… Understanding Ghana’s economic targets and guidelines
The IMF program for Ghana encompasses a range of performance criteria and indicators that reflect the country’s economic challenges and the need for comprehensive reforms. The indicators address various aspects of macroeconomic management, fiscal discipline, debt sustainability, and structural transformation. These indicators and targets are imposed by the IMF to guide and monitor the government’s progress in addressing critical issues and achieving sustainable economic growth.
Firstly, macroeconomic imbalances are often a key concern for countries seeking IMF support like Ghana. These imbalances, such as high inflation, fiscal deficits, unsustainable debt levels, and balance of payment difficulties, arises as a result of fiscal mismanagement, over borrowing, excessive Bank of Ghana deficit financial and structural weaknesses in the economy. By setting targets and performance criteria related to these imbalances, the IMF aims to assist the government of Ghana in restoring stability, fostering economic resilience, and creating an environment conducive to sustained growth.
Secondly, external financing needs highlight the challenges faced by the government in accessing external funds to meet its financial obligations and maintain economic stability. Limited access to international capital markets, high borrowing costs, or concerns about creditworthiness can hinder a country’s ability to secure the necessary financing, in effect, the capital market closed on Ghan. The IMF program aims to provide financial assistance and policy guidance to help address these challenges and facilitate access to external financing on more favorable terms.
Lastly, structural reforms play a crucial role in addressing deep-rooted economic challenges as Ghana faces and promoting long-term growth. The IMF program supports the implementation of structural reforms aimed at improving fiscal discipline, strengthening monetary policy frameworks, enhancing governance and transparency, promoting market liberalization, and fostering private sector development. These reforms are designed to address structural bottlenecks, increase economic efficiency, attract investment, and create a more competitive and sustainable economic environment.
In summary, the IMF program for Ghana reflects the recognition of significant economic challenges and the need for comprehensive reforms. By setting performance criteria and indicators related to macroeconomic imbalances, external financing needs, and structural reforms, the IMF aims to guide and monitor the government’s efforts to restore stability, achieve sustainable growth, and enhance the country’s economic resilience. The program seeks to support the government in implementing sound policies and structural transformations that can lead to long-term prosperity and inclusive development.
Net international reserves of the Bank of Ghana, cumulative change floor (millions of U.S. dollars)
Net international reserves of the Bank of Ghana are a crucial indicator of a country’s external financial position and its ability to manage international payment obligations. Let’s further explore the implications of the provided values for each quarter:
1. Jun-23: -98.5 million U.S. dollars
This value indicates that the net international reserves of the Bank of Ghana have decreased by 98.5 million dollars compared to the previous period. A negative change in reserves suggests that the central bank’s foreign currency liabilities exceed its foreign currency assets.
This situation can arise due to factors such as high demand for foreign currency, capital outflows, or external debt servicing.
2. Sep-23: 270.7 million U.S. dollars
The positive change in reserves indicates an increase of 270.7 million dollars compared to the previous quarter. This suggests that the Bank of Ghana should be able to accumulate more foreign currency assets after the 600 million first tranche IMF bailout, which can enhance the country’s ability to meet its external payment obligations. It indicates a positive shift in the net international reserves, improving the external financial position.
3. Dec-23: 655 million U.S. dollars
The cumulative change in net international reserves for this quarter reflects a significant increase of 655 million dollars compared to the previous period. This substantial growth indicates a substantial improvement in the Bank of Ghana’s foreign currency assets. It implies that the central bank has successfully managed its external liabilities, potentially through measures such as IMF bailout, attracting foreign investments, export earnings, or borrowing.
4. Mar-24: 107 million U.S. dollars
The provided value suggests a relatively smaller increase in net international reserves, amounting to 107 million dollars. While not as substantial as the previous quarter, it still signifies a positive change, indicating that the central bank continues to accumulate foreign currency assets. This can contribute to maintaining external stability and the country’s capacity to fulfil international payment obligations.
Overall, a positive cumulative change in net international reserves of the Bank of Ghana signifies an improvement in the country’s external financial position. It enhances the ability to meet external payment obligations, boosts investor confidence, and provides a buffer against potential external shocks. However, negative or lower-than-desired changes in reserves may indicate challenges in managing external liabilities, potential imbalances in the balance of payments, or the need for measures to stabilize the external sector.
Bank of Ghana claims on the central government and public entities, cumulative change ceiling (billions of cedis)
The Bank of Ghana claims on the central government and public entities refer to the amount of money that the central bank has lent to or invested in the government and public entities. This indicator sets a ceiling on the cumulative change in these claims, indicating the maximum allowable increase over the specified period. The provided values indicate a cumulative change ceiling of zero for each quarter, implying that the central bank aims to restrict any additional lending or investment to the government and public entities.
By implementing a cumulative change ceiling of zero, the Bank of Ghana aims to limit the creation of new money to finance government spending. When a central bank lends or invests in the government, it effectively creates new money, which can increase the money supply in the economy. Excessive money creation without appropriate economic growth can lead to inflationary pressures and macroeconomic instability.
By setting the cumulative change ceiling at zero, the central bank ensures that it does not expand its claims on the government and public entities during the specified period. This measure promotes fiscal discipline and helps control the money supply growth, contributing to overall macroeconomic stability. It encourages the government to seek alternative sources of financing, such as revenue generation or borrowing from the private sector, to meet its financial needs, thereby reducing the reliance on central bank financing.
In summary, the cumulative change ceiling of zero for the Bank of Ghana’s claims on the central government and public entities indicates a commitment to prudent monetary policy and fiscal discipline. It helps control money supply growth, mitigates inflationary pressures, and promotes macroeconomic stability in the country.
Present value of newly contracted or guaranteed external debt by the central government and public entities, cumulative ceiling (millions of U.S. dollars):
The present value of newly contracted or guaranteed external debt by the central government and public entities, cumulative ceiling, establishes a maximum limit on the total amount of external debt that the government of Ghana can contract or guarantee. The values provided represent the cumulative ceilings for each quarter, indicating the maximum allowable amount of external debt.
1. Jun-23: 66.2 million U.S. dollars
This value sets the initial cumulative ceiling for newly contracted or guaranteed external debt. It implies that the central government and public entities of Ghana cannot exceed a cumulative debt value of 66.2 million dollars by the end of June 2023.
2. Sep-23: 66.2 million U.S. dollars
The cumulative ceiling remains the same, indicating that the government cannot surpass a cumulative debt value of 66.2 million dollars by the end of September 2023. This implies that no additional external debt contracts or guarantees beyond the initial ceiling are allowed during this period.
3. Dec-23: 66.2 million U.S. dollars
The cumulative ceiling remains unchanged, emphasizing the continued restriction on contracting or guaranteeing additional external debt. The government is expected to manage its finances within the existing cumulative limit of 66.2 million dollars.
4. Mar-24: 84.7 million U.S. dollars
This value represents an increased cumulative ceiling compared to the previous periods. It allows for an additional 18.5 million dollars of newly contracted or guaranteed external debt by the end of March 2024. The increase in the cumulative ceiling suggests a revision in the limit based on economic conditions or specific financing requirements.
By imposing a cumulative ceiling on newly contracted or guaranteed external debt, the indicator promotes responsible debt management and safeguards the country’s long-term fiscal sustainability. It ensures that the government and public entities do not accumulate excessive external debt burdens, which could lead to challenges in debt repayment, increased debt servicing costs, and potential macroeconomic instability.
Monitoring and adhering to the cumulative ceiling help maintain the country’s creditworthiness and minimize the risk of debt distress. It encourages the government to exercise prudence in borrowing decisions, explore alternative sources of financing, and prioritize sustainable debt levels to support economic development and stability.
In summary, the cumulative ceiling on the present value of newly contracted or guaranteed external debt by the central government and public entities establishes a limit to prevent excessive debt accumulation. It promotes responsible fiscal management, minimizes risks associated with external debt, and contributes to the long-term fiscal sustainability of Ghana.
Primary fiscal balance of the central government, commitment basis, cumulative floor (millions of cedis):
The primary fiscal balance of the central government, on a commitment basis, represents an essential indicator for assessing the government’s fiscal discipline and sustainability. Let’s further explore the implications of the provided values for each quarter:
1. Jun-23: -4,008.40 million cedis
The negative value indicates that the central government’s non-interest expenditures exceed its total revenues by 4,008.40 million cedis. This implies a deficit in the primary fiscal balance, where the government is spending more than it is earning from non-interest sources. A negative primary fiscal balance often indicates a reliance on borrowing to cover operational expenses, which can lead to increased debt levels.
2. Sep-23: -5,756.40 million cedis
The negative value suggests a larger deficit in the primary fiscal balance compared to the previous quarter. It indicates that the government’s expenditures continue to surpass its revenues by an increasing margin. A persistently negative primary fiscal balance can signal potential challenges in fiscal management and fiscal sustainability.
3. Dec-23: -4,607.10 million cedis
While still negative, the value shows a slight improvement compared to the previous quarter. The deficit in the primary fiscal balance has decreased, indicating a reduced gap between government revenues and non-interest expenditures. This improvement suggests efforts to address the fiscal imbalance and control spending.
4. Mar-24: 1,392.30 million cedis
The positive value indicates a surplus in the primary fiscal balance, where the government’s non-interest revenues exceed its non-interest expenditures. This represents a significant improvement compared to the previous quarters, signaling a shift towards a more sustainable fiscal position. A positive primary fiscal balance demonstrates the government’s ability to generate sufficient revenues to cover its non-interest expenses without relying on additional borrowing.
The cumulative floor reflects the minimum level that the government aims to achieve in its primary fiscal balance over the specified period. While negative values suggest deficits, positive values indicate surpluses, which can contribute to reducing debt levels and enhancing fiscal sustainability.
By monitoring the primary fiscal balance, the government can assess its ability to manage its non- interest expenses and work towards achieving a sustainable fiscal position. A positive primary fiscal balance is generally viewed favorably as it indicates prudent fiscal management, reduces the need for borrowing, and contributes to long-term fiscal stability and economic growth.
In summary, the primary fiscal balance of the central government, on a commitment basis, plays a crucial role in assessing the government’s fiscal discipline and sustainability. It reflects the difference between total revenues and non-interest expenditures, excluding debt-related costs. Achieving a positive primary fiscal balance or reducing deficits over time demonstrates the government’s commitment to responsible fiscal management and contributes to overall fiscal sustainability.
Non-accumulation of external debt payments arrears by the central government and the Bank of Ghana, continuous ceiling (millions of U.S. dollars):
The non-accumulation of external debt payments arrears by the central government and the Bank of Ghana represents a commitment to timely and responsible debt servicing. Let’s delve further into the implications of the provided values for each quarter:
1. Jun-23: 5 million U.S. dollars
The continuous ceiling of 5 million dollars indicates that the central government and the Bank of Ghana should not allow external debt payments to fall behind by more than this amount. It sets a limit on the accumulation of arrears, emphasizing the importance of honoring debt obligations promptly. This measure aims to maintain the country’s credibility and reputation in international financial markets.
2. Sep-23: 0 million U.S. dollars
The value of zero arrears signifies that the government and the central bank have successfully prevented the accumulation of any overdue external debt payments. This demonstrates a commitment to timely debt servicing and fulfilling external obligations promptly.
3. Dec-23: 0 million U.S. dollars
Similarly, a value of zero arrears indicates that there have been no delays or defaults in external debt payments during this quarter. The government and the central bank have maintained their responsibility in servicing their external debt obligations on time.
4. Mar-24: 0 million U.S. dollars
The continuous ceiling of zero arrears is maintained, indicating the commitment to prevent any accumulation of overdue external debt payments. By ensuring prompt and responsible debt servicing, the government and the central bank continue to maintain the country’s credibility and reliability in the international financial arena.
The non-accumulation of external debt payments arrears demonstrates the government’s commitment to responsible financial management and maintaining good relationships with international creditors. It helps prevent default risks, supports investor confidence, and sustains access to international capital markets.
By meeting the continuous ceiling requirements, the government and the central bank affirm their commitment to honoring external debt obligations promptly. This commitment contributes to maintaining a favorable credit rating, reducing borrowing costs, and supporting the country’s overall fiscal and financial stability.
In summary, the continuous ceiling on the non-accumulation of external debt payments arrears highlights the importance of timely debt servicing by the central government and the Bank of Ghana. It underscores the commitment to responsible financial management, preserving the country’s reputation, and ensuring sustained access to international financial markets.
Newly contracted collateralized debt by the central government and public entities, continuous cumulative ceiling (millions of U.S. dollars):
The indicator “Newly contracted collateralized debt by the central government and public entities, continuous cumulative ceiling” establishes a limit on the accumulation of newly contracted debt that is collateralized by specific assets or guarantees. Let’s explore the implications of the provided values for each quarter:
1. Jun-23: 0 million U.S. dollars
The cumulative ceiling of zero signifies that the central government and public entities are not allowed to contract any new collateralized debt during this period. This restriction aims to control the expansion of debt and prevent the excessive reliance on collateralized borrowing. It encourages the government to explore alternative financing sources and exercise prudence in debt management.
2. Sep-23: 0 million U.S. dollars
The continuous cumulative ceiling remains at zero, indicating that the restriction on contracting new collateralized debt persists. The government and public entities are expected to manage their financial needs without resorting to collateralized borrowing during this period.
3. Dec-23: 0 million U.S. dollars
Similarly, the continuous cumulative ceiling of zero implies that no new collateralized debt can be contracted by the central government and public entities. This measure emphasizes the need to control the expansion of debt and encourages the exploration of sustainable financing options.
4. Mar-24: 0 million U.S. dollars
The continuous cumulative ceiling is maintained at zero, ensuring that no new collateralized debt is contracted. This restriction continues to promote responsible debt management practices and discourage excessive reliance on collateralized borrowing.
By setting a continuous cumulative ceiling on newly contracted collateralized debt, the indicator aims to foster responsible debt management, mitigate risks associated with debt accumulation, and maintain financial stability. It encourages the government and public entities to explore sustainable and prudent financing options that do not rely heavily on collateralization.
Controlling the accumulation of collateralized debt helps prevent potential vulnerabilities and ensures the country’s long-term fiscal sustainability. It also reduces the risk of asset concentration and potential disruptions to the economy in the event of repayment difficulties.
In summary, the continuous cumulative ceiling on newly contracted collateralized debt emphasizes the importance of responsible debt management and prudent financial decision-making by the central government and public entities. By limiting the reliance on collateralized borrowing, the indicator promotes sustainable debt practices and contributes to maintaining financial stability in Ghana.
The indicators provided relate to the Monetary Policy Consultation Clause and the inflation targets for Ghana.
This indicator refers to the expected inflation rate over a twelve-month period. It measures the average increase in consumer prices in Ghana. The figures provided represent the upper limits of different inflation target bands.
Outer band (upper limit):
Jun-23: 48.1% Sep-23: 45.6% Dec-23: 33.4% Mar-24: 30.9%
Inner band (upper limit):
Jun-23: 45.1% Sep-23: 43.6% Dec-23: 31.4% Mar-24: 28.9%
Central Target Rate:
Jun-23: 42.1% Sep-23: 40.6% Dec-23: 29.4% Mar-24: 26.9%
The inflation target bands consist of an outer band and an inner band, with the central target rate in between. These bands help define the acceptable range of inflation rates that the monetary authorities aim to achieve. The outer band represents the upper limit of the acceptable inflation range, while the inner band has a lower upper limit. The central target rate represents the desired inflation rate.
The figures provided indicate the upper limits for each target band over the specified months. The objective is to keep inflation within these bands, with the central target rate being the most desirable level.
The inner band (upper limit) and outer band (upper limit) provide thresholds that signal when inflation may be deviating from the desired level. If inflation exceeds the outer band’s upper limit, it indicates a potential risk of high inflation, while exceeding the inner band’s upper limit suggests a more moderate risk. The central target rate represents the preferred inflation rate, and efforts are made to keep inflation close to this rate.
The Monetary Policy Consultation Clause guides the formulation of monetary policy in Ghana by providing clear inflation targets and bands. The central bank and policymakers use these targets as reference points to assess the state of the economy, determine appropriate monetary measures, and maintain price stability. By monitoring and managing inflation, they aim to promote sustainable economic growth and mitigate the negative impacts of inflation on consumers and the overall economy.
In summary, the inflation target bands and central target rate serve as benchmarks for monetary policy decision-making in Ghana. The provided figures represent the upper limits of the target bands, with the central target rate being the desired inflation level. These indicators guide policymakers in implementing measures to manage inflation and maintain price stability, which are crucial for sustainable economic growth.
The additional indicative targets provided are as follows Non-oil public revenue, cumulative floor (millions of Cedis)
The non-oil public revenue indicative targets provided represent the minimum levels of revenue that the government of Ghana aims to generate from sources other than oil-related activities. These sources include taxes, non-tax revenues, grants, and other forms of income.
The cumulative floor figures indicate the minimum amounts of non-oil public revenue that the government intends to achieve over the specified period. Meeting or surpassing these targets demonstrates the government’s commitment to diversifying its revenue sources and reducing dependency on oil revenues.
By setting these targets, the government aims to enhance fiscal sustainability and reduce vulnerability to oil price fluctuations. Diversifying revenue streams can help mitigate the risks associated with relying heavily on oil-related income, which can be volatile and subject to external shocks.
The government can pursue various strategies to achieve these targets, including improving tax collection mechanisms, broadening the tax base, enhancing administrative efficiency, and promoting economic growth in sectors outside of the oil industry. By strengthening non-oil revenue generation, the government can have more fiscal resources to fund public services, infrastructure development, and social programs, thereby supporting sustainable economic development and improving the welfare of its citizens.
Monitoring the attainment of these non-oil public revenue targets provides insight into the government’s fiscal performance and its ability to manage public finances effectively. It allows policymakers and stakeholders to assess progress in revenue diversification efforts and make informed decisions regarding budgetary allocations, expenditure priorities, and economic policies.
In summary, the non-oil public revenue targets serve as benchmarks for the government of Ghana to achieve sustainable revenue generation from sources other than oil-related activities. These targets aim to reduce reliance on volatile oil revenues and promote fiscal stability and economic diversification. Meeting or exceeding these targets indicates progress in strengthening the country’s revenue base and achieving a more balanced and sustainable fiscal position.
Social spending, cumulative floor (billions of cedis)
The social spending cumulative floor targets provided indicate the minimum levels of expenditure that the government of Ghana aims to allocate to social programs and initiatives. Social spending encompasses various areas, such as education, healthcare, social welfare, poverty reduction, and other measures aimed at improving the well-being of the population.
The cumulative floor figures represent the minimum amounts of resources that the government intends to invest in social spending over the specified period. Meeting or surpassing these targets reflects the government’s commitment to prioritizing social development and addressing the needs of its citizens.
By setting these targets, the government aims to ensure that a significant portion of its budget is dedicated to social programs, thereby improving access to essential services, reducing poverty, and fostering inclusive growth. Social spending plays a crucial role in promoting human capital development, enhancing social equality, and contributing to long-term sustainable development.
To achieve these targets, the government may allocate funds to sectors such as education to enhance access to quality education, healthcare to improve healthcare services and infrastructure, social welfare programs to support vulnerable groups, and poverty reduction initiatives to lift people out of poverty.
Monitoring the attainment of social spending targets enables policymakers and stakeholders to assess the government’s commitment to social development and the effective utilization of public resources. It also allows for accountability and transparency in the allocation of funds and the delivery of social services.
In summary, the social spending cumulative floor targets serve as benchmarks for the government of Ghana to allocate a minimum level of resources to social programs and initiatives. By meeting or exceeding these targets, the government demonstrates its commitment to social development, improving public services, and addressing the needs of its citizens. These targets contribute to inclusive and sustainable growth, fostering social well-being, and reducing inequality within the country.
Net change in the stock of payables of the central government and of payables to Independent Power Producers (IPPs), ceiling (million of cedis)
The net change in the stock of payables of the central government and payables to Independent Power Producers (IPPs) refers to the difference between the outstanding payments owed by the government and the IPPs at the beginning and end of a specified period. This indicator sets a ceiling, which is the maximum allowable increase in the amount of these outstanding payments during the specified period.
A ceiling of zero for each period indicates that the government aims to prevent any additional accumulation of payment arrears. In other words, the government and IPPs are expected to settle their outstanding obligations in a timely manner without increasing the overall amount owed.
This measure is important for maintaining financial stability and ensuring the government’s fiscal discipline. By keeping the net change in payables at zero, the government aims to avoid the accumulation of overdue payments, which can have negative consequences for both the government and the IPPs. Accumulated arrears can strain the government’s finances, affect its credibility, and disrupt the smooth functioning of the IPPs.
Maintaining a zero net change in payables signals the government’s commitment to responsible financial management, honoring its payment obligations, and avoiding the negative consequences of payment arrears. It promotes transparency, fosters trust in the government’s financial operations, and helps maintain a stable business environment for the IPPs.
Overall, this indicator sets a ceiling on the increase in outstanding payments owed by the central government and IPPs, emphasizing the importance of timely payment and fiscal responsibility. By adhering to this ceiling, the government aims to uphold financial stability and foster a conducive environment for both the government and IPPs to operate effectively.
The writer is an Economic Policy and Financial Analyst
GHANA
Table 2. Ghana: Performance Criteria and Indicative Targets Under the Extended Credit Facility, 2023-2024
| 2023 | 2024 | ||||||
| June | September | December | March | ||||
| Performance | Performance | ||||||
| Criteria | Criteria | ||||||
| Proposed | Proposed | Proposed | Proposed | ||||
|
Performance Criteria: Net international reserves of the Bank of Ghana, cumulative change floor (millions of U.S. dollars) 1 |
-98.5 |
270.7 |
655.0 |
107.0 |
|||
| Bank of Ghana claims on the central government and public entities, cumulative change ceiling (billions of cedis) 2,6 | 0.0 | 0.0 | 0.0 | 0.0 | |||
| Present value of newly contracted or guaranteed external debt by the central government and public entities, cumulative ceiling (millions of U.S. dollars) 3,7 | 66.2 | 66.2 | 66.2 | 84.7 | |||
| Primary fiscal balance of the central government, commitment basis, cumulative floor (millions of cedis) 3,4 | -4,008.4 | -5,756.4 | -4,607.1 | 1,392.3 | |||
| Non-accumulation of external debt payments arrears by the central government and the Bank of Ghana, continuous ceiling (millions of U.S. dollars) 5 | 0.0 | 0.0 | 0.0 | 0.0 | |||
| Newly contracted collateralized debt by the central government and public entities, continouous cumulative ceiling (millions of U.S. dolllars) 7 | 0.0 | 0.0 | 0.0 | 0.0 | |||
| Monetary Policy Consultation Clause | |||||||
| Twelve-month consumer price inflation (percent) | |||||||
| Outer band (upper limit) | 48.1 | 45.6 | 33.4 | 30.9 | |||
| Inner band (upper limit) | 45.1 | 43.6 | 31.4 | 28.9 | |||
| Central target rate | 42.1 | 40.6 | 29.4 | 26.9 | |||
| Inner band (lower limit) | 39.1 | 37.6 | 27.4 | 24.9 | |||
| Outer band (lower limit) | 36.1 | 35.6 | 25.4 | 22.9 | |||
| Indicative Targets:
Non-oil public revenue, cummulative floor (millions of Cedis) 3 |
49,843 |
79,871 |
116,365 |
32,952 |
|||
| Social spending, cumulative floor (billions of cedis) 3,7 | 2,034 | 3,051 | 4,068 | 1,298 | |||
| Net change in the stock of payables of the central government and of payables to IPPs, ceiling (million of cedis) | 0 | 0 | 0 | 0 | |||
