Develop confidence in economy despite IMF reservations - Terkper

The Minister of Finance, Mr Seth Terkper, has asked Ghanaians to develop confidence in the Ghanaian economy as the outlook in the medium term still looks good despite the challenges.

He said the government was aware of the challenges raised by the International Monetary Fund (IMF) after its engagement with the fund recently but indicated that the next round of negotiations between Ghana and the IMF would be based on the positive outlook.

The IMF has estimated that Ghana’s economic growth will reduce from 7.1 per cent in 2013 to 4 .5 per cent in 2014, while inflation will average around 15 per cent for the year.

Similarly, fiscal deficit will remain high at around 9.75 per cent of Gross Domestic Product (GDP), driven by weak revenue performance, a large wage bill and substantially rising cost of debt service.

An IMF mission led by Mr Joël Toujas-Bernaté was in Ghana to initiate discussions on a possible programme of economic reforms that could be supported by the fund.

In a telephone interview with the Daily Graphic from Washington, Mr Terkper reiterated the need for Ghanaians not to feel despondent because all discerning people could see the modest gain that had been chalked up in recent times.

He said the infusion of $1 billion Eurobond and $1.7 billion cocoa syndication, coupled with the Bank of Ghana policies, had helped to stabilise the cedi against the major currencies.

He said the increase in the price of cocoa and the stabilisation of gold price have also helped in the improvement of the value of the cedi.

According to Mr Terkper, long before the arrival of the IMF team to begin negotiations with Ghana, the government had initiated policies, particularly home-grown plans of action to stabilise the economy.

He said the issues raised by the IMF were not new to the government and gave the assurance that these challenges would not keep repeating themselves in the  next two to three years. 

“The erratic supply of gas from the West Africa gas pipeline has been corrected, the strike that hit the company has also come to an end and hopefully pretty soon, when our own gas supply comes on stream, Ghanaians shall enjoy stable power”, he said.

In addition, he said, it is expected that between 2015 and 2017, the TEN and Sankofa oil fields will top up gas from the oil fields that will result in the expansion of the present gas project.

He noted that the period of the IMF programme will witness positive developments in the economy as the measures being taken would yield fruitful results. 

He said the challenges of the Single Spine Pay Policy are being addressed; the services sector is expanding, agriculture is picking up and with income from cocoa and gold, the economy is on its way to a quick rebound. 

Mr Terkper said Ghana will leverage the positive economic outlook at the next stage of its negotiations with the IMF. 

He reiterated that notwithstanding the recent setbacks, especially with the  fall in the value of the cedi, Ghanaians should not take a negative attitude towards the economy.

In the statement by the IMF at the end of its mission, Mr Toujas-Bernaté, said Ghana continued to face significant domestic and external vulnerabilities on the back of a large fiscal deficit, a slowdown in economic growth and rising inflation.

He said the external current account deficit was projected to narrow to 10 per cent of GDP, as imports declined substantially due to slower growth and a large depreciation of the currency, while export performance remained weak.

The currency weakened sharply through August, before recovering very recently.  In September, the issuance of a $1 billion Eurobond and the Ghana Cocoa Board (COCOBOD) successfully raising $1.7 billion for the financing of a projected excellent cocoa crop were positive developments. Nonetheless, gross international reserves will remain at a low level.

“The mission had constructive and candid discussions with the authorities who showed an appreciation of the risks associated with these imbalances and vulnerabilities. The authorities identified earlier this year a set of measures designed to put the country back on track, while preserving growth momentum,” he said.

He said while important, those measures had not managed to turn the financial situation around as a result of some implementation delays, which have set back the objectives of putting public debt on a more sustainable path and reducing inflation.

The authorities expressed their intent to prepare and implement additional upfront measures building on ongoing broad consultations.

The statement said a more ambitious and front-loaded fiscal consolidation was needed to help place public debt on a sustainable path, and to allow monetary policy to be more effective in bringing down inflation, by strictly limiting budget deficit financing by the Bank of Ghana.

It said front-loaded adjustment should be realised through reductions in Ghana’s comparatively high public sector wage costs, the elimination of costly and untargeted subsidies for energy and petroleum products, and a better prioritisation of capital spending.

On the revenue side, the statement suggested the need for the reduction of tax exemptions and strengthening revenue administration.

The statement said it would be important for the country to expand well-targeted social protection programmes to mitigate the potential impact of fiscal consolidation measures on the most vulnerable groups of the population.

In the medium term, structural reforms and institutional changes would be key to sustainable fiscal consolidation and lasting expenditure discipline.

Discussions on a possible programme that could be supported by the IMF would continue in Washington during the annual meetings.

The mission met with President John Dramani Mahama; Vice-President Kwesi Amissah-Arthur; Dr Kwesi Botchwey, Chairman of the National Development Planning Commission; Finance Minister, Seth Terkper; Minister of Gender, Children and Social Protection, Nana Oye Lithur; Bank of Ghana Governor, Dr Kofi Wampah; other senior officials, and representatives of the private sector, the donor community and civil society.