Key Questions on Ghana

Last Updated: March 20, 2018

The Executive Board of the IMF completed the fourth review under the Extended Credit Facility (ECF) and concluded the 2017 Article IV consultation on August 30, 2017. To date, total disbursements under the arrangement amount to US$ 565.2 million out of approximately $920 million under the program. The IMF team, which visited Accra in October 2017 and February 21-March 1, 2018, was able to reach understandings with the authorities on many issues required for completing the next review.

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Question 1: What is the current assessment of the economic situation and program performance?

Macroeconomic situation has improved. GDP growth—estimated at 7.9 percent in 2017—picked up after several years of economic slowdown, also reflecting increasing oil production. Consumer price inflation declined, reaching 10.3 percent year-on-year in January 2018 and exchange rate has been relatively stable. The Bank of Ghana (BOG) cumulatively reduced the monetary policy rate by 550 basis points in 2017. External imbalances narrowed, as indicated by declining current account deficit and a large accumulation of foreign exchange reserves.

The 2017 fiscal target was successfully met. Overall deficit declined by more than programmed, reaching 5.9 percent of GDP, and the government recorded the first primary surplus since 2003. The debt-to-GDP ratio declined on the heels of strong fiscal performance last year. The government comfortably financed its needs through domestic borrowing without resorting to borrowing from the BOG.

The government made progress in implementing structural reforms, including drafting regulations for the Public Financial Management Act; strengthening payroll controls, and reconciliation of arrears between the energy sector state-owned companies and the government.

We welcome the authorities’ work on strengthening governance. The completion and recent publication of the Report of the Auditor General on the “Liabilities of the Ministries, Departments, and Agencies through end-2016?” has uncovered breaches of public financial management (PFM) rules and procedures, along with system weaknesses. We look forward to the authorities’ follow-up actions to resolve Public Financial Management weaknesses and pursue non-compliance cases. The recent appointment of the Special Prosecutor is an important step toward eliminating fraud and corruption by enforcing accountability.

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Question 2: What is the outlook for the completion of the program?

We welcome the authorities’ goal to successfully complete the ECF program and ensure macroeconomic stability beyond the program. We discussed with the authorities measures which would ensure the irreversibility of reforms and would allow Ghana to move beyond aid. What needs to be done?

First, continued fiscal discipline is essential for bringing government debt on a steady downward trajectory and eliminating the risk of debt distress. This would reduce the cost of debt financing and open fiscal space for productive spending. Fiscal consolidation has to be revenue-based. Further spending cuts are not sustainable, as government capital spending is already low at 3 percent of GDP. Moreover, social spending, including full implementation of free SHS (Senior High School) education requires additional and sustained financing. We discussed options for revenue mobilization with the authorities, including by broadening the tax base and rationalizing tax incentives.

Second, disinflation needs to continue to anchor inflationary expectations and support exchange rate stability. This requires the BOG to maintain its focus on price stability. Continued prudent fiscal policy would help disinflation.

Third, financial sector stability—sound banking system and healthy non-bank financial institutions—are essential for improving access to finance by the private sector. High non-performing loans have limited lending to the private sector and interest rates remain high. Effort by the BoG to address remaining weaknesses in the financial system are welcome and should continue.

Fourth, the government has been facing high borrowing costs, with interest payments absorbing about 40 percent of tax revenue. The ongoing macroeconomic stabilization is an opportunity to reduce the cost of debt, by reducing risk premia and refinancing it on more favorable terms, including by issuing a Eurobond. Eliminating the risk of debt distress requires that only priority projects are financed through external borrowing on market terms.

Finally, structural reforms are important for ensuring macroeconomic stability over the medium term. During the mission, we discussed measures the authorities have been implementing to strengthen public financial management and revenue administration, and strengthening the oversight over state-owned enterprises.

Over the next few weeks we expect to finalize understandings with the authorities on remaining issues, which would allow us to proceed with the Executive Board meeting in April.