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

IMF News, February 26, 2015

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IMF staff team in Ghana reached agreement with the government on a new economic reform program.
The program would be supported by an IMF loan of about $940 million.
The loan could receive final approval in early April.
Ghana would implement the reform program under a three-year Extended Credit Facility arrangement, subject to approval by the IMF’s management and Executive Board.
One priority of the program is to restore debt sustainability through sustained fiscal consolidation.

Offshore oil production came on stream in Ghana in 2010; the slump in world oil prices since mid-2014 resulted in a shortfall of budget revenue of about 2 percent of GDP.
The government acted to buttress the 2015 budget with additional measures to lower spending ceilings and draw from an oil stabilization fund to offset the oil revenue shortfall.
Ghana entered the global capital market for the first time in September 2007.
Growth topped 9 percent in 2011 but was followed by three difficult years with 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.

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.
The program expects growth 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.
Stronger fiscal consolidation is expected to 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.

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.

Key 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 civil society, which is concerned about fiscal transparency in the budget process.
To strengthen control on the wage bill and address payroll irregularities, the government has started to:
- Detect and remove ghost workers;
- Secure and unify payroll databases; and
- Sanction those responsible for fraud.
Additional measures include strict control on new hiring and reduction in the number of public service agencies to help contain the wage bill.
Tax administration reforms are under way, and the government initiated a review of existing tax exemptions with a view to reducing them.
Public debt management will continue to be strengthened to ensure financing needs and payment obligations are met at the lowest possible cost, consistent with a prudent degree of risk.

IMF Survey, February 26, 2015.