Execute medium-term policy creditably — Deputy IMF chief urges government

Mr Naoyuki Shinohara — Deputy MD, IMFMr Naoyuki Shinohara — Deputy MD, IMFThe country’s medium-term economy policies must be creditably and rigorously implemented to achieve the desired objectives, the Deputy Managing Director of the International Monetary Fund  (IMF), Naoyuki Shinohara, has stated.

He said the prospects for the medium-term were very bright, if only the country would thoroughly implement the various policies outlined in the programme.

Speaking in an interview with the Graphic Business on the sidelines of the just ended conference on the challenges of integration of the financial sector within the sub-region under the auspices of the IMF, Mr Shinohara said government would have to   do   well   to implement the policies it has set for itself.

He said within this  short-term, government should be able to come clean on its macro-economic policies, fiscal deficit and the high external accounts deficit adding that these twin-deficits should not go beyond 10 per cent of Gross Domestic Product (GDP).

Government has targeted a fiscal deficit of nine per cent by the close of this year with  a gradual  consolidation  over the medium term to six per cent but some economists and analysts are in doubts if these could be achieved.

The twin deficit

The country recorded a fiscal deficit of nearly 12 per cent as the result of the implementation of the wage bill which Mr Shinohara said was a critical issue that had to be addressed. In 2011 the deficit recorded stood at four per cent as against 6.5 per cent recorded in 2010.

Under the medium-term, government hopes to be completing wage negotiations before the annual budget is presented to Parliament while it will also adjust prices of petroleum products to full cost recovery.

To continue to meet its infrastructure needs, government intends under the medium-term seek partnership with the private sector for infrastructure  developments via Public-Private Partnership.

It is also the intention of government to focus on self-financing projects while  improve  on the operations of State Owned Enterprises  to borrow  on their balance sheets without  government guarantees.

Government intends to improve its revenue collection and mobilisation through the introduction of various reforms. Tax revenue which stood around 12.4 per cent of GDP at the end of 2006, increased  to 16.3 per cent  of GDP  in 2012 with a projection of improve revenue  through the elimination  of unwarranted  import tax exemptions.

Commenting on some of the key aspects of the medium-term policy, Mr Shinohara said there are a lot of risk factors that the country has to work on and that if government can plug the various loopholes in its revenue generating effort, a lot would be achieved.

He said tax waivers or exemptions should be an area that government has to seriously deal with as it has the tendency to derail projections pointing out that wage issues are very critical factors that have to be addressed.

The managing director said much as the fund would encourage government to improve on the salaries of workers within the public sector  to enhance productivity, government should equally not lose sight of the fact if not well implemented could create distortions in the very economy.

He said large budget deficit raises interest rates on the market and this  makes the cost of  private investment very high while at the same time lives very little space for government to invest in other sectors of the economy.

Mr Shinohara stated that though there was no quick fix to address huge budget deficit, he expects government to show commitments  of reducing the deficit by putting in place pragmatic programmes to deal with the situation adding that budget deficit cannot be addressed within one year.

Government is expected to deliver the 2014 budget statement and economic policy by November 14 to Parliament.

The board of the Fund in 2009 approved US$581 million facility to Ghana which was disbursed over a three year period.

Review of the economy

The IMF in June this year said the continued success of the country’s economy would  depend on strong political will to decisively confront the country’s short-term vulnerabilities

In its regular review of the country’s economy mining and agriculture dominate the country’s exports, but construction and services now account for more than half of the country’s output, while a large majority of jobs remain in the informal sector.

It said the country made great strides in reducing poverty to less than 30 per cent of the population and has recently reached lower middle–income status. Offshore oil production started in late 2010, with new discoveries to come on stream over the medium term.

The review said the government adopted an ambitious transformation agenda centered on economic diversification, social inclusion and job creation, and macroeconomic stability but however needs the political and economic musles to fully implement the agenda.

It recognises that better infrastructure, further investment in health and education, and sustained macroeconomic stability will be central for country’s ambition of achieving full middle-income status and raising the living standards of all its citizens.

A large current account deficit, growing public debt, and a low official reserve buffer all expose the economy to significant stability risks. A rising public sector wage bill and costly energy subsides led to a near tripling of the cash deficit to 12 per cent of GDP in 2012.

Monetary policy was tightened with some delay last year to halt a rapid currency depreciation, but success came at the cost of double digit real interest rates, raising the cost of credit to the private sector.

Source: Graphic Business

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