The International Monetary Fund (IMF) is hopeful about Ghana’s return to economic prosperity as the government maintains strict fiscal discipline ahead of the presidential and parliamentary elections in December.
With less than two months to the December polls, the IMF says economic recovery appears attainable, as the government has stayed within spending limits and managed its debts in more manageable ways.
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The Director of the African Department of the IMF, Mr Selassie Abebe, told the Daily Graphic on the sidelines of the ongoing IMF/World Bank annual meetings in Washington, DC, USA, that the government was far within the limits set.
“Although the revenue base is very weak, we are encouraged that the spending limits are being contained,” he said, adding: “The numbers give us optimism, but our focus is always going to be conditional.”
“So given the significant adjustment that is taking place in Ghana, growth has been in order of four per cent, which is somehow encouraging, and going forward, we’d like to see a 5.5 per cent growth in the medium term,” he noted.
IMF third review
The IMF said in its last review that the government had been sticking to the terms of the IMF extended credit facility (ECF) programme that provided US$918 million of balance of payment (BoP) support aimed at restoring economic balance and curbing the deficit.
So far, the IMF has acknowledged the progress made by the government in restoring macroeconomic stability, but highlights some likely risks associated with election-related expenditure which, if not controlled, could derail the country’s economic strides.
During the previous election in 2012, hikes in civil service wages, rising subsidies and shortfalls in revenue, especially from crude oil exports, largely caused the deficit to mushroom, triggering a fiscal concern that the government is still working to overcome with the aid of the IMF, the World Bank and the African Development Bank (AfDB).
The fiscal challenges, coupled with the harsh external environment, such as the fall in global commodity prices and disruption in gas supply from Nigeria, have sharply slowed growth in the country, whose economy is based on the export of gold, cocoa and oil and which, for years, has been considered one of Africa's most promising.
However, President John Mahama has allayed fears of election-related over-expenditure when he vowed in his State of the Nation Address to Parliament in February and at the Trades Union Congress (TUC) that his administration would exercise strict fiscal discipline this year to transform the negative narrative of Ghana.
“I have assured the nation and our partners that my administration will exercise strict fiscal discipline, even in this election year, in order that we can transform this negative narrative of our country,” he said.
Less than two months to the elections, the IMF says the government is on course to getting through an election year without triggering a fiscal crisis.
The government also boasts of slowing the public debt to GDP ratio from 72 per cent in December 2015 to 65 per cent in July 2016.
This is significantly lower than the projection of over 90 per cent barely a year ago which had been predicted could take the country back to HIPC.
The slow down in debt accumulation is due to a declining budget deficit and exchange rate stabilisation.
The Finance Minister, Mr Seth Terkper, in an interview with the Daily Graphic in Washington, DC, USA, said the decline in public debt was as a result of the deliberate and pragmatic measures pursued by the government to reduce debt accumulation.
He emphasised that the debt to GDP ratio was expected to reduce further from 2017, as the economy moved from consolidation and recovery phases to accelerated growth.
“We are nowhere near a full-blown financial and economic crisis,” he noted, adding that “the implementation of the debt management initiative, which includes the on-lending and escrow arrangements, the sinking fund and the limit on borrowing and issuance of guarantees to support the government’s refinancing agenda have significantly reduced vulnerabilities in the public debt portfolio”.
Ghana’s economy grew by 3.9 per cent last year, against a target of 3.5 per cent and an outturn of four per cent in 2014.
Non-oil GDP growth, on the other hand, inched up slightly to 4.1 per cent in 2015 from 4.0 per cent in 2014, which is above the IMF’s 2015 growth projection of 3.5 per cent overall GDP and 2.9 per cent for non-oil GDP.
On the fiscal side, the deficit is expected to decline to a revised 5.0 per cent of GDP by the end of this year (against an original 5.7 per cent of GDP) and progressively reduced to 3.0 per cent of GDP by 2018.