The International Monetary Fund (IMF) has welcomed the government’s intention to transform the economy by changing its structure and domestically producing some items that it has the comparative and competitive advantage to produce.
The IMF Mission to Ghana, however, posits that the success of the government’s ambitious transformation agenda is contingent on restoring macroeconomic stability.
This was part of recommendations by the mission, led by Ms Christina Daseking, which has been in the country since February 12, 2014 to conduct discussions for the 2014 version of what is called “Article IV consultation”.
The mission met with the Vice-President, Mr Paa Kwesi Amissah-Arthur; the Finance Minister, Mr Seth Terkper; the Governor of the Bank of Ghana, Dr Henry Kofi Wampah; senior officials of the ministry and the central bank; members of Parliament, representatives of the private sector, think tanks and civil society groups.
It last visited the country in July, last year.
In a statement issued at the end of the discussion yesterday, Ms Daseking said while welcoming measures already taken and announced in the budget to improve revenue and prioritise expenditure, “the mission stressed that additional fiscal savings are required to address short-term vulnerabilities, contain rising public debt levels and reduce interest rates”.
It said those were essential to stabilise the economy and support private sector development, growth and employment creation over the medium term.
Shortfalls in revenue, amidst higher wages and other expenditure, pushed the economy to close the year with high inflation of 13.5 per cent in December 2013, budget (fiscal) deficit of 10.9 per cent of Gross Domestic Product (GDP), against a nine per cent target, and current account deficit equivalent to 13 per cent of GDP.
The IMF concluded that the deficits would have been higher but for the elimination of fuel subsidies, large increases in utility prices and reduction of other expenditure.
While supporting the government’s plans to regain control over the wage bill and the implementation of reforms in public financial management, the mission urged it to assess additional options that brought predictability to wage developments and contributed to sustainable fiscal consolidation.
However, Ms Daseking’s team estimated that Ghana’s economy grew by 5.5 per cent last year, oil inclusive, based on data for the first three quarters of 2013.
That sharply contrasts with the government’s own estimation that the economy grew by 7.4 per cent last year.
In recent years, Ghana’s economy has grown at an average eight per cent and the government itself had targeted an 8.0 per cent GDP growth for last year.
The IMF Mission further predicted, by the statistics available to it, that growth would continue to slow down this year as inflationary pressures would continue to mount, and, therefore, called for urgent measures to address macroeconomic imbalances.
“In the absence of further measures, the mission sees the fiscal deficit target of 8.5 per cent of GDP at risk. This, combined with a weak outlook for gold prices, will also keep the current account deficit at high levels,” Ms Daseking said in the statement.
On the revenue side, there was agreement on the need to strengthen tax administration focused on increased compliance. The mission also called for a thorough review of the tax regime to phase out exemptions and expand the base.
“In discussions with the Bank of Ghana, the mission welcomed the tightening of the monetary policy stance to defend the inflation target,” it said.
The IMF Mission and the Ministry of Finance will hold a joint press conference today to throw more light on happenings within the economy.