Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

IMF Survey : IMF Readies Loan for Ghana to Support Reform Plan

February 26, 2015

  • Ghana’s economic growth expected to slow for fourth straight year in 2015
  • Additional measures adopted to mitigate budget’s oil revenue shortfall
  • Priority is to restore debt sustainability by sustained fiscal consolidation

An IMF staff team in Ghana has reached agreement with the government on a new economic reform program that would be supported by an IMF loan of about $940 million.

Bottling plant in Accra, Ghana, where energy crisis and budget tightening measures are expected to slow growth in 2015 (photo: Reuters/Newscom)

Bottling plant in Accra, Ghana, where energy crisis and budget tightening measures are expected to slow growth in 2015 (photo: Reuters/Newscom)


The loan, which could receive final approval in early April, would back a program aimed at boosting economic growth and tightening fiscal discipline.

Ghana would implement its reform program under a three-year Extended Credit Facility arrangement from the IMF, which is still subject to approval by the IMF’s management and Executive Board. One of the priorities of Ghana’s program is to restore debt sustainability through a sustained fiscal consolidation.

Offshore oil production came on stream in Ghana in 2010, and the slump in world oil prices since mid-2014 has resulted in a shortfall of budget revenue of about 2 percent of GDP. Under its new program, the government has acted to buttress the 2015 budget with additional measures to lower spending ceilings and draw from an oil stabilization fund, to offset the budget’s oil revenue shortfall arising from the recent slump in world oil prices.

Ghana is one of Africa’s frontier emerging markets, having entered the global capital market for the first time in September 2007. Its past wealth lay in gold and cocoa―commodities that have remained in high demand, and which have helped the country weather the recent global recession.

Sustained slowdown

An IMF statement said Ghana’s economic growth rate is expected to slow for a fourth consecutive year in 2015 to 3 ½ percent on the back of a severe energy crisis and the budget-tightening measures. Growth topped 9 percent in 2011, but had been followed by three difficult years characterized by slowing activity, accelerating inflation, and rising debt levels and financial vulnerabilities.

In 2014 economic growth reached its lowest level in many years amid high interest rates, a fast depreciating currency, low aggregate demand, and a deepening energy crisis. Inflation reached 17 percent, well above the central bank’s inflation target. Large fiscal deficits caused by a ballooning wage bill, poorly targeted energy subsidies, and commodity price shocks pushed government debt and financing costs to very high levels.

The main priority of the program is to restore debt sustainability through a sustained fiscal consolidation, and to support growth with adequate capital spending and a reduction in financing costs. The program rests on three pillars.

• Restraining and prioritizing public expenditure with a transparent budget process;

• Increasing tax collection; and

• Strengthening the effectiveness of the central bank monetary policy.

The program explicitly accommodates for the expansion and the safeguard of priority spending, in particular social protection programs.

Ghana’s growth is expected to rebound over the medium term on account of an improved macroeconomic environment and cost effective solutions to address the energy crisis. Inflation should decelerate substantially, while the stronger fiscal consolidation will stabilize the debt ratio to GDP. The external current account deficit is projected to decline which, together with increased donor support, should contribute to start rebuilding reserves.

Better budget transparency

Key elements of the reforms include improving transparency in the budget process to prioritize spending, enhancing revenue mobilization and strengthening fiscal institutions, including through the review of possible fiscal rules. Reviewing fiscal rules has been a focus of ongoing discussions between the Ghanaian authorities and the country’s civil society, which is concerned about fiscal transparency in the budget process.

To strengthen its control on the wage bill and address payroll irregularities, the government has started to detect and remove ghost workers, to secure and unify payroll databases, and to sanction those responsible for fraud. In addition, strict control on new hiring and the reduction in the number of public service agencies will further help contain the wage bill.

Tax administration reforms are under way, and the government also initiated a review of existing tax exemptions with a view to reducing them. Public debt management will continue to be strengthened to ensure that financing needs and payment obligations are met at the lowest possible cost, consistent with a prudent degree of risk.