Bailout results begin to show - Ofori-Atta courts public support for reforms
The approval of the International Monetary Fund (IMF) programme has started yielding positive outcomes, the Minister of Finance, Ken Ofori-Atta, has stated and called on all Ghanaians to put their shoulders to the wheel to implement far-reaching reforms.
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He cited the positive outcomes to include decreases in the rate of inflation and treasury bills, improvements in foreign reserve and current account positions, but stressed that “the real work of adjustments, re-alignments and the return to a path of steady economic growth has just begun”.
“Let us brace ourselves for the needed reforms,especially in expenditure control, non-arrears accumulation, revenue growth, ECG collections and Energy Sector reforms, in order to rebuild the walls of the republic with urgency, ”Mr Ofori-Atta added.
The Finance Minister said the reform programme, the Post COVID-19 Programme for Economic Growth (PC-PEG), now supported by the three-year Extended Credit Facility (ECF) arrangement with the IMF, was built on clear targets, strong policy and structural measures.
He pointed out that the programme was to promote a credible fiscal consolidation programme, anchored by strong domestic revenue mobilisation and high spending efficiency.
Mr Ofori-Atta said securing the IMF programme was not an end to the current challenges, though it had significantly paved the way for the implementation of an ambitious and a well-thought-out programme of reform for the economy and country.
Targets
Targets of the programme through to 2028 include taming inflation expectations firmly and preserving financial stability; restoring public debt to sustainable levels by 2028 by observing the two binding constraints of Public Debt (in present value terms) to Gross Domestic Product (GDP) ratio of 55 per cent or less; and an External Debt Service to Revenue ratio of 18 percent or less.
The programme also aims to enhance economic competitiveness, with exports surpassing 37 per cent of GDP in the medium term, while safeguarding social protection and enhancing targeting to ensure effectiveness of key interventions.
Over the medium term, he said the PC-PEG-backed IMF programme sought to promote a credible fiscal consolidation programme, anchored by strong domestic revenue mobilisation and high spending efficiency.
He said the government was targeting a primary surplus on a commitment basis — the critical fiscal anchor under the programme— of 1.5 per cent of GDP by 2025 through to 2028.
Reforms
Giving further update, Mr Ofori-Atta said the programme would also enable the country to minimise fiscal risks including those prosed by state-owned enterprises (SOEs) and also allow for the deepening of structural reforms in targeted sectors, including energy and cocoa.
The Finance Minister said the structural reform agenda was consistent with the government’s own Public Financial Management Strategy to transition from “central government to general government operations”.
“This shift is critical as it facilitates clear oversight over key state institutions (metropolitan, municipal and district assemblies (MMDAs), SOEs, especially the Ghana Cocoa Board (COCOBOD) and the Electricity Company of Ghana (ECG), others in the energy sector and other quasi-state institutions whose operations had a significant and direct fiscal impact on our economy,” the minister explained.
The ministry has established that about 25 per cent of assessed debt burden emanates from non-central government operations, mainly from SOEs such as COCOBOD and those in the energy sector.
“Our ability to institute better governance standards of these institutions to address their liabilities and promote their growth will be significantly improved, especially in this period of collective reform,”Mr Ofori-Atta stated.
He emphasised how crucial it was to remain committed to the agreed wide-ranging and strong structural reforms designed to address structural weaknesses and build resilience in key areas.
The reforms cover tax policy and tax administration, expenditure commitment control and arrears clearance; financial stability, financial sector plans, review of statutory funds, governance and corruption; debt management, fiscal credibility and energy sector/cocoa sector SOEs reformation.
Energy sector
Mr Ofori-Atta insisted that the sector had been prioritised for comprehensive reforms to reduce the financing shortfall in the sector by at least $2.95 billion over the period.
He explained that the legacy debt in the energy sector reached about $2 billion as of the end of last month and an estimated financing shortfall of $5.9 billion between 2023 and 2025, due to the current conditions of SOEs and independent power producers (IPPs) in the value chain in the sector.
By the end of this month, Cabinet is expected to approve the reforms contained in the updated Energy Sector Recovery Plan (ESRP) aimed at reducing losses in the energy sector sustainably.
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The pillars of the reform include implementing decisions such as a framework by the end of this month to guide the granting of energy sector subsidies; an inter-utility debt settlement framework on a quarterly basis and a mechanism to enforce the guidelines of the Cash Waterfall Mechanism (CWM) and Natural Gas Clearinghouse (NGC).
On the cocoa sector, the reforms will reduce and eliminate the annual losses of COCOBOD and its indebtedness.
“The reforms in the cocoa sector include the implementation of a turn-around strategy, to be approved by Cabinet by end-June 2023,” Mr Ofori-Atta said.
“This is expected to address cocoa pricing issues, COCOBOD oversight challenges, introduce cost rationalisation measures and a phase-out of quasi-fiscal spending,” he said.
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Positive impact
Pointing to the positive impact the ECF and the front-loaded fiscal adjustments in the 2023 budget have started having on the economy, Mr Ofori-Atta said inflation, which reached a 22-year high of 54.1 per cent in December last year, had now declined to 42.2 per cent last month ending.
The cedi’s depreciation had also been stabilised largely, with a year-to-date depreciation rate of about 21.9 per cent as of last Friday, down from the 50 per cent recorded in December 2022.
The 91-day treasury bill rate had also declined to 20.6 per cent, down from 35.5 per cent at the end of last year, with Gross International Reserves also improving to $5.7 billion at the end of last month, after the disbursement of the first tranche of $604 million following the approval of the IMF Programme, Mr Ofori-Atta stated.
The current account balance turned positive at 0.9 per cent of GDP at the end of March this year from the negative 2.2 per cent at end of December last year.
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In addition, the trade balance improved from 0.9 per cent of GDP at the end of January this year to 2.2 per cent at the end of April this year.
Come along
Mr Ofori-Atta emphasised that the IMF programme was a crucial foundation for the country's economic stability and growth, adding that it provided support in terms of financing and access to additional resources, which are vital for implementing the necessary reforms.
"While we have made notable progress in our economic recovery, we must remain focused and unwavering in our commitment to reform. This is not a task for the government alone; it requires the active participation of every Ghanaian," Mr Ofori-Atta stated.
The Finance Minister acknowledged the resilience and determination of the Ghanaian people in the face of economic challenges and expressed his confidence in their ability to collectively rebuild the country through the successful implementation of the economic reforms.
While calling on Ghanaians to join hands and work together to ensure the effective execution of the reforms, Mr Ofori-Atta reiterated that by embracing the necessary changes and reforms, the country could create a solid foundation for sustainable economic growth and a brighter future.