Statement at the Conclusion of an IMF Mission to Ghana

Statement at the Conclusion of an IMF Mission to Ghana, Press Release No. 10/117, March 26, 2010

A mission from the International Monetary Fund (IMF) led by Peter Allum, visited Accra during March 15-26, 2010. The mission conducted discussions for the first and second reviews under the IMF’s Extended Credit Facility. The mission met with Finance Minister Kwabena Duffuor, Bank of Ghana Governor Kwesi Amissah-Arthur, other senior officials, members of the Parliamentary Finance Committee, and representatives of the private sector, academia, and civil society organizations.

At the end of the mission, Mr. Allum, mission chief for Ghana, issued the following statement:

“Discussions during the mission focused on recent economic performance, near-term challenges, and the policy framework for 2010 and the medium term. Good progress was made in identifying the policies for completion of the first and second reviews under the IMF’s Extended Credit Facility agreement with Ghana. Discussions will continue on the mission’s return to Washington on a few remaining issues ahead of a possible meeting of the IMF’s Executive Board to complete the reviews by end-May 2010.

“The IMF estimates that the economy expanded by 3-4 percent in 2009, notwithstanding the global financial crisis, as cocoa and gold exports remained strong. This is down from 7.3 percent in 2008, a year of highly expansionary fiscal policies that destabilized the economy. For 2010, a modest upturn in growth to the 4-5 percent range is projected, boosted by investments linked to the offshore oil sector, which will come on stream in 2011.

“Inflation slowed to 14 percent in February 2010 from 20-21 percent in the first half of 2009, and a further decline to single digits by end-2010 is projected. With a sharp downturn in imports, the external current account recorded its smallest deficit in five years, and the Ghanaian cedi has strengthened against the dollar since July 2009. International reserve cover rose to 3.0 months of imports of goods and services at end-2009, up from 2.0 months of import cover at end-2008.

“Fiscal management remains Ghana’s main challenge. The budget deficit was reduced to 9.7 percent of GDP in 2009, in line with program targets. However, the deficit would have been substantially larger, but for new domestic expenditure arrears of about 4 percentage points of GDP (similar in magnitude to the domestic expenditure arrears accumulated in 2008). For 2010, IMF staff supports the government’s revised deficit target of 8 percent of GDP, and welcomes plans to further reduce the deficit to 3-5 percent of GDP in 2011-12, buoyed by oil-related revenues of 5 percentage points of GDP or more. Under these projections, public debt would rise to 62 percent of GDP at end-2010 before declining in 2011-12 as the fiscal deficit is reduced.

“There is little room for maneuver within these budget plans. Expenditure ceilings are tight, and the majority of Ghana’s accumulated domestic expenditure arrears equivalent to 7 percent of GDP will be repaid only in 2011-2012. To avoid costly budget subsidies, an early decision on the recommended electricity tariff adjustment before the Public Utilities Regulatory Commission is needed.

“Good progress has been made in the first year of Ghana’s program to strengthen fiscal institutions. A consolidated Ghana Revenue Authority (GRA) has been established, and a project to improve budget processes and computerize Ghana’s public financial management is underway. Progress in addressing Ghana’s high public administration costs, which exceed levels in peer countries, has been less rapid, and care will be needed in implementing the new public pay structure to ensure that it does not exceed budget provisions for staffing costs.

“Looking ahead to 2011, Ghana’s main challenges relate to its move to oil producer status. The pending oil and gas revenue management bill is expected to ensure that petroleum revenues and related spending are transparently reflected in the budget. Managing expectations regarding the likely fiscal space for new programs and projects will also be important. Given the need to repay expenditure arrears while also reducing the fiscal deficit, the initial scope for spending from oil revenues could be relatively modest.

“Last, the mission discussed the implications of the rebased national accounts. These are expected to show an upward revision of at least one-quarter to the estimated size of Ghana’s economy and its per capita incomes. The mission noted that the new data will improve some core measures of macroeconomic performance—for example, the fiscal deficit and public debt as a share of GDP. But the challenges in financing the fiscal deficit will remain unchanged. Indeed, the ratio of tax collections to GDP will be lower on the new accounts. Accordingly, the new data do not reduce the importance of continued reduction in Ghana’s budget deficit.”