Ghana’s ballooning wage bill, if untamed, will increase the country’s debt to levels that pose a risk to its transformation agenda, the International Monetary Fund (IMF) has warned in its recent country report.
The West African country’s wage bill rose by 47 percent last year following the implementation of a new pay policy for public sector workers that saw some salaries being doubled.
IMF has instead called for an audit of the 2012 payroll, observing that wage payments under the new pay policy, the Single Spine Salary Structure, were twice the level included in the supplementary budget of 2012.
The IMF warning comes at a time when trade unions are lobbying for better conditions and market-related incomes. The mission noted that a growing public sector wage bill, costly energy subsidies, and high interest rates pushed Ghana’s fiscal deficit to about 12 percent of Gross Domestic Product (GDP) last year.
Recently doctors, teachers, lecturers and pharmacists were on strike demanding better incomes, but experts warn that this could throw the country into economic turmoil. To help deal with the rising wage bill, the IMF recommended an additional fiscal adjustment of three percent of GDP by 2015, using a combination of revenue and expenditure measures.
This, they say will lessen the public debt burden and raise official reserves towards the authorities’ target of more than four months of import cover, up from 2.8 months currently. IMF said the target was consistent with the mission’s own analysis of optimal reserves, which suggested that a cover of 4.2 months of imports would provide a reasonable cushion against plausible shocks.
“The mission shared the Bank of Ghana’s views on keeping a tight monetary policy stance for the time being,” the country report said.
Ghana has experienced a surge in inflation, which is expected to continue rising due to increased government borrowing. To further ensure strong monetary regime with effective policy rate within the inflation-targeting framework, the IMF recommended narrowing the gap with current market rates.
“Successful fiscal consolidation will allow an easing of interest rates in due course, provided inflation expectations decline to levels consistent with the achievement of the target,” the report says.