- Ghana has been approved for a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) of the International Monetary Fund (IMF) valued at about US$602.6 million.
The IMF has said the arrangement will go towards supporting the government's economic programme to tackle macroeconomic instability and that the approval will enable an initial disbursement of $105.2 million immediately.
At the conclusion of the IMF’s Executive Board's discussion on Ghana's request for a PRGF arrangement, which was held on 15 July 15, Takatoshi Kato, the Deputy Managing Director and Acting Chair, stated that Ghana’s macroeconomic conditions deteriorated substantially during 2008, reflecting global shocks to food and fuel prices and highly expansionary fiscal policies, in particular in the run-up to the elections.
He also noted that inflation rose to about 20 percent and the current account deficit widened appreciably, putting pressure on Ghana’s international reserves and the exchange rate, further adding that growth is projected to moderate in 2009, with potential additional downside risks stemming from the global recession.
“The authorities’ economic adjustment programme appropriately centers on efforts to re-establish macroeconomic stability. The budget deficit target of 9.4 percent of GDP in 2009, down from 14.5 percent in 2008, is appropriately ambitious. In light of the limited scope for countercyclical fiscal policy in Ghana, the authorities stand ready to take additional measures to achieve their deficit targets in the event of revenue shortfalls,” he said.
According to the IMF, Ghana’s planned reduction of the budget deficit to 4.5 percent of GDP in 2011, and below this level in subsequent years, will be critical to restoring public debt sustainability.
To help achieve this fiscal goal, the IMF said the authorities should ensure that petroleum pricing and utility tariffs allow for full cost recovery to avoid large subsidy costs, also adding that more effective control will also be needed over the public sector wage bill, and that steps should be taken to modernise the tax regime and strengthen collection.
“Oil revenues that are expected to start in 2011 will create important new fiscal space and potentially bring Ghana close to middle-income status. While these revenues can help to support Ghana’s fiscal consolidation, the authorities should not be complacent about the fiscal outlook in 2011 and beyond. The horizon for oil production could prove relatively short, and it will be important that the new revenues be used wisely. Accordingly, high priority should be given to strengthening public financial management under the authorities’ programme,” Mr Kato said.
The IMF has further said that while the monetary policy implementation under the authorities’ inflation targeting framework aims to reduce inflation to single-digit levels by 2010, the Bank of Ghana should be ready to tighten monetary conditions further should conditions warrant.
“Ghana’s financial system has so far been relatively resilient in the face of global developments, but vulnerabilities have emerged following rapid banking sector expansion in recent years, and loan portfolios have deteriorated. The authorities should ensure close supervision and encourage commercial banks to reinforce risk management and corporate governance practices. Gaps in cross border supervision will also require stronger regional collaboration,” noted Mr Kato., adding that efforts should continue to rebuild foreign exchange reserves in order to enhance Ghana’s ability to weather future external shocks.
According to the IMF, Ghana’s growth remained strong in 2008 at 7.3 percent, up from 5.7 percent of GDP in 2007. Since 2000, growth has been supported by significant debt relief, which provided the country with fiscal space to invest in infrastructure, and the social sectors. “Thanks to the combination of higher growth, declining inflation and improved social spending, poverty levels have significantly declined. Ghana is poised to achieve the Millennium Development Goal of halving extreme poverty ahead of 2015,” noted the IMF statement released yesterday.
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