The International Monetary Fund (IMF) has approved an amount of $94.2 million for Ghana. This brings the total disbursements under the arrangement to $565.2 million with the remainder being tied to the remaining reviews.
The IMF Executive Board announced this after it completed its fourth review under the Extended Credit Facility (ECF), and Programme Extension; and Concludes 2017 Article IV Consultation with Ghana.
The EFC programme aims to restore debt sustainability and macroeconomic stability in the country to foster a return to high growth and job creation, while protecting social spending.
The board also approved Ghana’s request for waivers of non-observance of performance criteria and modification of one performance criterion, as well as the extension of the arrangement by one year.
According to a release posted on the website of the IMF, “Ghana’s three-year arrangement for about US$918 million or 180 per cent of quota at the time of approval of the arrangement, was approved on April 3, 2015.”
“It aims to restore debt sustainability and macroeconomic stability in the country to foster a return to high growth and job creation, while protecting social spending,” the release said.
The Deputy Managing Director and Acting Chair, Mr Tao Zhang, said “Ghana’s macroeconomic performance over the years has been mixed. Policy slippages have compounded the adverse impact of shocks and resulted in significant external and domestic imbalances.”
He further noted that “the new government has committed to macroeconomic stability, fiscal discipline and an ambitious reform agenda; decisive implementation of these policies and reforms would allow Ghana to reap its economic potential and achieve higher and more inclusive growth rates. These efforts will be supported by the continued implementation of the ECF programme.”
“The authorities have taken some encouraging steps and the economy is showing signs of recovery. As risks remain tilted to the downside, careful fiscal management will be required to achieve the 2017 programme targets and reverse the unfavourable debt dynamics. Additional efforts are needed to address revenue shortfalls, while expenditure control measures should be fully enforced to contain current spending and prevent the recurrence of domestic arrears. Ongoing fiscal consolidation and implementation of the medium-term debt management strategy will be key to further reducing domestic refinancing risks”, he said.
“Fiscal consolidation efforts will need to be anchored in wide-ranging structural fiscal reforms, so that consolidation gains can be sustained over the medium term. These include measures to broaden the tax base and enhance tax compliance and public financial management, especially considering the large unpaid commitments accumulated in 2016.
According to him, “The authorities should tackle energy sector inefficiencies, particularly improving the management of the state-owned enterprises (SOEs). Ongoing debt restructuring efforts are helpful but are no substitute to stemming the SOEs’ ongoing financial losses and put them on a sustainable financial path.’’
“As inflation continues to decelerate, the Bank of Ghana (BoG) should remain vigilant in order to bring inflation back to target. The BoG should continue to strengthen the credibility of the inflation-targeting framework, which would benefit from efforts in the development of the foreign exchange market. The central bank should also continue its policy on zero financing of the government”, he added.
He further noted that “the authorities have made significant progress in the implementation of the banking system road map, in particular through the approval of time bound recapitalisation plans for banks found to be undercapitalised, and the resolution of two insolvent banks. Further steps to strengthen the supervisory and regulatory framework, reduce outstanding liquidity assistance and buttress the microfinance sector will help build a more robust financial sector that is well positioned to support growth and promote financial inclusion.”
The Executive Board, the release said the institution also completed the 2017 Article IV Consultation with Ghana.
“Ghana has shown mixed macroeconomic performance in recent years, with significant shocks being amplified by policy slippages and resulting in external and domestic imbalances. Growth in 2016 was 3.5 per cent, the lowest level in two decades,” the release said.
It said a recovery of growth was expected in 2017-18, owing to an increase in oil production, declining inflation and lower imbalances with the right policy implementation.
“Following a sizeable fiscal slippage in 2016, the authorities are targeting a significant fiscal consolidation in 2017, which will require sustained revenue collections and spending controls. Inflation has continued to decline and the exchange rate has been broadly stable. The external position has continued to improve, supported by strong foreign investors’ participation in the domestic debt market,” the release said.
Executive board assessment
The release also noted that the executive directors agreed with the thrust of the staff appraisal.
They commended the corrective actions taken by the new government to bring the programme back on track following the large fiscal slippages in 2016.
However, the directors noted that Ghana faced long-standing challenges, including exposure to external shocks, budget rigidities and economic inefficiencies, which have amplified the impact of past policy slippages on domestic and external imbalances.
They emphasised that strong implementation of programme policies and reforms was critical to address the risks and secure macroeconomic stability.
Directors stressed the need for prudent fiscal adjustment and welcomed the targeted efforts being made to reverse the debt dynamics and reduce financing needs. They underscored that efforts are needed to address revenue shortfalls, while enforcing expenditure control measures to contain current spending and prevent the recurrence of domestic arrears accumulation.
They also stressed that credible fiscal consolidation and implementation of the medium-term debt management strategy would be key to further reducing domestic refinancing risks.
Addressing the shortcomings in spending controls, they said that would be essential to deliver lasting adjustment and anchor the credibility of the government’s budget policies.
The directors emphasised the need to tackle energy sector inefficiencies, particularly improving the management of the state-owned enterprises (SOEs) and also advised that ongoing debt restructuring efforts are helpful but are no substitute to stemming the SOEs’ financial losses.
They also emphasised that wide-ranging structural reforms remain important for achieving higher and inclusive growth. They highlighted that the reform effort should include further enhancing the business environment, improving infrastructure, including tackling the inefficiencies in the energy sector, and improving access to finance. It is expected that the next Article IV consultation with Ghana will take place in accordance with the Executive Board Decision on consultation cycles for members with Fund arrangement.