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Question 2: What is the outlook for the completion of the program?

We welcome the authorities’ goal to successfully complete the ECF program and ensure macroeconomic stability beyond the program. We discussed with the authorities measures which would ensure the irreversibility of reforms and would allow Ghana to move beyond aid. What needs to be done?

First, continued fiscal discipline is essential for bringing government debt on a steady downward trajectory and eliminating the risk of debt distress. This would reduce the cost of debt financing and open fiscal space for productive spending. Fiscal consolidation has to be revenue-based. Further spending cuts are not sustainable, as government capital spending is already low at 3 percent of GDP. Moreover, social spending, including full implementation of free SHS (Senior High School) education requires additional and sustained financing. We discussed options for revenue mobilization with the authorities, including by broadening the tax base and rationalizing tax incentives.

Second, disinflation needs to continue to anchor inflationary expectations and support exchange rate stability. This requires the BOG to maintain its focus on price stability. Continued prudent fiscal policy would help disinflation.

Third, financial sector stability—sound banking system and healthy non-bank financial institutions—are essential for improving access to finance by the private sector. High non-performing loans have limited lending to the private sector and interest rates remain high. Effort by the BoG to address remaining weaknesses in the financial system are welcome and should continue.

Fourth, the government has been facing high borrowing costs, with interest payments absorbing about 40 percent of tax revenue. The ongoing macroeconomic stabilization is an opportunity to reduce the cost of debt, by reducing risk premia and refinancing it on more favorable terms, including by issuing a Eurobond. Eliminating the risk of debt distress requires that only priority projects are financed through external borrowing on market terms.

Finally, structural reforms are important for ensuring macroeconomic stability over the medium term. During the mission, we discussed measures the authorities have been implementing to strengthen public financial management and revenue administration, and strengthening the oversight over state-owned enterprises.

Over the next few weeks we expect to finalize understandings with the authorities on remaining issues, which would allow us to proceed with the Executive Board meeting in April.