Press Release: IMF Approves US$918 Million ECF Arrangement to Help Ghana Boost Growth, Jobs and Stability

IMF News, April 3, 2015

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Press Release: IMF Approves US$918 Million ECF Arrangement to Help Ghana Boost Growth, Jobs and Stability

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Bibliographic details

• Published: April 3, 2015

Program approval and immediate financing

• The Executive Board approved a three-year arrangement under the Extended Credit Facility (ECF) for Ghana equivalent to SDR 664.20 million (180 percent of quota or about US$918 million).
• The decision enables an immediate disbursement of SDR 83.025 million (about US$114.8 million).
• Program aim: support the authorities’ medium-term economic reform program to restore debt sustainability and macroeconomic stability, foster a return to high growth and job creation, while protecting social spending.

Context and recent economic developments

• After two decades of strong and broadly inclusive growth, large fiscal and external imbalances and acute electricity shortages have led to a growth slowdown and threaten medium-term prospects.
• Key drivers of recent imbalance:
  • Ballooning wage bill, poorly targeted subsidies, and rising interest payments outpaced rising oil revenue, producing double digit fiscal deficits.
  • High inflation, decline in reserves, significant depreciation of the Cedi, and high interest rates have weighed on growth and job creation.
  • Electricity shortages have constrained economic activity.
• 2014 outcomes:
  • Growth decelerated to an estimated 4.2 percent, driven by contraction in industrial and service sectors.
  • Headline CPI inflation reached 17.0 percent at end-2014 (BoG target range: 8 +/-2 percent).
  • Policy interest rate was hiked to 21 percent in 2014.
  • Cash fiscal deficit reached 9.5 percent of GDP; overall fiscal deficit on a commitment basis remained close to 10 percent of GDP.
  • Government resorted increasingly to short-term domestic debt with interest rates around 25-26 percent and significant monetary financing.
  • Current account deficit ended at 9.2 percent of GDP.
  • Balance of payments broadly balanced for the year, with fragile stabilization in international reserves partly supported by large BoG short-term liabilities.

Program summary and main pillars

• Objective: restore macroeconomic stability to support growth and poverty reduction through an ambitious and sustained fiscal consolidation, prudent debt management, improved fiscal transparency, and effective monetary policy.
• Expected macroeconomic evolution: pick-up in growth starting in 2016 supported by expected increases in hydrocarbon production; lower inflation and interest rates; stable exchange rate; improvement in current account and build-up of gross reserves over the medium term.
• Main pillars:

1. Sizeable and frontloaded fiscal adjustment to restore debt sustainability, focusing on containing expenditures (wage restraint, limited net hiring) and measures to mobilize additional revenues. 2. Structural reforms to strengthen public finances and fiscal discipline: improve budget transparency, clean-up and control the payroll, right-size the civil service, and improve revenue collection. 3. Restore effectiveness of the inflation targeting framework to bring inflation back into single digit territory. 4. Preserve financial sector stability.

• Social protection: part of the fiscal space created will be used to safeguard social and other priority spending, including expanding targeted social safety nets such as the Livelihood Empowerment Against Poverty (LEAP) program.

Policy recommendations and implementation priorities (as stated)

• Strict containment of expenditure, in particular of the wage bill and subsidies.
• Mobilize additional revenues to create space for social spending and infrastructure investment, particularly in the energy sector.
• Adjust expenditures to mitigate shortfall in oil revenue and avoid larger debt build-up.
• Adopt a prudent borrowing strategy to meet financing needs at the lowest possible cost.
• Strengthen public financial management and enhance transparency in budget preparation and execution.
• Clean up the payroll and improve control of hiring in the public sector.
• Gradually eliminate monetary financing of the budget to improve monetary policy independence and bring inflation down to single digit territory.
• Safeguard financial sector stability to support private sector activity.
• Forceful and sustained implementation, frontloaded fiscal consolidation, and expected financial support from development partners to mitigate program risks and foster inclusive growth.

Key projections and selected economic and financial indicators (2011–17; figures preserved exactly as in source)

• Growth and prices:
  • GDP at constant prices (annual change): 14.0 (2011), 8.0 (2012), 7.3 (2013), 4.2 (2014), 3.5 (2015), 6.4 (2016), 9.2 (2017, prog.)
  • Real GDP (nonoil): 8.4 (2011), 6.7 (2012), 4.1 (2013), 2.3 (2014), 4.7 (2015), 5.5 (2016), 5.5 (2017)
  • Real GDP per capita: 11.2 (2011), 5.3 (2012), 1.6 (2013), 0.9 (2014), 3.7 (2015), 6.5 (2016)
  • GDP deflator: 13.9 (2011), 16.6 (2012), 17.4 (2013), 14.7 (2014), 13.6 (2015), 9.7 (2016), 8.8 (2017)
  • Consumer price index (annual average): 7.7 (2011), 7.1 (2012), 11.7 (2013), 15.5 (2014), 12.2 (2015), 10.2 (2016)
  • Consumer price index (end of period): 8.1 (2011), 13.5 (2012), 17.0 (2013), 12.0 (2014), 8.6 (2015), 8.2 (2016)
• Money and credit:
  • Credit to the private sector: 29.0 (2011), 32.9 (2012), 42.0 (2013), 22.0 (2014), 17.8 (2015), 15.9 (2016)
  • Broad money (M2+): 29.3 (2011), 24.3 (2012), 19.1 (2013), 36.8 (2014), 22.3 (2015), 23.6 (2016), 20.9 (2017)
  • Base money: 31.1 (2011), 36.0 (2012), 15.1 (2013), 30.2 (2014), 18.6 (2015), 21.3 (2016), 25.5 (2017)
  • Banks' lending rate (weighted average; percent): 25.9 (2011), 25.7 (2012), 25.6 (2013)
  • Policy rate (in percent, end of period): 12.5 (2011), 15.0 (2012), 16.0 (2013), 21.0 (2014)
• External sector and reserves:
  • Current account balance: -9.0 (2011), -11.7 (2012), -9.2 (2013), -7.0 (2014), -6.2 (2015), -4.9 (2016)
  • External public debt (including IMF): 21.8 (2011), 23.3 (2012), 33.7 (2013), 36.4 (2014), 36.3 (2015), 34.8 (2016)
  • NPV of external debt outstanding (percent of exports of goods and services): 32.4 (2011), 43.1 (2012), 40.8 (2013), 39.3 (2014)
  • Gross international reserves (millions of US$): 5,382 (2011), 5,348 (2012), 4,587 (2013), 4,349 (2014), 4,734 (2015), 5,822 (2016), 7,544 (2017)
  • Total donor support (millions of US$): 1,477 (2011), 1,132 (2012), 1,083 (2013), 1,040 (2014), 1,247 (2015), 1,230 (2016), 1,029 (2017)
• Fiscal sector (percent of GDP):
  • Revenue: 16.5 (2011), 19.2 (2012), 19.6 (2013), 20.0 (2014)
  • Expenditure: 20.1 (2011), 30.1 (2012), 26.8 (2013), 27.8 (2014), 26.7 (2015), 23.7 (2016)
  • Overall balance: -4.0 (2011), -11.6 (2012), -10.4 (2013), -9.4 (2014), -7.5 (2015), -5.8 (2016), -3.7 (2017)
  • Net domestic financing: 7.0 (2011), 4.4 (2012), 2.1 (2013)
  • Central government debt (gross): 42.6 (2011), 49.1 (2012), 55.1 (2013), 67.6 (2014), 69.6 (2015), 67.5 (2016), 62.6 (2017)
  • Central government debt (net): 38.7 (2011), 47.0 (2012), 51.8 (2013), 64.6 (2014), 65.7 (2015), 61.1 (2016)
• Memorandum items:
  • Nominal GDP (millions of GHc): 59,816 (2011), 75,315 (2012), 94,939 (2013), 113,436 (2014), 133,344 (2015), 155,570 (2016), 184,952 (2017)
  • GDP per capita (U.S. dollars): 1,628 (2011), 1,683 (2012), 1,901 (2013), 1,474 (2014), 1,459 (2015), 1,542 (2016), 1,670 (2017)

International Monetary Fund. Press Release No. 15/159 (April 3, 2015).

References

• Ghana and the IMF
• Press Releases
• PRESS CENTER
• https://www.imf.org/en/home