IMF staff on consultation with Ghanaian authorities has advised that the immediate priority is to ensure fiscal discipline, by targeting a budget deficit sufficient to place public debt on a clearly declining path.
By Alpha Bedoh Kamara
The team visited Accra during April 3-13, 2017 to conduct the Article IV consultation and discussions on the fourth review under the Extended Credit Facility
“The authorities’ initial steps are promising, but more is needed. Resolving Ghana’s longstanding challenges demand ambitious and sustained reforms across key policy areas, going beyond central government’s operation to focus on the broader public sector. More transparency and accountability, especially in the energy sector, will help reduce the drain on public resources, tackle inefficiencies, and send a credible signal about the government’s commitment to lasting change,” the team stated, adding that the financial system is overall adequately capitalized, though addressing weaknesses in some banks and microfinance institutions is necessary to improve the availability and affordability of credit to the private sector.
Overall, Ghana’s GDP growth is expected at about 6 percent in 2017, reflecting a strong increase in oil production, against the backdrop of the contractionary impact of the budgeted fiscal adjustment.
Inflation is on a declining trend and projected to fall to the upper bound of the Bank of Ghana (BoG)’s target by year-end. Following the recent sizable FX inflows, the government plans to add $700 million to its net reserves in 2017, the largest increase since 2011 when oil production started.
The team however noted that significant challenges remain. The sizable fiscal slippage in 2016 (a budget deficit of 8.7 percent of GDP, more than 3 percent of GDP above target) has further undermined debt sustainability and increased Ghana’s reliance on foreign investors to fund its large gross financing needs, with possible pressures on the exchange rate if financing conditions deteriorate.
Also that significant unpaid commitment incurred in 2016 (now being audited) and weaknesses in the financial position of state-owned enterprises (SOEs) in the utility sector could give rise to additional spending needs. And while the financial system is overall adequately capitalized, weaknesses in some banks and microfinance institutions could hamper credit growth and investment and create contingent liabilities for the government.