IMF Staff Concludes Visit to Ghana

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At the request of the Ghanaian authorities, an International Monetary Fund (IMF) mission led by Mr. Joël Toujas-Bernaté initiated discussions on a possible program of economic reforms that could be supported by the IMF. The mission met with President Mahama; Vice-President Kwesi Amissah-Arthur; Dr. Kwesi Botchwey, Chairman of the National Development Planning Commission; Finance Minister Seth Terkper; Minister of Gender, Children and Social Protection Ms. Nana Oye Lithur; Bank of Ghana Governor Kofi Wampah; other senior officials, and representatives of the private sector, the donor community and civil society.

Mr. Toujas-Bernaté made the following statement at the end of this visit:

“Ghana continues to face significant domestic and external vulnerabilities on the back of a large fiscal deficit, a slowdown in economic growth and rising inflation. These vulnerabilities are putting Ghana’s medium-term prospects at risk. The mission estimates growth to decelerate to 4 ½ percent in 2014, from 7.1 percent in 2013, and inflation to reach an average of around 15 percent for the year. The fiscal deficit is expected to remain elevated at around 9 ¾ percent of GDP, driven by weak revenue performance, a large wage bill and substantially rising cost of debt service. The external current account deficit is projected to narrow to 10 percent of GDP, as imports declined substantially due to slower growth and a large depreciation of the currency, while export performance remained weak. The currency weakened sharply through August, before recovering very recently. In September, the issuance of a US$1 billion Eurobond and the Cocoa Board (Cocobod) successfully raising US$1.7 billion for the financing of a projected excellent cocoa crop were positive developments. Nonetheless, gross international reserves will remain at a low level.

“The mission had constructive and candid discussions with the authorities who showed an appreciation of the risks associated with these imbalances and vulnerabilities. The authorities identified earlier this year a set of measures designed to put the country back on track, while preserving growth momentum. While important, these measures have not managed to turn the financial situation around as a result of some implementation delays which have set back the objectives of putting public debt on a more sustainable path and reducing inflation. The authorities expressed their intent to prepare and implement additional upfront measures building on ongoing broad consultations.

“The conclusions of the last Article IV consultation (see Press Release No. 14/221) remain valid. A more ambitious and front loaded fiscal consolidation is needed to help place public debt on a sustainable path, and to allow monetary policy to be more effective in bringing down inflation, including by strictly limiting budget deficit financing by the Bank of Ghana. Front loaded adjustment should be realized through reductions in Ghana’s comparatively high public sector wage costs, the elimination of costly and untargeted subsidies for energy and petroleum products, and a better prioritization of capital spending. On the revenue side, reduction of tax exemptions and strengthened revenue administration through a better targeting of large taxpayers appear necessary. At the same time, it will be important to expand well targeted social protection programs to mitigate the potential impact of fiscal consolidation measures on the most vulnerable groups of the population. In the medium term, structural reforms and institutional changes will be key to sustainable fiscal consolidation and lasting expenditure discipline.

“Discussions on a possible program that could be supported by the IMF will continue in Washington during the Annual Meetings. “