Business News of Tuesday, 16 April 2013
Economic reforms envisaged under Government’s three-year (2009-12) stabilisation programme with the International Monetary Fund (IMF) have not been satisfactorily delivered, the IMF has said, citing its “disappointment” particularly with the scaling-up of the fiscal deficit.
The fiscal gap ballooned to 12.1 percent of GDP last year, almost twice the target (6.7 percent of GDP) agreed with the Fund in July 2012 at the conclusion of the stabilisation programme. The leader of an IMF mission to Ghana last week, Christina Daseking, said the economy is at a point where the consolidation that was achieved in the last two years has started to fall again.
“My disappointment is mainly with the wage bill and the fuel subsidies which have reemerged — though there were repeated adjustments previously,” she said. “If the wage bill is under control, and Government continues raising revenues and getting the public financial management system in order, then there will be more room to allocate spending to the areas important to the country’s transformation.”
In July 2009, Government signed on to a three-year Poverty Reduction and Growth Facility (PRGF) with the IMF, giving it access to US$602.6million to tackle macroeconomic instability. This followed the deterioration in macroeconomic conditions in 2008, which was the combined result of global shocks to food and fuel prices and highly expansionary fiscal policies by the then-government.
The three-year facility was hinged on a macroeconomic stabilisation and reform framework that set out key performance criteria and targets. Key policies envisaged included reforms in the public sector, including the management of state-owned enterprises; removal of costly energy subsidies; a substantial but gradual reduction in the fiscal deficit; and implementation of a comprehensive programme to improve public financial management.
In the first two years of the programme (2009-11), the budget deficit fell from 8.5 percent of GDP to 4 percent, and there were yearly adjustments in fuel prices while the Public Utilities Regulatory Commission (PURC) introduced an Automatic Tariff-Adjustment Formula for the power and water sectors.
But speaking in Accra, Ms. Daseking said: “A growing public sector wage bill, costly energy subsidies, and higher interest costs pushed the fiscal deficit to about 12 percent of GDP (in 2012).” She added: “It is unfortunate that the deficit in 2012 increased so much. I would have hoped that the envisaged targets would have been achieved.”
Spending on petroleum subsidies topped GH¢1billion last year, but the rising uncontrollable cost led Government to cut them in February, and prices rose by between 20-50 percent.
Ms. Daseking said assuming a delayed adjustment in utility tariffs — which remained frozen throughout 2012 despite demands by the utilities for hikes — the Fund is projecting a reduction in the fiscal deficit to 10 percent of GDP this year, about 1 percentage point higher than Government’s 9 percent target.
The Fund also asked Government to gain control of the wage bill, which in 2012 rose by 47 percent, “with much of the factors explaining the increase not yet quantified”. It recommended a thorough audit of the 2012 payroll and said it welcomed that Government has already started this process. “Successful economic transformation will require a realignment of spending away from wages and subsidies toward infrastructure investment,” Ms. Daseking said.