The International Monetary Fund (IMF) says Ghana’s macroeconomic outlook remains favourable, supported by overall prudent economic policies, strong extractive industry activity, and a safer banking system, but maintaining fiscal discipline in the run-up to the 2020 elections will be critical to safeguarding the macroeconomic gains achieved since 2017.
Carlo Sdralevich, who led the IMF team, noted that: ““Ghana’s macroeconomic outlook remains favourable, supported by strong activity in the extractive industry and a safer banking system. Real GDP growth is projected at around 7 percent in 2019. September consumer price inflation, at 7.6 percent in the rebased CPI series, is just below the 8 percent target.
“The cedi has depreciated by about 10 percent from the beginning of 2019. Bank of Ghana’s international reserves are projected to record a build-up in 2019, supported mainly by an improving trade balance and external borrowing. The primary risk to the outlook remains policy relaxation in the run-up to the 2020 elections.”
The IMF noted that though Ghana has completed the programme, the visit shows that economic managers have remained prudent and maintained economic stability.
“After successful completion of the programme with the IMF, the authorities’ policies have remained prudent and maintained macroeconomic stability. Nevertheless, implementation of the 2019 budget has been challenging – owing to lower than expected revenues, frontloading of spending on some government flagship programmes, and unexpected security outlays reflecting emerging security challenges from the Sahel region.
“In addition, longstanding losses in the energy sector have spilled over to the budget; and, together with cost of the financial sector clean-up, have contributed to the rise of public debt – projected at about 63 percent by year-end. But government is committed to keeping the budget deficit (excluding financial sector restructuring and energy costs) below 5 percent of GDP as well as a primary surplus, in line with the Fiscal Responsibility Act.”
Given that the 2020 budget preparation is underway, the IMF mission called on government to contain debt build-up and devise prudent measures to collect more domestic revenue.
“While the 2020 budget preparations are ongoing, the mission underlined the need to adopt an appropriately tight budget to limit financing needs, contain debt build-up, and support the external position. This will likely require both spending and revenue measures. The IMF team recommended avoiding spending and financing operations outside the budget to enhance budget credibility and transparency. In the medium-term, raising domestic revenues remains a priority to create fiscal space and buttress fiscal sustainability. The authorities should also forge ahead with implementation of the Energy Sector Recovery Plan to limit contingent liabilities in the energy sector.
“The monetary policy stance appears appropriate, but it should continue to remain vigilant to inflationary risks. Tightening may become necessary should inflationary or exchange rate pressures emerge. The central bank’s focus on building external buffers going into 2020 is a welcome development.
“The Bank of Ghana is well advanced in the clean-up of the savings and loans and finance house sub-sectors, another important piece in the extensive reform of the financial sector. The recapitalisation of the remaining locally-owned banks and reduction of the overhang of non-performing loans will be key to boosting credit to the private sector and to buttress growth in non-extractive activities. The new deposit insurance scheme, the ongoing strengthening of regulatory and supervisory regimes, and the work of the Financial Stability Council are also steps in the right direction. Going forward, both robust implementation and deepened accountability remain critical to prevent a recurrence of weaknesses in the financial sector,” Carlo Sdralevich noted in a statement.
An International Monetary Fund (IMF) team visited Accra between September 30 – October 11, 2019 to conduct discussions on the 2019 Article IV Consultation, which was concluded in Washington, D.C. on the occasion of the 2019 IMF and World Bank Annual Meetings.
The team held constructive and candid discussions with Vice President Dr. Mahamudu Bawumia; Finance Minister, Ken Ofori-Atta; Bank of Ghana Governor, Dr. Ernest Addison; other senior government officials, the Finance Committee of Parliament, private sector representatives, labour unions, and civil society organisations.