Public Information Notice: IMF Executive Board Concludes Article IV Consultation with Ghana
IMF News, June 2, 2011
Source details
- Canonical URL
- Public Information Notice: IMF Executive Board Concludes Article IV Consultation with Ghana
Other formats
Bibliographic details
- Published: June 2, 2011
Background and recent developments
- Ghana’s economy grew by 7.7 percent in 2010, after a temporary slowdown in 2009, reflecting continued buoyancy of commodity exports as well as stronger construction and service sector activities.
- Spillovers from instability in Côte d’Ivoire have been limited.
- The rebasing of Ghana’s national accounts in 2010 showed the country as having a higher income level and growing faster than earlier recorded; with an upward revision to per capita incomes of about 70 percent, Ghana moved into the lower-middle income country grouping.
- Fiscal developments:
- The fiscal deficit rose to 7.7 percent of GDP in 2010, compared to 5.8 percent of GDP in 2009.
- Tax revenue collections were broadly in line with the budget, but non-tax revenues and grants fell short of targets and capital spending was larger than anticipated.
- Spending commitments discovered in 2010 led to the accumulation of payment arrears, equivalent to 1.9 percent of GDP.
- The combined fiscal slippage in relation to the 2010 program, taking into account both cash transactions (the fiscal deficit) and unpaid bills (arrears), was equivalent to 2.6 percent of GDP.
- External sector and reserves:
- Exports grew by $2 billion in 2010, with cocoa and gold benefiting from high global prices.
- The current account deficit was 7.2 percent of GDP in 2010, more than financed by strong capital inflows, including direct investments in the oil sector and Treasury bond purchases by nonresidents.
- Gross reserve cover rose to 3.2 months of import cover at end-2010.
- Exchange rate, inflation, and monetary conditions:
- Reflecting the strong balance of payments, the cedi has traded in a relatively narrow range against the U.S. dollar since mid-2009.
- Inflation declined from around 20 percent in 2009 to close to 9 percent since mid-2010.
- The Bank of Ghana’s policy interest rate, which had been kept at 13.5 percent since July 2010, was reduced by 50 basis points in May (2011), reflecting stability of inflation, the continuing strength of the cedi, and a slight slowing of credit growth in early 2011.
- Despite a partial sterilization of Ghana’s balance of payments surpluses, reserve money grew by 35 percent in 2010 and broad money by 46 percent.
- Private sector credit picked up towards end-2010.
- Financial sector assessment (FSAP Update mid-2010):
- Financial stability risks have heightened since the 2003 FSAP.
- In the aggregate, the banking system is profitable and liquid with high capital levels, but nonperforming loan ratios are elevated, in part due to government payment arrears.
- Risks relate to extensive state involvement in the banking sector, shortcomings in commercial banks’ risk management and accounting practices, gaps in supervision and systemic risk analysis, and weak enforcement of creditor rights.
- Immediate stability risks have been reduced since mid-2010 by clearance of substantial government arrears and state enterprise debts.
- Incidence of bank undercapitalization has declined, with banks raising capital or merging with stronger banks, and progress made in strengthening regulation and supervision.
- Key sources of vulnerabilities remain and a sustained and comprehensive reform effort is needed to achieve long term financial stability.
Executive Board assessment, findings, and policy recommendations
- Directors welcomed:
- Ghana’s strong growth and favorable medium-term outlook, underpinned by high commodity export prices, the start of oil production, and strong non-oil activity.
- The increase in international reserves, currency stability, and the decline in inflation to single digits.
- Fiscal policy concerns and recommendations:
- Directors regretted that fiscal consolidation goals were not achieved in 2010, reflecting in part delays in fiscal reforms.
- Emphasized the importance of stronger fiscal management and called for rigorous implementation of the authorities’ plan to reduce the cash deficit and avoid further domestic arrears.
- Highlighted the need for improved expenditure control, a prudent roll out of the new pay structure, and determined efforts to boost tax collections in relation to GDP.
- Urged the authorities to take additional measures to strengthen the budget, should the need arise.
- Stressed maintaining momentum of structural fiscal reforms, notably for tax administration, payroll management, and expenditure control.
- While welcoming improvement in Ghana’s debt sustainability outlook, underscored the need for continued improvements in debt management and prudent borrowing strategies.
- Natural resource and public finance management:
- Welcomed the recent approval of an oil revenue management bill and the authorities’ intention to ensure oil-related incomes, expenditures and savings be transparently and comprehensively recorded for dissemination, analysis, and audit purposes.
- Energy pricing and fiscal soundness:
- Observed that cost-recovery pricing of energy products is crucial for sound fiscal management.
- Welcomed the recent sizable adjustment of domestic petroleum product prices and encouraged authorities to closely monitor developments to ensure domestic prices remain in line with market trends.
- Welcomed the move to quarterly cost-based reviews of electricity tariffs.
- Monetary and exchange rate policy:
- Directors concurred that monetary policy implementation should remain alert to inflationary pressures.
- Should circumstances warrant, the Bank of Ghana (BoG) should stand ready to tighten policies in support of the inflation target.
- Noted the assessment that the exchange rate is broadly in line with fundamentals, and welcomed the authorities’ intention to sustain this through a flexible exchange rate regime.
- Supported the BoG’s plans to further strengthen its monitoring of the balance of payments as well as its tools and policies for foreign exchange market intervention.
- Financial sector recommendations:
- Noted that banks are profitable and liquid with high capital.
- Welcomed steps taken by the authorities to address stability risks identified by the FSAP Update.
- Agreed that stronger measures will be necessary to tackle the elevated nonperforming loans.
- Called for further progress to resolve vulnerable institutions, strengthen risk management in banks, enhance banking supervision, and enforce prudential regulation.
Ghana: Selected Economic and Financial Indicators, 2007–2010 (annual unless specified)
- National accounts and prices
- Real GDP: 2007: 6.5; 2008: 8.4; 2009: 4.0; 2010: 7.7
- Real GDP per capita: 2007: 3.8; 2008: 5.7; 2009: 1.3; 2010: 5.1
- GDP deflator: 2007: 16.3; 2008: 20.2; 2009: 16.7; 2010: 14.1
- Consumer price index (annual average): 2007: 10.7; 2008: 16.5; 2009: 19.3; 2010: (figure not listed in table body)
- External sector
- Exports, f.o.b. (percentage change, in US$): 2007: 11.9; 2008: 26.3; 2009: 10.8; 2010: 35.2
- Imports, f.o.b. (percentage change, in US$): 2007: 19.4; 2008: 27.3; 2009: -21.6; 2010: 33.0
- Export volume (excluding oil): 2007: 3.1; 2008: 16.9; 2009: 2.6; 2010: 13.9
- Import volume: 2007: 8.6; 2008: 6.9; 2009: -3.5; 2010: (figure not listed in table body)
- Terms of trade: 2007: -1.3; 2008: -9.3; 2009: (figure not listed); 2010: (figure not listed)
- Real effective exchange rate (end of period; depreciation -): 2007: -3.9; 2008: -11.2; 2009: 6.1; 2010: (figure not listed)
- Money and credit
- Net domestic assets: 2007: 27.8; 2008: 48.3; 2009: 3.9; 2010: 16.2
- Credit to the private sector: 2007: 37.1; 2008: 33.3; 2009: 12.9; 2010: 20.3
- Broad money (excluding foreign currency deposits): 2007: 43.0; 2008: 31.2; 2009: 21.2; 2010: 45.7
- (Percent of GDP)
- Government operations
- Total revenue: 2007: 13.8; 2008: 13.3; 2009: 13.4; 2010: 15.0
- Grants: 2007: 3.7; 2008: 2.7; 2009: 3.0; 2010: 2.4
- Total expenditure: 2007: 22.7; 2008: 24.0; 2009: 20.4; 2010: 23.5
- Arrears clearance and VAT refunds: 2007: 0.4; 2008: 0.6; 2009: 1.8; 2010: 1.5
- Overall balance (including grants): 2007: -5.6; 2008: -8.5; 2009: -5.8; 2010: -7.7
- Net domestic financing: 2007: 0.8; 2008: 2.8; 2009: 4.8; 2010: (figure not listed)
- Gross government debt: 2007: 31.0; 2008: 33.6; 2009: 36.0; 2010: 38.9
- Domestic debt: 2007: 16.0; 2008: 17.4; 2009: 16.6; 2010: 18.6
- External debt (Government debt (net)): 2007: 23.3; 2008: 30.1; 2009: 32.4; 2010: 35.5
- Current account balance (including official transfers): 2007: -8.0; 2008: -10.8; 2009: -4.0; 2010: -7.2
- Gross international reserves (millions of US$): 2007: 2,837; 2008: 2,036; 2009: 3,165; 2010: 4,725
- months of imports of goods and services: 2007: 2.2; 2008: (figure not listed); 2009: 3.2; 2010: (figure not listed)
- Sources and notes included in the PIN:
- Sources: Data provided by Ghanaian authorities; and IMF staff estimates and projections.
- Note 1: Based on new national accounts rebased to 2006.
- Note 2: The 2009 and 2010 real GDP growth figures are official data published after the Article IV documents were finalized.
- Note 3: Percent of broad money (including foreign currency deposits) at the beginning of the period.
- Note 4: Based on GDP estimates for 2009 and 2010 available at the time the Article IV documents were finalized.
Public Information Notice (PIN) No. 11/70 — May 25, 2011 — IMF Executive Board concluded the Article IV consultation with Ghana.