Press Release No. 11/59

Press Release No.11/59
March 1, 2011

A mission from the International Monetary Fund (IMF), led by Peter Allum, visited Accra during February 16-March 1, 2011. The mission conducted discussions for the third and fourth reviews under the IMF’s Extended Credit Facility (ECF) and for the 2011 Article IV consultations. The mission met with Finance Minister Kwabena Duffuor, Bank of Ghana Governor Kwesi Amissah-Arthur, other senior officials, members of parliament, and representatives of the private sector and civil society organizations.

At the end of the mission, Mr. Allum, mission chief for Ghana, issued the following statement:

“Discussions during the mission focused on economic performance in 2010, macroeconomic challenges for 2011 and the medium term, and the government’s policy framework.

“A range of macroeconomic indicators improved significantly in 2010. Economic growth rose to the 6 percent range, up from 4.7 percent in 2009. Buoyant global prices for gold and cocoa, combined with strong portfolio and other investment inflows, contributed to a buildup in gross reserve cover to about 3½ months of imports, up from 2¾ months at end-2009. Balance of payments surpluses underpinned broad currency stability against the dollar which, in turn, helped stabilize inflation in the 9 percent range, down from an average of nearly 20 percent in 2009. Ghana is estimated to have graduated to lower middle-income status, based on rebased and revised national accounts issued in late-2010 which include an upward revision to national incomes of about 70 percent.

“On fiscal performance in 2010, efforts to increase revenue collections as a share of gross domestic product (GDP) were broadly successful. However, grant financing was lower than anticipated, and spending ran well above budgeted levels, notably on road construction and other projects. While the cash deficit was only slightly larger than the program target, substantial payments arrears were again incurred in 2010, contrary to program targets, reflecting commitments in 2008 and earlier years which continue to drive spending outlays. Excluding the new domestic arrears, public debt rose from 39 to 41 percent of GDP over the year to end-2010.¹

“Implementation of the structural benchmarks under the ECF arrangement was mixed. Good progress was made in strengthening debt management institutions. But delays were encountered with some reforms relating to modernizing the new Ghana Revenue Authority and computerizing budget processes and public agency personnel and pay records.

“For 2011, the economy is projected to expand by about 13 percent, broadly evenly divided between growth of the non-oil economy and the start of oil production. The balance of payments is projected to remain in surplus, despite further import growth.

“On budget policy, the mission recommended an additional effort to strengthen the projected 2011 outturn, both to limit near-term financing needs and put the budget on a sounder footing over the medium term. Ghana’s tax revenues, at less than 14 percent of GDP in 2010, fall well below the average of 20 percent of GDP for lower middle-income countries. Discussions focused on how to improve revenue performance, as well as on the government’s plans to strengthen expenditure control and develop a comprehensive strategy for managing arrears and related obligations.

“Discussions with the Bank of Ghana focused on sustaining low inflation and policies to address non-performing loans in the banking sector. Risks to inflation have shifted to the upside, reflecting rising demand pressures, global commodity prices, and easing domestic liquidity. To consolidate inflation in single digits, policy tightening may be needed in the course of 2011.

“During the mission, progress was made in identifying options to further strengthen fiscal performance and agreement was reached on a range of other policy issues. Continuing discussions will seek to confirm a policy framework that could allow the IMF Executive Board to consider the third and fourth reviews under the ECF together with the 2011 Article IV consultation in May 2011.”

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¹ Ratios to GDP are calculated using the new, rebased national accounts estimates.