened.
    - Effective surveillance warrants more timely provision of critical high-frequency data to monitor risks.

*GHANA INTERNATIONAL MONETARY FUND*

### 29.      It is recommended that the next Article IV Consultation be held on the regular twelve-

### _cr14129 - 29.      It is recommended that the next Article IV Consultation be held on the regular twelve-

### Recommendation
- It is recommended that the next Article IV Consultation be held on the regular twelve-month cycle.

### National accounts and prices (selected indicators and projections)
- GDP at constant prices (annual percentage change): 2014: 7.9; 2015: 5.4; 2016: 4.8; 2017: 5.4; 2018: 8.1; 2019 Prel.: 7.5; projections: 6.8; 3.8.
- Real GDP (nonoil) (annual percentage change): 2014: 7.8; 2015: 3.9; 2016: 4.5; 2017: 5.2; 2018: 6.6; 2019 Prel.: 6.7; projections: 6.2; 5.6.
- Real GDP per capita (annual percentage change): 2014: 5.2; 2015: 2.8; 2016: 2.2; 2017: 2.8; 2018: 5.4; 2019 Prel.: 4.8; projections: 4.1; 1.2.
- GDP deflator (annual percentage change): 2014: 13.3; 2015: 12.3; 2016: 13.1; 2017: 11.2; 2018: 9.4; 2019 Prel.: 9.4; projections: 9.3; 9.0.
- Consumer price index (annual average): 2014: 9.2; 2015: 11.7; 2016: 13.0; 2017: 11.1; 2018: 9.5; 2019 Prel.: 9.0; projections: 8.5; 8.1.
- Consumer price index (end of period): 2014: 8.8; 2015: 13.5; 2016: 12.3; 2017: 9.8; 2018: 9.2; 2019 Prel.: 8.8; projections: 8.2; 8.0.
- CPI (excl. food, annual average): 2014: 11.6; 2015: 18.1; 2016: 12.1; 2017: 8.6; 2018: 7.6; 2019 Prel.: 8.3; projections: 8.1; 7.9.

### Money, credit, and central bank (selected indicators)
- Credit to the private sector (percent change): 2014: 32.9; 2015: 29.0; 2016: 16.9; 2017: 20.1; 2018: 21.7; 2019 Prel.: 22.8; projections: 23.2; 23.9.
- Broad money (M2+) (percent change): 2014: 24.3; 2015: 19.1; 2016: 20.4; 2017: 20.6; 2018: 16.9; 2019 Prel.: 17.4; projections: 16.9; 19.9.
- Velocity (non-oil GDP/M2, end of period): 2014–2019 and projections: 3.9; 3.9; 3.8; 3.7; 3.7; 3.7; projections: 3.7; 3.7.
- Base money (percent change): 2014: 36.0; 2015: 15.1; 2016: 17.9; 2017: 17.8; 2018: 17.5; 2019 Prel.: 18.2; projections: 17.4; 17.4.
- Banks' lending rate (weighted average; percent): 2014: 25.7; 2015: 25.6.
- Policy rate (in percent, end of period): 2014: 15.0; 2015: 16.0.

- Monetary survey (selected levels, end period, in millions of GHc):  
  - Money and quasi-money (M3): 2011: 18,195; 2012: 22,620; 2013: 26,937; 2014: 32,437.  
  - Broad money (M2): 2011: 14,241; 2012: 17,503; 2013: 20,692; 2014: 24,407.  
  - Net foreign assets (end period): 2011: 6,670; 2012: 5,781; 2013: 5,973; 2014: 4,435.  
  - Base money (millions of GHc): 2011: 5,780; 2012: 7,860; 2013: 9,051; 2014: 10,674.  
  - Base money (percent change): 2011: 31.1; 2012: 36.0; 2013: 15.1; 2014: 17.9.  
  - M2+ (percent change): 2011: 29.3; 2012: 22.9; 2013: 18.2; 2014: 18.0.  
  - Credit to the private sector (percent change): 2011: 29.0; 2012: 32.9; 2013: 29.0; 2014: 16.9.  
  - M2-to-GDP ratio (in percent): 2011: 30.4; 2012: 23.9; 2013: 23.9; 2014: 23.8.

### Central government budget and public debt (selected indicators)
- Central government revenue (percent of GDP): 2012: 19.1; 2013: 18.0; 2014: 20.8; 2015: 20.8; 2016: 21.0; 2017: 23.4; 2018: 24.0; 2019 Proj.: 23.9.
- Central government expenditure (percent of GDP): 2012: 31.0; 2013: 29.0; 2014: 31.1; 2015: 30.1; 2016: 28.7; 2017: 28.7; 2018: 28.6; 2019 Proj.: 28.2.
- Overall balance (percent of GDP): 2012: -12.0; 2013: -10.9; 2014: -10.2; 2015: -9.2; 2016: -7.6; 2017: -5.3; 2018: -4.6; 2019 Proj.: -4.3.
- Net domestic financing (percent of GDP): 2012: 9.5; 2013: 7.2; 2014: 7.3; 2015: 6.6; 2016: 4.0; 2017: 1.0; 2018: 1.6; 2019 Proj.: 2.3.
- Central government debt (gross, percent of GDP): 2012: 51.2; 2013: 57.4; 2014: 64.2; 2015: 67.2; 2016: 68.1; 2017: 63.9; 2018: 60.9; 2019 Proj.: 59.6.
  - Domestic debt (percent of GDP): 2012: 28.6; 2013: 31.7; 2014: 31.9; 2015: 33.4; 2016: 32.2; 2017: 28.1; 2018: 25.5; 2019 Proj.: 24.7.
  - External debt (percent of GDP): 2012: 22.6; 2013: 25.6; 2014: 32.3; 2015: 33.8; 2016: 35.9; 2017: 35.7; 2018: 35.4; 2019 Proj.: 34.9.
- Central government debt (net, percent of GDP): 2012: 49.1; 2013: 54.8; 2014: 61.9; 2015: 65.1; 2016: 66.2; 2017: 61.1; 2018: 57.1; 2019 Proj.: 55.1.
- Revenue and expenditure levels (millions of GHc):  
  - Revenue: 2012: 13,935; 2013: 15,630; 2014: 21,369; 2015: 25,074; 2016: 29,922; 2017: 39,194; 2018: 46,879; 2019 Proj.: 51,772.  
  - Expenditure: 2012: 22,675; 2013: 25,084; 2014: 31,888; 2015: 36,183; 2016: 40,774; 2017: 48,069; 2018: 55,891; 2019 Proj.: 61,283.  
  - Net lending / borrowing (overall balance in GHc): 2012: -8,740; 2013: -9,455; 2014: -10,519; 2015: -11,109; 2016: -10,852; 2017: -8,875; 2018: -9,011; 2019 Proj.: -9,510.

- Revenue composition (percent of GDP, selected lines):  
  - Taxes: 2012: 15.8; 2013: 15.3; 2014: 17.8; 2015: 17.7; 2016: 18.1; 2017: 20.3; 2018: 21.1; 2019 Proj.: 21.0.  
  - Direct taxes: 2012: 7.6; 2013: 7.3; 2014: 8.6; 2015: 8.5; 2016: 8.9; 2017: 11.0; 2018: 11.6; 2019 Proj.: 11.1.  
  - Indirect taxes: 2012: 5.5; 2013: 5.4; 2014: 6.2; 2015: 6.2; 2016: 6.4; 2017: 6.5; 2018: 6.5; 2019 Proj.: 6.8.  
  - Grants (percent of GDP): 2012: 1.6; 2013: 0.5; 2014: 1.3; 2015: 1.3; 2016: 1.1; 2017: 0.9; 2018: 0.8; 2019 Proj.: 0.6.

### External sector and balance of payments (selected indicators)
- Current account balance (percent of GDP): 2012: -12.2; 2013: -13.2; 2014: -10.6; 2015: -7.8; 2016: -7.4; 2017: -6.9; 2018: -6.7; 2019 Proj.: -6.7.
- External public debt (including IMF, percent of GDP): 2012: 22.6; 2013: 25.6; 2014: 32.3; 2015: 33.8; 2016: 35.9; 2017: 35.7; 2018: 35.4; 2019 Proj.: 34.9.
- NPV of external debt outstanding (percent of exports of goods and services): 2012: 10.2; 2013: 9.1; 2014: 10.1; 2015: 13.5; 2016: 17.6; 2017: 19.9; 2018: 22.0; 2019 Proj.: 23.2.
- Gross international reserves (millions of US$): 2012: 5,349; 2013: 5,632; 2014: 4,706; 2015: 5,478; 2016: 6,912; 2017: 8,642; 2018: 9,989; 2019 Proj.: 10,261.
- Months of prospective imports of goods and services: 2012: 2.9; 2013: 3.2; 2014: 2.7; 2015: 2.8; 2016: 3.3; 2017: 3.8; 2018: 4.3; 2019 Proj.: 4.1.
- Total donor support (millions of US$): 2012: 1,132; 2013: 940; 2014: 1,110; 2015: 1,535; 2016: 1,614; 2017: 1,171; 2018: 1,130; 2019 Proj.: 1,032.
  - Total donor support (percent of GDP): 2012: 2.8; 2013: 2.1; 2014: 2.9; 2015: 3.8; 2016: 3.8; 2017: 2.5; 2018: 2.1; 2019 Proj.: 1.8.

- Balance of payments (selected flows, in millions of US$ and percent of GDP):  
  - Current account (millions of US$): 2012: -4,924; 2013: -5,839; 2014: -4,142; 2015: -3,149; projections: -3,169; -3,269; -3,524; -3,798.  
  - Trade balance (millions of US$): 2012: -4,220; 2013: -3,995; 2014: -2,861; 2015: -1,599; projections: -1,255; -965.4; -899; -1,181.  
  - Exports, f.o.b. (millions of US$): 2012: 13,543; 2013: 13,605; 2014: 13,739; 2015: 14,773; projections: 16,936; 18,930; 20,843; 21,176.  
    - Of which cocoa (millions of US$): 2012: 2,829; 2013: 2,171; 2014: 2,457; 2015: 2,781; projections: 2,820; 2,921; 3,019; 3,094.  
    - Of which gold (millions of US$): 2012: 5,643; 2013: 4,966; 2014: 4,296; 2015: 4,437; projections: 4,629; 4,840; 5,115; 5,447.  
    - Of which oil (millions of US$): 2012: 2,976; 2013: 3,835; 2014: 4,030; 2015: 4,074; projections: 5,370; 6,289; 6,960; 5,909.  
  - Imports, f.o.b. (millions of US$): 2012: -17,763; 2013: -17,600; 2014: -16,600; 2015: -16,372; projections: -18,191; -19,896; -21,742; -22,357.  
    - Of which oil (millions of US$): 2012: -3,331; 2013: -3,550; 2014: -3,331; 2015: -2,839; projections: -2,875; -2,969; -3,085; -3,204.

### Financial sector indicators (selected)
- Regulatory capital ratio (2008–13): 2008: 14.8; 2009: 18.2; 2010: 19.1; 2011: 17.4; 2012: 18.6; 2013: 18.5.
- Nonperforming loans to total gross loans (2008–13): 2008: 7.7; 2009: 16.2; 2010: 17.6; 2011: 14.1; 2012: 13.2; 2013: 12.0.
- Return on assets, before taxes (average): 2008: 3.2; 2009: 2.8; 2010: 3.8; 2011: 3.9; 2012: 4.8; 2013: 6.2.
- Return on equity, before taxes (average): 2008: 30.1; 2009: 23.6; 2010: 28.6; 2011: 27.2; 2012: 34.6; 2013: 42.5.
- Share of foreign currency deposits in total deposits (2008–13): 2008: 28.1; 2009: 32.7; 2010: 25.4; 2011: 27.4; 2012: 28.9; 2013: 27.1.

### Millennium Development Goals and social indicators (selected)
- Latest year / value highlights (Earliest year — Latest year):  
  - Income share held by lowest 20%: 6.7 (1992) — 25.2 (2006).  
  - Malnutrition prevalence, weight for age (% of children under 5): 25.1 (1993) — 14.3 (2008).  
  - Poverty headcount ratio at $1.25 a day (PPP) (% of population): 51.1 (1992) — 28.6 (2006).  
  - Literacy rate, youth female (% of females ages 15-24): 65.5 (2000) — 79.9 (2010).  
  - Primary completion rate, total (% of relevant age group): 64.7 (1991) — 99.1 (2012).  
  - Immunization, measles (% of children ages 12-23 months): 61.0 (1990) — 91.0 (2011).  
  - Mortality rate, infant (per 1,000 live births): 76.2 (1990) — 51.8 (2011).  
  - Maternal mortality ratio (modeled estimate, per 100,000 live births): 580.0 (1990) — 350.0 (2010).  
  - GNI per capita, Atlas method (current US$): 400 (1990) — 1,410 (2011).  
  - Life expectancy at birth, total (years): 56.8 (1990) — 64.2 (2011).  
  - Mobile cellular subscriptions (per 100 people): 0.0 (1990) — 84.8 (2011).  

### Memorandum items (selected nominal values)
- Nominal GDP (millions of GHc): 2012: 73,109; 2013: 86,596; 2014: 102,631; 2015: 120,277; 2016: 142,273; 2017: 167,258; 2018: 195,154; 2019 Proj.: 220,870.
- GDP per capita (U.S. dollars): 2012: 1,622; 2013: 1,730; 2014: 1,486; 2015: 1,509; 2016: 1,551; 2017: 1,681; 2018: 1,816; 2019 Proj.: 1,908.

*Sources: Ghanaian authorities; and Fund staff estimates and projections.*

### Appendix I. Risk Assessment Matrix

### Appendix I. Risk Assessment Matrix

### 1. Surges in global financial market volatility, triggered by geopolitical tensions or revised market expectations on UMP exit/emerging market fundamentals
- Likelihood of Severe Realization of Threats in the Next 1–3 Years: Medium
- Impact if Realized: High
- Key observations and transmission channels:
  - The government is increasingly relying on foreign financing of the deficit, including Eurobonds and foreign participation in the domestic bond market.
  - Staff projections assume no issuance of another Eurobond this year and net portfolio outflows from maturing domestic bonds held by foreigners. Net outflows could be larger, however, in the event of early redemptions.
  - Foreign reserve cover is thin and the current account deficit high. If foreign outflows are larger, reserves could be further eroded, triggering increased exchange rate pressures.
  - Significant currency depreciation could further increase inflationary pressures and raise the cost of foreign debt service.
  - Economic growth and imports would have to decline to bring about the required adjustment in the current account deficit.

### 2. Sustained decline in commodity prices, triggered by deceleration of global demand and coming-on-stream of excess capacity (medium term)
- Likelihood of Severe Realization of Threats in the Next 1–3 Years: Medium
- Impact if Realized: High
- Key observations and transmission channels:
  - Commodity exports account for 85 percent of total merchandize exports. A fall in commodity prices, in particular gold or cocoa, could result in a sharp contraction of exports and a further widening of the current account deficit—though part of this would be offset by lower profit and dividend payments.
  - A drop in gold prices would also reduce production and fiscal revenue.
  - A further increase in the current account deficit would reduce an already low reserve buffer, triggering increased exchange rate pressures.
  - Significant currency depreciation could raise inflationary pressures and the cost of foreign debt service. Economic growth and imports would decline.

### 3. Delayed fiscal adjustment
- Likelihood of Severe Realization of Threats in the Next 1–3 Years: High (in the absence of additional policy measures)
- Impact if Realized: High
- Key observations and transmission channels:
  - A revenue shortfall or spending overrun (e.g., from higher wages or interest payments) could compromise the 2014 fiscal target, with little room for discretionary tightening.
  - Failure to achieve the budget targets would prolong a situation of high real interest rates, depreciation pressures, and double-digit inflation.
  - Debt dynamics could worsen, reducing capacity to handle shocks and crowding out space for infrastructure and social priority spending.

*Source: Appendix I. Risk Assessment Matrix — _cr14129*

### 4. Further

### 4. Further increase in domestic prices

### Inflationary pressures
- Inflationary pressures have risen fueled by a depreciating currency and large increases in utility tariffs.  
- The planned elimination of electricity subsidies in 2014 and a further depreciation of the currency could intensify inflationary pressures and feed into inflation expectations.

### Risks and distributive impacts
- Higher inflation would require a further monetary policy tightening to prevent second-round effects, raising funding costs for the government.  
- A generalized increase in inflation would disproportionately affect lower income groups.

*Source: _cr14129 - 4. Further (IMF staff report excerpt, April 21, 2014).*

### 1.      Macroeconomic assumptions are broadly in line with those in the 2013 DSA, with deviations

### _cr14129 - 1.      Macroeconomic assumptions are broadly in line with those in the 2013 DSA, with deviations

### Macroeconomic assumptions and baseline outlook
- Revisions reflect: (i) updated information on the timing of oil production; (ii) an associated upward revision in real growth for the medium term and lower growth subsequently; and (iii) higher cost of borrowing, consistent with current lending conditions and projected rising world interest rates in the medium term.
- As projections on future oil discoveries and gas production are not available (and thus, not captured), the growth projections are conservative.
- Baseline assumes fiscal consolidation consistent with the authorities’ 2014 nominal budget targets and stated policies, but a more conservative growth outlook and higher interest payments.
- Fiscal path implies a gradual reduction in the fiscal deficit to 7½ percent of GDP in 2016, with subsequent changes driven primarily by the profile for oil revenue.

Box 1. Baseline Macroeconomic Assumptions (selected highlights)
- Real GDP-growth: projected 5½ percent in 2013; growth projected to remain at this level in 2014–15; new oil fields boost output in 2016; long-run real growth assumed to stabilize at 4¾ percent.
- Inflation: end-year CPI inflation was 13.5 percent in 2013; inflation projected to remain at this elevated level in 2014; GDP deflator stabilizes at 6¾ percent in 2020–2033.
- Government balances: overall fiscal balance estimated 10.9 percent of GDP in 2013; interest expenditures about 5 percent of GDP in 2013; deficit expected to stay above 10 percent of GDP in 2014 (primary deficit of 3½ percent).
- Current account balance: 2013 current account deficit rose above 13 percent of GDP; deficit expected to remain above 10 percent of GDP in 2014 and elevated until 2015; projected decline to about 7 percent of GDP by 2017 and to about 4 percent of GDP in the long run.
- Financing flows: FDI estimated about 7¼ percent of GDP in 2013; projected to stay close to 7½ percent of GDP until 2018, then gradually decline to 4 percent of GDP in the long run.
- Borrowing: projected increasingly nonconcessional; rates for external commercial borrowing revised upwards by 1 percentage point compared to the last DSA.

Key macro table (as presented)
- Real Growth
  - DSA-2013: 7.9 6.1 5.8 5.3
  - DSA-2014: 5.4 4.8 6.1 4.7
- Inflation (GDP deflator)
  - DSA-2013: 13.7 12.8 9.6 6.9
  - DSA-2014: 12.3 13.1 10.2 6.8
- Real interest Rate (foreign debt)
  - DSA-2013: 1.6 1.1 1.7 3.7
  - DSA-2014: 3.0 2.4 2.6 3.8
- Current account balance
  - DSA-2013: -11.9 -9.1 -8.3 -6.0
  - DSA-2014: -13.2 -10.6 -7.7 -6.0
- Primary fiscal balance (in percent of GDP)
  - DSA-2013: -6.5 -5.1 -2.6 -0.4
  - DSA-2014: -5.6 -3.6 -0.9 -0.3

Official Borrowing Assumptions (in Millions of U.S. Dollars)
- Disbursements by type, 2014–2019:
  - Multilateral: 365 518 596 380 361 343
  - Bilateral: 231 474 545 339 339 339
  - Commercial: 113 196 314 032 178 182 215 32
  - of which: CDB: 525 567 567 395 400 0
  - Total: 1955 2543 2897 2522 2212 1423 71

(Note: table formatting reproduced verbatim as in source.)

### External debt sustainability — baseline and stress tests
- External debt indicators broadly in line with the 2013 DSA; PV indicators moderated by a change in the discount rate (increased from 3 to 5 percent).
- Deterioration in PV of debt stock indicators compared to last year’s assessment was mitigated by the increase in the discount rate to 5 percent.
- Export-related indicators improve related to the update in the oil production profile.
- Debt service-to-revenue indicator deteriorates compared to the last assessment due to: rising costs of external commercial borrowing (1 percentage point above the assumptions in the last DSA), issuance of the 2013 Eurobond, and weakening of the cedi.
- External debt service-to-revenue ratio breaches its indicative threshold temporarily in the long term due to the 2023 bullet repayment; issuance of another Eurobond in 2014 would lead to a breach in two consecutive years absent amortization-smoothing measures.
- Probability approach suggests the breach is minor and temporary (1 year) and does not warrant a change in Ghana’s assessed risk of debt distress.
- Standard stress tests confirm a moderate risk of debt distress:
  - All three stock indicators and the external debt service-to-exports ratio remain under thresholds under standardized shocks.
  - External debt service-to-revenue ratio increases above 30 percent under the most extreme shock: a one-time 30 percent real depreciation relative to the baseline in 2015.
  - Standardized shocks to non-debt creating flows, growth, or financing conditions would also imply breaches of the debt service-to-revenue threshold.

Indicators of External Debt Vulnerabilities (Baseline)
- PV of debt-to-GDP ratio
  - DSA-2013: 26 29 24
  - DSA-2014: 32 29 23
  - Threshold: 50 50 50
- PV of debt-to-exports ratio
  - DSA-2013: 83 96 76
  - DSA-2014: 70 71 56
  - Threshold: 200 200 200
- PV of debt-to-revenue ratio
  - DSA-2013: 12 11 37 11 0 (as presented)
  - DSA-2014: 13 4 13 4 11 2 (as presented)
  - Threshold: 300 300 300
- Debt service-to-exports ratio
  - DSA-2013: 6 14 14
  - DSA-2014: 7 11 11
  - Threshold: 25 25 25
- Debt service-to-revenue ratio
  - DSA-2013: 9 19 20
  - DSA-2014: 13 20 22
  - Threshold: 22 22 22

(Indicators reproduced verbatim from source tables.)

### Public debt sustainability — baseline, risks, and scenarios
- Additional risks from high and rising domestic debt; total public debt dynamics indicate vulnerability despite the discount rate increase to 5 percent.
- Total public debt service-to-revenue ratio (including external and domestic payments) has deteriorated and is projected to increase to 45 percent in the long run, absorbing a large part of revenues.
- Stress tests/customized scenarios show historical fiscal stances would be unsustainable:
  - Fixing the primary balance at its 2013 level, or setting growth and the primary balance at 10-year historical averages, would lead PV of public debt-to-GDP ratio to approach the benchmark for strong policy performers (74 percent).
  - A one-time 30 percent real depreciation in 2015 is the most extreme shock, setting debt service-to-revenue on a rapidly increasing path absent corrective measures.
  - Standardized shock to other debt-creating flows (capturing contingent liabilities from SOEs or financial-sector claims) would shift debt ratios up but not change overall dynamics.
- Further consolidation of about 2 percentage points of GDP in 2014, combined with a more ambitious medium-term adjustment, would improve debt dynamics:
  - Lower fiscal deficits and falling interest rates would allow higher social and infrastructure spending, a reduction in tax rates, and crowding in of private sector activity.
  - Result: higher growth, declining public debt ratio, and debt service falling below 30 percent of revenue in the long run.

Indicators of Public Debt Vulnerabilities (Baseline)
- PV of debt-to-GDP ratio
  - DSA-2013: 53 56 52
  - DSA-2014: 56 54 54
  - Benchmark: 74 74 74
- PV of debt-to-revenue ratio
  - DSA-2013: 24 02 57 24 3 (as presented)
  - DSA-2014: 23 52 48 27 0 (as presented)
- Debt service to revenue ratio
  - DSA-2013: 29 38 40
  - DSA-2014: 35 38 45

(Figures presented verbatim from source tables.)

### Conclusions and policy implications
- Ghana’s public debt situation has worsened since the last DSA; risk of distress remains moderate for external public debt but has increased.
- Debt service-to-revenue ratio is approaching high-risk levels; assessment excludes central bank liabilities and non-guaranteed public enterprise debt, which could heighten risks further.
- Robust growth and fiscal consolidation are essential to maintain a moderate debt distress rating.
- Under the baseline (authorities’ gradual adjustment and staff’s conservative growth), PV of public debt expected to hover around 54 percent of GDP; total public debt service-to-revenue projected to increase above 45 percent in the long run.
- Additional fiscal adjustment could place indicators on a more favorable path, reducing long-run debt service burdens and supporting growth.

*Source: IMF staff report text provided in content unit _cr14129.*

### 11.      The authorities agreed with the thrust of the analysis, but deemed staff’s macroeconomic

### _cr14129 - 11.      The authorities agreed with the thrust of the analysis, but deemed staff’s macroeconomic

### Macroeconomic update and authorities' view
- Statement by the IMF Staff Representative dated May 7, 2014; staff report issued to the Board on April 22, 2014.
- Authorities agreed with the thrust of the analysis but deemed staff’s macroeconomic projections too pessimistic.
- Authorities stressed:
  - The growth outturn for 2013 is likely to be revised upward.
  - They saw stronger economic growth also for 2014.
- Data revisions reported by the Ghanaian Statistical Service (GSS):
  - 2013 annual growth rate implied by revised GDP data: 7.1 percent.
  - 2012 growth revised upward from 7.9 to 8.8 percent.
- Revisions attributed to more comprehensive information from major data collection sources (the Ministries of Agriculture and Fisheries and the Forestry and Minerals Commissions).
- Revisions reflect a stronger performance in the first half of 2013, followed by a deceleration in the second half (smaller than earlier estimates implied).

### Public debt analysis and stress testing (figures and tables summary)
- Figures A1–A3 present indicators of Public and Publicly Guaranteed (PPG) external debt and public sector debt under different scenarios, 2013–2033, including:
  - Baseline, Historical scenario, and Most extreme shock series.
  - Key stress tests referenced include: One-time depreciation shock; Exports shock; combination shocks depending on the indicator and figure.
  - Definition: "The most extreme stress test is the test that yields the highest ratio on or before 2024."
- Stress-test outputs include shown indicators (selected labels retained as in source):
  - Debt Accumulation; Grant-equivalent financing (% of GDP); Grant element of new borrowing (% right scale).
  - PV of debt-to-GDP ratio; PV of debt-to-exports ratio; PV of debt-to-revenue ratio.
  - Debt service-to-exports ratio; Debt service-to-revenue ratio; Rate of Debt Accumulation.
- Table A1 (External Debt Sustainability Framework, Baseline Scenario, 2010–2033) reports historical and projection values for multiple indicators (excerpted key items as presented):
  - External debt (nominal) examples: 25.6, 26.1, 31.4, 35.9, 35.6, 36.6, 36.6, 36.2, 35.7, 35.4, 31.9 (years in table heading).
  - Of which: public and publicly guaranteed (PPG) examples: 19.7, 22.6, 25.6, 32.3, 33.8, 35.9, 35.7, 35.4, 34.9, 32.4, 24.5.
  - Change in external debt examples: -0.4, 0.5, 5.3, 4.5, -0.4, 1.0, 0.0, -0.3, -0.6, -0.4, -0.2.
  - Non-interest current account deficit examples: 8.6, 11.5, 12.3, 8.2, 2.9, 9.5, 6.5, 5.9, 5.3, 5.2, 5.0.
  - PV of external debt (examples shown): 29.7, 32.0, 33.1, 32.1, 32.5, 32.5, 32.0, 31.7, 29.8.
  - PV of PPG external debt (examples shown): 23.9, 28.3, 31.4, 31.4, 31.6, 31.7, 31.3, 28.7, 22.4.
  - PV of PPG external debt in percent of exports (examples shown): 65.9, 67.8, 73.3, 68.5, 69.2, 70.1, 73.4, 71.3, 54.4.
  - PPG debt service-to-revenue ratio (examples shown): 6.9, 8.2, 16.6, 12.1, 16.4, 17.6, 18.7, 13.3, 14.9, 20.1, 21.7.
  - Total gross financing need (Millions of U.S. dollars) examples: 987, 244, 737, 842, 224, 119, 610, 1310, 405, 111, 122.
- Table A2 (Public Sector Debt Sustainability Framework, Baseline Scenario, 2010–2033) highlights:
  - Public sector debt examples: 42.5, 51.2, 57.4, 64.2, 67.2, 68.1, 63.9, 60.9, 59.6, 57.3, 55.9.
  - Public sector debt ex. domestic arrears examples: 39.5, 48.0, 54.3, 63.7, 67.2, 68.1, 63.9, 60.9, 59.6, 57.3, 55.9.
  - PV of public sector debt examples: 55.7, 60.3, 64.8, 63.6, 59.8, 57.2, 56.0, 53.6, 53.6, 53.7.
  - Gross financing need examples: 11.3, 18.9, 20.8, 20.2, 22.5, 21.5, 19.1, 16.0, 15.2, 16.3, 19.2.
  - PV of public sector debt-to-revenue and grants ratio examples: 305.0, 284.1, 304.6, 296.1, 250.9, 234.0, 234.6, 247.7, 269.8.
- Tables A3 and A4 present sensitivity analyses across scenarios and bound tests for key indicators (PV of debt-to-exports ratio, PV of debt-to-revenue ratio, PV of debt-to-GDP ratio, Debt service-to-exports ratio, Debt service-to-revenue ratio, PV of Debt-to-GDP Ratio, PV of Debt-to-Revenue Ratio, Debt Service-to-Revenue Ratio) with:
  - Baseline series and various alternative scenarios (A1, A2) and bound tests (B1–B6).
  - Examples from Table A3 (selected cells shown as in source): Baseline PV of debt-to-exports ratio series: 28, 31, 31, 32, 32, 31, 29, 22; Alternative A1: 28, 33, 35, 39, 43, 44, 42, 33; Bound test B6 (one-time 30 percent nominal depreciation in 2015): 28, 41, 44, 44, 44, 44, 41, 31.
  - Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) examples: -14, -14, -14, -14, -14, -14, -14, -14.
- Notes and definitions retained from source:
  - Revenues are defined inclusive of grants.
  - Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.
  - One bound-test assumption: interest rate on new borrowing is by 2 percentage points higher than in the baseline, while grace and maturity periods are the same as in the baseline.

### Key macro-fiscal assumptions and projection highlights (selected)
- Real GDP growth (examples across series in tables): 15.0, 7.9, 5.4, 7.3, 3.0, 4.8, 5.4, 8.1, 7.5, 6.8, 3.8, 6.1, 4.7, 5.4, 4.8 (as shown across rows in tables).
- GDP deflator in US dollar terms (change in percent) examples: 4.7, -3.3, 3.7, 7.5, 10.3, -15.9, -1.2, -2.5, 3.4, 3.8, 3.8, -1.4, 2.5, 2.0, 2.1.
- Effective interest rate (percent) examples: 2.7, 2.7, 3.9, 2.5, 0.7, 3.2, 3.7, 4.3, 4.9, 4.6, 5.0, 4.3, 5.1, 5.3, 5.3.
- Government revenues (excluding grants, in percent of GDP) examples: 17.3, 17.7, 17.8, 19.9, 19.9, 20.4, 22.9, 23.6, 23.6, 21.5, 19.9, 21.2.
- Grant-equivalent financing (in percent of GDP) example series includes: 1.6, 2.0, 1.6, 0.8, 0.8, 0.6, -0.1, -0.5, -0.2 (as shown).
- Aid flows (Millions of US dollars) example series: 784.1, 641.8, 223.5, 798.5, 864.0, 834.5, 677.0, 644.5, 553.0, 263.4, 115.9.
- Memorandum: Nominal GDP (Millions of US dollars) examples include: 38,752; 40,436; 44,223; 38,944; 40,561; 42,756; 47,528; 52,661; 56,749; 78,101; 155,146 (as shown across table rows).

### Stress-test interpretation and policy relevance (as presented)
- The debt sustainability exercises present a range of scenarios showing how shocks (one-time depreciation, export shocks, less favorable financing) could raise debt burden indicators toward thresholds.
- The text and figures treat the most extreme stress test as the one producing the highest ratio by 2024 for each indicator; specific most-extreme shocks vary by indicator (e.g., One-time depreciation shock for some indicators; Exports shock for others).
- Sensitivity analyses and bound tests illustrate vulnerability to:
  - Real GDP growth shocks.
  - Export value shocks.
  - USD GDP deflator shocks.
  - Changes in net non-debt-creating flows.
  - One-time large nominal depreciation (30 percent in 2015 in some bound tests).
- The tables provide projected trajectories for PV and flow indicators under alternative scenarios to inform policy choices on borrowing terms, fiscal consolidation, and reserve/contingency planning.

*Source: IMF staff statement and annexed debt sustainability figures and tables from the IMF document provided.*

### 6.0 percent, respectively (against -0.2 and 0.7 percent in the

### IMF Executive Board Concludes 2014 Article IV Consultation with Ghana

### Growth revisions and sector performance
- Revised GDP growth for 2013 is 7.1 percent (against 8.8 percent in 2012).
- Upward revisions for the first half of 2013 were driven by mining and quarrying in Q1 and manufacturing and construction in Q2.
- Growth in oil, manufacturing, and construction sectors decelerated significantly in the second half of 2013, driving industrial sector growth to -1.6 percent (‑0.4 percent contribution to growth) in Q4.
- Services sector growth also declined in the second half of 2013.
- Staff maintains GDP growth estimates for 2014 unchanged at 4.8 percent.
- Authorities target a growth rate of 8 percent in 2014, driven by gas production and increased crude oil production; staff projects 4.8 percent and considers it “on the pessimistic side.”

### Fiscal and external balances
- The higher 2013 GDP figure implies somewhat lower fiscal and current account deficits as a share of GDP in both 2013 and 2014.
- The 2014 overall fiscal deficit is projected at 9.4 percent of GDP (around 0.8 percentage points below previous projections).
- The government’s own 2014 fiscal deficit target is 8.5 percent of GDP.
- Staff continues to recommend additional fiscal adjustment and a more ambitious, front-loaded consolidation path to generate savings on interest payments, reduce gross financing needs, and expedite reduction of external vulnerabilities.
- Fiscal outturns and projections (percent of GDP):  
  - Overall balance (financing basis): -4.0 (2011 Act.), -11.7 (2012 Act.), -10.1 (2013 Est.), -9.4 (2014 Proj.)  
  - Revenue: 19.1 (2011 Act.), 18.6 (2012 Act.), 16.7 (2013 Est.), 19.5 (2014 Proj.)  
  - Expenditure: 23.1 (2011 Act.), 30.2 (2012 Act.), 26.8 (2013 Est.), 28.9 (2014 Proj.)  
  - Net domestic financing: 3.3 (2011 Act.), 9.2 (2012 Act.), 6.7 (2013 Est.), 6.7 (2014 Proj.)  
  - Central government debt (gross): 43.7 (2011 Act.), 50.0 (2012 Act.), 53.2 (2013 Est.), 59.4 (2014 Proj.)

- External sector indicators:  
  - Current account balance (including official grants): -9.1 (2011 Act.), -11.9 (2012 Act.), -12.3 (2013 Est.), -10.2 (2014 Proj.)  
  - Current account balance (excluding official grants): -9.7 (2011 Act.), -12.5 (2012 Act.), -12.5 (2013 Est.), -10.5 (2014 Proj.)  
  - External public debt (including IMF): 21.0 (2011 Act.), 22.1 (2012 Act.), 23.8 (2013 Est.), 29.9 (2014 Proj.)  
  - NPV of external debt outstanding: 10.9 (2011 Act.), 9.9 (2012 Act.), 8.4 (2013 Est.), 9.3 (2014 Proj.)  
  - Gross international reserves (millions of US$): 5,383 (2011 Act.), 5,349 (2012 Act.), 5,632 (2013 Est.), 4,738 (2014 Proj.)  
  - Months of prospective imports of goods and services: 2.9 (2011 Act.), 2.9 (2012 Act.), 3.2 (2013 Est.), 2.7 (2014 Proj.)

### Inflation, exchange rate, and monetary policy
- Headline inflation increased to 13.5 percent in 2013.
- Inflation is projected to remain above the target band of 9.5 ± 2 in 2014.
- The cedi depreciated by about 15 percent in 2013 and 18 percent in the first quarter of 2014.
- Gross international reserves declined to US$ 4.7 billion at end‑March 2014, equivalent to 2.7 months of imports.
- Directors welcomed recent monetary policy tightening and suggested further tightening may be needed, in combination with fiscal consolidation, to steer inflation back into the target range.
- Recommendations for the Bank of Ghana include: limit net credit to the government, strengthen liquidity management and the inflation forecasting framework, and continue to allow the exchange rate to adjust to prevent further erosion of the reserve buffer.

### Financial system and risks
- Directors assessed the financial system as currently sound, adequately capitalized, and liquid.
- They emphasized monitoring exposures closely because a weaker macroeconomic outlook, rising interest rates, and currency depreciation expose the financial sector to credit and currency risks.
- Directors encouraged strengthening crisis prevention and management capabilities and welcomed recent actions to improve the bank supervision framework.

### Policy measures, reform agenda, and recommendations
- Authorities presented a reform package of short-term stabilization measures and pro-growth medium-term reforms, and submitted an Economic and Financial Policies for the Medium Term report to the legislature and development partners.
- Short-term revenue measures in the 2014 budget (estimated to yield about 2 percent of GDP):  
  - Increase in the VAT rate by 2.5 percentage points effective January 1, 2014, with broadening of coverage to previously exempted activities.  
  - Change in the petroleum excise tax from specific to ad valorem basis.  
  - Increase in the corporate income tax rate of free zone companies selling on the local market (from 8 to 25 percent).  
  - Increase in the withholding tax on rent and commercial properties and on management and technical services fees.  
  - Payment of VAT on non-core financial services expected to come into force in June 2014.

- Expenditure rationalization measures include:  
  - Strict adherence to the automatic price adjustment formula for petroleum and utility prices to limit subsidies.  
  - Tight budget limits on the wage bill through a freeze on net hiring in most public institutions, along with a review of the current compensation scheme.  
  - Continuation of the moratorium on the award of new contracts for investment projects.  
  - Shift of all government accounts to a new chart of accounts (COA) and deployment of government transactions to a GIFMIS electronic platform as part of ongoing PFM reforms.

- Directors recommended:  
  - Additional short-term measures to reduce fiscal and external imbalances.  
  - Translate policy commitments quickly into specific and time-bound action plans to achieve significant and durable consolidation.  
  - Adopt a more ambitious medium-term consolidation path to stabilize public debt and debt service at sustainable levels and reduce the high debt service-to-revenue ratio.  
  - Review recent foreign exchange regulations to mitigate adverse implications and remove associated exchange restrictions; support steps toward a unified, market-based exchange rate.

### Key statistics (selected exact figures)
- GDP at constant prices (annual percent change): 15.0 (2011 Act.), 8.8 (2012 Act.), 7.1 (2013 Est.), 4.8 (2014 Proj.)
- Real GDP (nonoil): 9.4 (2011 Act.), 8.1 (2012 Act.), 6.5 (2013 Est.), 4.5 (2014 Proj.)
- Real GDP per capita: 12.1 (2011 Act.), 6.1 (2012 Act.), 4.5 (2013 Est.), 2.2 (2014 Proj.)
- Consumer price index (annual average): 8.7 (2011 Act.), 9.2 (2012 Act.), 11.7 (2013 Est.), 13.0 (2014 Proj.)
- Banks' lending rate (weighted average; percent): 25.9 (2011 Act.), 25.7 (2012 Act.), 25.6 (2013 Est.)
- Credit to the private sector: 29.0 (2011 Act.), 32.9 (2012 Act.), 29.0 (2013 Est.), 17.8 (2014 Proj.)
- Broad money (M3, including foreign currency): 29.3 (2011 Act.), 24.3 (2012 Act.), 19.1 (2013 Est.), 21.2 (2014 Proj.)
- Nominal GDP (millions of GHc): 59,816 (2011 Act.), 74,959 (2012 Act.), 93,461 (2013 Est.), 110,676 (2014 Proj.)
- GDP per capita (U.S. dollars): 1,594 (2011 Act.), 1,663 (2012 Act.), 1,864 (2013 Est.), 1,602 (2014 Proj.)

*Source: IMF Press Release No. 14/221 — Article IV consultation with Ghana, May 13, 2014.*

### 9. Over the medium term, the authorities plan to carry out wide-ranging structural fiscal reforms to

### _cr14129 - 9. Over the medium term, the authorities plan to carry out wide-ranging structural fiscal reforms to

### Fiscal reforms (medium term)
- Authorities plan wide-ranging structural fiscal reforms to support medium-term fiscal consolidation objectives.
- Reform focus areas:
  - Strengthening the Ghana Revenue Authority (GRA).
  - Reviewing existing tax laws.
  - Rationalizing the wage bill, pensions, gratuities, and social security payments.
  - Carrying out a broad public sector reform with a voluntary retirement plan.
  - Continuing regular adjustment of fuel and utility prices to reduce subsidies.
- Expected outcome: create fiscal space for higher capital and social expenditure.
- The authorities intend to have a full quantification of these measures in due course.

### Monetary and exchange rate policies
- Monetary policy stance and actions:
  - Monetary policy kept tight and focused on anchoring inflation expectations and improving the working of the foreign exchange market.
  - Bank of Ghana (BOG) raised its key policy rate twice: in May 2013 by 100 basis points and in February 2014 by 200 basis points to 18 percent.
  - In April 2014, actions taken to address liquidity overhang and improve foreign exchange supply included increasing the cash reserve ratio and revising downwards the Net Open Position (NOP) of banks.
  - BOG acknowledges risks to inflation have risen substantially, but expects inflation to return to within the target band of 9.5± 2 percent towards the middle of 2015.
  - BOG remains committed to monitor closely price developments and take appropriate action when necessary to prevent high inflation from becoming entrenched.
- Exchange rate unification and transparency:
  - In conjunction with Reuters, authorities developed a foreign exchange trade reporting system to enhance transparency in interbank pricing, facilitate price discovery, and better gauge foreign exchange liquidity.
  - The system eliminated multiplicity of foreign exchange rates from different sources and allows market participants to observe traded foreign exchange rates on a real time basis.
  - Platform currently in use by the BOG and commercial banks is expected to be made available to international operators by the end of the third quarter of 2014.
- De-dollarization measures (announced February 2014):
  - Reinforce existing rules and regulations governing the foreign exchange market and promote use of local currency as legal tender.
  - Enforce rules on repatriation of export proceeds and documentation related to international trade.
  - Prohibit granting foreign currency-denominated loans or foreign currency-linked facilities to clients who do not earn foreign exchange.
  - Ban over-the-counter dollar withdrawals from the Foreign Exchange Accounts (FEA) and Foreign Currency Accounts (FCA), except for travel purposes.
  - Prohibit issuance of cheques and cheque books drawn on the FEA and FCA.
  - BOG will monitor closely the unintended adverse effects of these measures and review them accordingly.

### Financial sector issues
- Overall assessment:
  - Financial sector is adequately capitalized and liquid.
  - Recent stress tests show banks are well positioned to withstand adverse effects of credit, exchange rate, and interest rate shocks.
- Remaining challenges and responses:
  - Macroeconomic imbalances and a slowdown could impair asset quality; banking developments are being closely monitored to identify emerging risks and take appropriate action.
  - Growth of non-bank financial institutions and changing financial landscape have imposed supervisory challenges for the Central Bank.
    - Supervision department restructured into two divisions with re-assignment of credit reporting, financial integrity, and consumer issues to the Financial Stability Department (with Fund TA support).
    - Recruitment of additional staff to strengthen off-site supervision and responsiveness.
  - Drafting and consolidation of Banking Act and its Amendment into a new Act to address 2011 FSAP update recommendations and support transition to the Basle II framework.
    - A draft Banks and Specialized Deposit-Taking Institutions Bill has been recently drafted by the Bank of Ghana with LEG TA, providing for:
      - regulation and supervision of banks and all other deposit-taking institutions/activities;
      - consolidated supervision and registration of bank holding companies;
      - provisions for dealing with unauthorized deposit taking activities;
      - early intervention in and orderly resolution of distressed banks.
    - A Deposit Protection Bill drafted with assistance of the German Government to build safety nets for small savers and assist in orderly resolution of distressed institutions.
    - Both documents have been exposed to stakeholders, awaiting comments for finalization and onward transmission to the Minister of Finance.

### Debt sustainability
- Public debt position and DSA:
  - Total public debt at end-December 2013 stood at 53.2 percent of GDP.
  - The updated debt sustainability analysis (DSA) shows moderate risk of debt distress.
- Authorities' actions and strategy:
  - Examination of the debt portfolio and potential risks undertaken.
  - Authorities believe debt sustainability risks will be lower going forward, taking into account their growth projections, planned fiscal adjustment, and implementation of new debt management strategies such as on-lending and escrow arrangements outlined in the Government’s medium-term debt strategy.
  - Contemplated steps to improve the debt profile include lowering short-term issuance of debt to finance the budget to about 30 percent from 72 percent, and increase domestic long-term issuance to about 49 percent through the issuance of bonds of 3 to 7 year maturity.
  - Authorities are of the view that staff macroeconomic projections underlying the revised DSA are based on pessimistic growth projections.

### Governance and business environment
- Progress and reforms:
  - Authorities continue to make significant strides towards improving the business environment, with ratings in the World Bank’s governance and business indicators well above those of peers and regional benchmarks.
  - High-level commitment to fighting corruption remains strong; implementation of anti-corruption measures to enhance governance and rule of law continues.
  - Several anti-corruption bills have been brought to parliament, including:
    - National Anti-corruption Action Plan and Strategy
    - Anti-Money Laundering (amendment) Bill
    - The Whistle Blowers (amendment) Bill
    - Right to Information Bill
  - The Public Procurement Act is being amended to enhance its ability to protect the public purse.
  - In the 2014 budget, funding for key governance institutions engaged in the fight of corruption have been increased to enhance their capacity to execute their mandate and enforce relevant laws.

### Conclusion
- Authorities are cognizant of the challenges facing the economy and the need to quickly take bold policy actions to address current imbalances.
- They recognize macroeconomic and financial stability as prerequisites to achieving high and sustained growth and are committed to pursuing appropriate policies to attain objectives of economic transformation as laid out in their medium-term reform strategy.
- Authorities highly value the Fund’s policy advice and technical assistance and look forward to continued cooperation with the Fund.

*Source: IMF staff report (excerpt).*

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