The International Monetary Fund (IMF) has approved a credit facility of $918 million for Ghana to support its medium-term economic reform programme.
The facility, which will be disbursed over a three-year period, is expected to restore the country’s debt sustainability and macroeconomic stability to foster a return to high growth and job creation and protect social spending.
A statement issued last Friday by the IMF said “the Executive Board of the International Monetary Fund today (April 3) approved a three-year arrangement under the Extended Credit Facility (ECF) for Ghana in an amount equivalent to SDR 664.20 million (180 per cent of quota or about US$918 million) in support of the authorities’ medium-term economic reform programme.
Immediate disbursement
“The programme aims to restore debt sustainability and macroeconomic stability to foster a return to high growth and job creation, while protecting social spending. The Executive Board’s decision will enable an immediate disbursement of SDR 83.025 million (about US$114.8 million).”
At the conclusion of the Executive Board's discussion, Deputy Managing Director and acting Chairman, Mr Min Zhu stated: “After two decades of strong and broadly inclusive growth, large fiscal and external imbalances in recent years have led to a growth slowdown and are putting Ghana’s medium-term prospects at risk. Public debt has risen at an unsustainable pace and the external position has weakened considerably.”
In August 2014, the government decided to seek assistance from the IMF to rescue the country from further economic downturn after the value of the local currency had fallen to about 40 per cent against the US dollar.
“The government has embarked on a fiscal consolidation path since 2013, but policy slippages, exogenous shocks, and rising interest costs have undermined these efforts. Acute electricity shortages are also constraining economic activity,” Mr Zhu said.
He said the new programme, anchored on Ghana’s shared growth and development agenda, aimed at strengthening reforms to restore macroeconomic stability and sustain higher growth.
The main objectives of the programme are to achieve a sizeable and frontloaded fiscal adjustment while protecting priority spending, strengthen monetary policy by eliminating fiscal dominance, rebuild external buffers, and safeguard financial sector stability.
Economic reform programme
The government’s three-year economic reform programme seeks to support growth and help reduce poverty by restoring macroeconomic stability through an ambitious and sustained fiscal consolidation, a prudent debt management strategy with improved fiscal transparency, and an effective monetary policy framework.
The programme foresees a pick-up in economic growth, starting in 2016, supported by expected increases in hydrocarbon production. Lower inflation and interest rates, combined with a stable exchange rate environment will help support private sector activity. Increased oil exports and lower oil imports on the back of domestic gas production will support the improvement in the current account, which together with the surpluses on the financial and capital account, will help build up gross reserves to a more adequate level over the medium term.
Others are structural reforms to strengthen public finances and fiscal discipline by improving budget transparency, cleaning up and controlling the payroll, right-sizing the civil service, improving revenue collection and restoring the effectiveness of the inflation targeting framework to help bring inflation back into single digit territory.
Projections
The envisaged fiscal consolidation is projected to further dampen non-oil economic growth initially and reduce inflation in 2015, but growth is expected to rebound in the following years.
It is also expected that a non-oil Gross Domestic Product (GDP) growth would decelerate further to 2.3 per cent in 2015 before picking up in the following years, reaching 5.5 per cent by 2017.
On the fiscal side, the programme seeks to expand revenue collection, restrain the wage bill and other primary expenditures, while making space for priority spending and for clearing all domestic arrears.
Despite lower projected oil revenues, the programme aims at turning the primary balance from a deficit of 3.7 per cent in 2014 into a surplus of 0.9 per cent of GDP in 2015 and 3.2 per cent of GDP in 2017.
“Achieving key fiscal objectives will require strict containment of expenditure, in particular of the wage bill and subsidies. The government’s efforts to mobilise additional revenues will also help create more space for social spending and infrastructure investment, in particular in the energy sector.
“The government is rightly adjusting expenditures further to mitigate the shortfall in oil revenue and avoid a larger debt build-up. Moreover, a prudent borrowing strategy will be needed to ensure that financing needs are met at the lowest possible cost,” Mr Zhu said.
Ministry of Finance
Responding to the approval, the Minister of Finance, Mr Seth Terkper ,in a statement, said the objectives as well as policy measures underlying the programme were consistent with the government’s home-grown Programme and the 2015 Budget.
It said the programme sought to restore debt sustainability and macroeconomic stability to foster a return to high growth and job creation through agriculture and infrastructure investment, while protecting social spending.
“In addition, a number of ongoing and enhanced structural reforms, including new ones, will be implemented under the programme. The structural reforms are mainly in the areas of revenue administration, tax policy, public financial management, payroll and human resource management, public sector reforms, debt management, and supervision and regulation of the financial system. Furthermore, initiatives to strengthen institutions, notably GIIF, Sinking Fund and EXIM are included in both the Budget and the programme,” the statement said.
It said the government expected that the programme would boost grant disbursements from development partners, improve macroeconomic stability, help support the credibility of the government’s policy and boost investor confidence in the economy.
The statement said the IMF Programme would be implemented over a period when the short-to-medium term prospects for the economy remained strong, supported by potential for further oil and gas exploration and production, further expansion of the services sector, potential for increased FDI, as well as completion of the gas pipelines and processing plant.
“We are convinced that these factors will put the economy on a strong growth trajectory again when the imbalances are addressed.
