Ghana courts IMF assistance to fix budget deficit

The Government of Ghana, the World Bank and the International Monetary Fund (IMF) have, over the past few weeks, been engaged in discussion that could likely culminate in the country entering into a new Medium Term Frame with the IMF.

Ghana’s immediate need is to secure financing for its projected 2014 budget deficit of GH¢8,970.8 million.

Out of this government has planned to use net foreign financing of GH¢4,921.9 million, which is equivalent to 4.7% of Gross Domestic Product (GDP).

Net domestic financing of GH¢4,1117.9 million is projected to fund the rest of the deficit.

However, the foreign financing part of the deficit is proving problematic as the international commercial and bilateral lending communities are showing reticence about putting up new debt finance for Ghana.

Hopes of receiving the bulk of the $3 billion Chinese Development Bank (CDB) loan, which is still outstanding, are receding due to government’s reluctance to accept the revised, tighter terms being demanded by the Chinese.

While a planned $1.5 billion Eurobond issue during 2014 is still on the cards, its timing is now uncertain because rising interest rates on international financial markets and Ghana’s lowered sovereign credit rating have combined to raise the interest yield the Eurobond market would demand for a new issue currently, beyond what is prudent to pay.

Managers of Ghana’s economy have however attributed the problems facing the economy to declining commodity prices and the US tapering programme which according to them has contributed to the sustained depreciation experi­enced by the Ghana cedi.

The currency has for the first quarter of this year alone declined in value by about 18 percent against major inter­national trading currencies.

Government has consistently maintained that had it not been for these external challenges, the economy would not have been experiencing these problems now.

Again, it will be recalled that Finance Minister, Mr Seth Terpker who has led Ghana’s delegation at the IMF meetings has always insisted that the economy is not in crisis.

Neither the World Bank nor the IMF agrees with his assessment of the gravity of the problem and its cause however.

In the words of World Bank President, Jim Yong Kim, “Ghana is going through some economic challenges because it is not doing enough to check its rising debts and the weakening economic fundamentals.”

Mr. Kim, speaking at the on-going IMF Spring meetings in Washington D.C, debunked the assertion that Ghana’s situation is not an isolated case, adding that “examples from other developing countries on the contrary show that their currencies appreciated during this tapering exercise.”

According to the World Bank Boss, Ghana has been badly affected by external factors because “it has not man­aged its internal affairs that well.”

“The outlook for emerging economies, the message is really get back to the fundamentals, tackle the basics; if the fundamentals are in good shape then the market would recognise that and punish Ghana less,” Mr Kim says.

The World Bank has recently expressed concern about Ghana’s growing fiscal deficit and warned of dangerous repercussions to the economy if the figure is again this year, above 10 per cent of gross domestic product (GDP).

The fiscal deficit for 2013 was 10.8% of GDP.
Meanwhile government is targeting a fiscal deficit of 8.5 per cent of GDP for 2014.

Last month however an IMF mission to Ghana warned that unless urgent measures are adopted to address “macro-economic imbalances” this target will not be met.

 Instructively, a similar IMF mission last year correctly predicted that Ghana’s fiscal deficit for 2013 would exceed 10% even as government targeted 8.5%.

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