Ghana needs to improve revenue collection and can’t keep reducing spending on capital items to achieve its fiscal targets, the International Monetary Fund said.
That’s one of the recommendations made by the Washington-based lender during a review of the nation’s $1 billion extended credit-facility program, country representative Natalia Koliadina said. Under the plan that started in April 2015 and is due to end in December, Ghana committed to implementing reforms to rein in chronic overspending and improve economic governance.
“Fiscal consolidation has to be revenue-based,” Koliadina told reporters in the capital, Accra. “Further spending cuts are not sustainable as government capital spending is already low at 3 percent of gross domestic product.”
While Ghana missed its revenue target for 2017, it met fiscal-consolidation goals, with the budget deficit declining to 5.9 percent of gross domestic product, she said. The gap was 8.7 percent of GDP the year before, government data show.
The state, which hasn’t borrowed from the central bank to finance the budget since 2016, must continue to support the goal of bringing down inflation to 8 percent in the medium term, and also continue to stabilize the exchange rate, Koliadina said. Ghana’s inflation rate fell to 10.3 percent in January.
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Efforts by the Bank of Ghana to resolve weaknesses in the financial industry and lower non-performing loans are welcome and should continue because they will help to trim private-sector borrowing costs, she said. NPLs increased 43 percent to 8.6 billion cedis ($726 million) at end-December from a year earlier, according to the central bank.
The IMF supports Ghana’s plans to issue $1 billion of Eurobond this year because it would help the authorities to refinance more costly domestic debt. It also agrees with Ghana’s goal to further reduce the fiscal deficit to 4.5 percent of GDP in 2018, because this will result in a primary surplus of 2 percent of GDP and means meeting interest payments on debt without having to borrow, she said.
“Eliminating the risk of debt distress requires that only priority projects are financed through external borrowing on market terms,” Koliadina said.
IMF staff and the Ghanaian authorities will use the coming weeks to reach an understanding on measures being put in place to continue fiscal discipline and structural reforms, focusing on sound public financial management before the IMF board’s meeting in April.
A positive outcome of the fifth and sixth reviews of the program will lead to the IMF disbursing $190 million to Ghana, Koliadina said.