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IMF Survey : Ghana: The Bumpy Road to Economic Recovery

January 21, 2016

  • IMF approves third disbursement of $114.6 million to Ghana
  • Loan to help with macroeconomic stability, structural reforms to resist shocks
  • Improvements in delivery of electricity expected

The IMF has approved a third disbursement of $114.6 million to help tackle Ghana’s economic recovery.

Farmers break cocoa pods in Ghana’s eastern cocoa town of Akim Akook: The decline in cocoa prices means lower revenues, making adjustment to fiscal imbalances more difficult (photo: Staff/Reuters/Corbis)

Farmers break cocoa pods in Ghana’s eastern cocoa town of Akim Akook: The decline in cocoa prices means lower revenues, making adjustment to fiscal imbalances more difficult (photo: Staff/Reuters/Corbis)


The financing arrangement in place since April 2015, could provide the country with more than $900 million over 3 years to help the country rebound after years of increasing debt, high inflation, and currency depreciation.

Ghana, considered one of West Africa’s most stable democracies, until recently was a model for economic growth. However, the economy has taken a turn for the worse, with growth down from 8 percent in 2012 to 3.5 percent in 2015.

IMF Survey recently caught up with Joel Toujas-Bernate, IMF mission chief for Ghana, to discuss Ghana’s economic challenges and what it would take to get the country back on track.

IMF Survey: Ghana, not so long ago, was one of Africa’s strongest economies. What happened? Why is Ghana seeking help from the IMF now?

Toujas-Bernate: Ghana indeed has been ahead of the curve in Africa for many years. It was the first country in the region to gain independence, and achieved great results in terms of poverty reduction and increasing income levels. But the road has been bumpy at times, and in recent years the economic situation in Ghana has deteriorated quite markedly.

We see a combination of factors explaining this deterioration, including macroeconomic policies, institutions and shocks. On the policy side, in 2012, there was a very large expansion in the fiscal deficit which was mostly driven by a swelling of the wage bill as a result of wage increases and a reform of the pay scale, which was much more costly than what was expected at the time. It was accompanied by increases in other spending and over-optimistic revenue projections. So fiscal deficits almost tripled that year. Monetary policy was also too accommodative. As a result, we have seen a substantial increase in inflation and depreciation of the local currency, which lost 60 percent of its value in the last 2 years.

Institutional rigidities in the public finance system made the subsequent adjustment efforts more difficult. Widespread earmarking of revenues within the budget and large spending conducted by agencies have constrained expenditure reduction. Also, large tax exemptions made reversing revenue shortfall more difficult.

Then, Ghana saw the gold price start to decline at the end of 2012 and energy supply was affected by the impact of lower rainfall on hydroelectric power generations and disruptions to the supply of gas from Nigeria.

All these factors combined resulted in a macroeconomic situation which is much more difficult—high level of debt, high inflation, depreciating currency—and which now needs to be addressed.

IMF Survey: What do you think are the key issues that need to be addressed for Ghana to put its economy back on track?

Toujas-Bernate: The priority is to restore macroeconomic stability. This means making further efforts towards fiscal adjustment, and the Ghanaian authorities have engaged in an ambitious program of fiscal consolidation. These efforts are on track, but there is still a relatively long way to go before the situation is fully back to a sustainable level.

Also, monetary policy needs to continue to be very vigilant to improve the credibility of the central bank, bring inflation down, and stabilize the local currency.

Beyond macroeconomic policies, structural reforms will be very important to improve the resilience of the economy to shocks. Structural reforms, in particular in public finance, also will be important so that gains achieved in fiscal consolidation will be maintained over the medium term and fiscal discipline becomes more entrenched in the coming period.

A third aspect is the resolution of the electricity crisis. There have been widespread electricity shortages in the last few years which have affected private sector activity. The authorities are bringing on board new power producers, which should eliminate these shortages. Also important for this sector are reforms to improve operations and the financial situation of the public companies in order to improve the delivery of power.

These are the three key areas that need immediate attention and efforts.

IMF Survey: How will the global economy, such as it is, affect Ghana’s ability to get that done?

Toujas-Bernate: The external environment has become much less supportive now. We see a global economy that is slowing down and this will weigh on Ghana’s exports. In particular, Ghana is still dependent on those commodities that are seeing a large decline in prices—gold, oil, and now cocoa—which will result in lower export receipts and lower budget revenues, thus making adjustments in the fiscal and external imbalances more difficult.

Also, we see more difficult conditions in the international financial markets. For a country like Ghana, which relies on both international and domestic markets for its public borrowing, this means increased cost of borrowing. So, the current global environment makes things more difficult and it will require very agile macroeconomic management to be able to adapt to these changing and more difficult conditions.

In this context, we very much welcome the further adjustment in the fiscal deficit for 2016 beyond the original program objectives that the Ghanaian authorities have implemented. The authorities, in particular the President, have expressed and shown their commitment to do whatever it takes to put Ghana again on the path towards brighter prospects.