A team from the International Monetary Fund (IMF), led by Joël Toujas-Bernaté, visited Accra during June 17−30, 2015 to conduct discussions on the first review of Ghana’s financial and economic program supported by the IMF’s Extended Credit Facility (ECF). The discussions covered the implementation of the program, the medium-term outlook as well as the policies needed to restore debt sustainability, macroeconomic stability and a return to high growth and job creation, while preserving social protection spending.
Mr. Toujas-Bernaté released the following statement at the end of the mission:
“The program is on track, with all performance criteria met except for the ceiling on central bank financing to the government which was technically missed by a small margin. The mission welcomes the commitment reiterated by the authorities to the ambitious fiscal consolidation and structural reforms program, in particular in addressing payroll irregularities, enhancing public finance management and transparency and liberalizing the oil distribution sector. The team notes, however, that more needs to be done to further enhance tax administration and eliminate tax exemptions to improve the revenue performance over the medium term.
“Economic growth in 2015 is expected to remain broadly as expected (around 3 ½ percent), with low cocoa and gold production but increasing hydrocarbon production. We welcome the authorities’ efforts to address the electricity shortages, which have been weighing on economic activity, by bringing new private financed power plants in the coming months. This will be critical to support a rebound in growth next year. However, inflation remains higher than expected on the back of a larger than projected depreciation of the cedi and rising oil prices.
“Fiscal consolidation is on track as of end-April, even excluding the payment of dividend by Bank of Ghana (about 0.4 percent of GDP) in March. Good revenue performance and containment of the wage bill and other spending as programmed contributed to this positive outcome. No new arrears were accumulated in the review period and past arrears were repaid as planned. With higher projected oil revenues, the overall cash deficit is expected to be slightly lower than programmed for the year as a whole. Additional revenue above the budget projections will help cover additional spending related to the recent flooding and larger arrears clearance, as additional arrears as of end-2014 were identified in audits of claims from oil importers and reviews of cross debts among utility companies. The success of the program critically hinges on continued spending moderation, in particular the wage bill with stricter control of the payroll being put in place, and renewed efforts to improve revenue collection. Making public the strategy for the 2016 budget and wage negotiations consistent with this framework will go a long way in restoring market confidence and lowering financing costs.
“Bank of Ghana has taken significant steps to improve the effectiveness of its monetary policy framework and in moving the policy rate towards the interbank market rates. The mission welcomes the resolve of the central bank to take additional measures as needed to bring inflation down towards its medium term target, which would also contribute to stabilizing the cedi. Budget support from development partners (which has started to be disbursed), the financing of the next cocoa crop, the new Eurobond and the gradual switch to gas in the production of electricity should also reduce pressures on the foreign exchange market and allow the central bank to rebuild its external reserves to a higher level than programmed by year-end.
“The IMF Executive Board is tentatively expected to consider the review in August, following finalization of the required documentation.
“The mission met with President Mahama; Finance Minister Seth Terkper; Bank of Ghana Governor Kofi Wampah; Dr. Kwesi Botchwey, Chairman of the National Development Planning Commission; the Finance Committee of the Parliament, other senior officials, representatives of civil society and the donor community. The mission team wishes to thank the authorities for their hospitality, the excellent collaboration, and the high-quality discussions.
International Monetary Fund (IMF)
30th June 2015
Photo: UNHCR/L. Dobbs