IMF Survey : Ghana Gets $918 Million IMF Loan to Back Growth, Jobs Plan
IMF News, April 3, 2015
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- Published: April 3, 2015
Overview
- IMF Executive Board approved a $918 million loan to Ghana under the IMF’s Extended Credit Facility.
- Financing package extends over three years and backs a reform plan agreed in principle by an IMF staff team in February.
- Publication date: April 3, 2015.
Economic context and key risks
- Ghana entered the global capital market for the first time in September 2007.
- The country started oil production from offshore wells in 2010.
- Growth dynamics:
- Economic growth rate topped 9 percent in 2011.
- Growth decelerated markedly in 2014, to an estimated 4.2 percent, driven by a sharp contraction in the industrial and service sectors.
- Inflation and monetary conditions:
- Policy interest rates were hiked in 2014, bringing them to 21 percent.
- Headline inflation reached 17 percent at end-2014, above the 8 +/- 2 percent official target range.
- Main risks to prospects:
- Large fiscal and external imbalances.
- Electricity shortages that contributed to slowing activity.
- Currency depreciation that increased input costs and harmed domestic demand.
Main objectives of the reform program
- Restore macroeconomic stability to boost growth and reduce poverty by:
- Tighter fiscal discipline.
- Strengthened public finances.
- Slowing inflation.
- Support faster growth and job creation while protecting social spending.
Main pillars of the reform program
- A sizeable and frontloaded fiscal adjustment to restore debt sustainability, focusing on:
- Containing expenditures through wage restraint and limited net hiring.
- Measures to mobilize additional revenues.
- Structural reforms to strengthen public finances and fiscal discipline by:
- Improving budget transparency.
- Cleaning up and controlling the payroll.
- Right-sizing the civil service.
- Improving revenue collection.
- Restoring the effectiveness of the inflation targeting framework to help bring inflation back into single digit territory.
- Preserving financial sector stability.
Fiscal measures, expected macro effects, and sequencing
- Fiscal strategy:
- Expand revenue collection.
- Restrain the wage bill and other primary expenditures.
- Make space for priority spending and for clearing all domestic arrears.
- Macroeconomic transmission and outlook:
- Reform measures are expected to dampen non-oil growth initially in 2015 ahead of a projected growth rebound in subsequent years.
- Government projects an economic growth pickup to start in 2016, driven by expected large increases in Ghana’s hydrocarbon production.
- Lower inflation and interest rates, combined with a more stable exchange rate, would help support private sector activity.
- Increased oil exports and lower oil imports on the back of domestic gas production would help improve the current account and support reserves over the medium term.
Social protection and distributional considerations
- Government committed to safeguard social and other priority spending under the program.
- Part of the fiscal space created by the adjustment is to be used to expand targeted social safety nets.
- Social programs will be expanded to:
- Restore real incomes of the poor after three years of high inflation.
- Mitigate the adverse impact of fiscal consolidation.
IMF Survey : Ghana Gets $918 Million IMF Loan to Back Growth, Jobs Plan — April 3, 2015