Ghana: Statement at the Conclusion of an IMF Mission
At the end of the mission, Ms. Daseking issued the following statement:
“After Ghana’s very successful economic performance in 2011, with growth of 14½ percent and inflation in single digits, risks to macroeconomic stability are rising. Despite buoyant exports, the current account deficit exceeded 9 percent of GDP in 2011 on account of high import growth. A rapid depreciation of the cedi in the first five months of this year has begun to feed into domestic prices, while adding to short-term balance of payments pressures through higher cost of imports. With economic growth fueled by strong domestic demand, policies will need to be tightened to safeguard macroeconomic stability and keep inflation within the target band of 5.7-11.7 percent. This should still allow the economy to expand at a robust pace of more than 8 percent in 2012. The main external risk is that of a deeper global slowdown with its negative impact on economic growth and the balance of payments from weaker commodity prices and foreign inflows.
“Discussions with the Bank of Ghana (BoG) focused on policies to stem the recent decline in the cedi to defend the inflation target. There was broad agreement that a cedi depreciation was consistent with underlying economic factors, such as inflation differentials and a high current account deficit, but that the pace of the depreciation in recent months created challenges for anchoring expectations. Contributing factors included seasonally strong demand for foreign exchange, but also high domestic liquidity. In this environment, the large interventions by the Bank of Ghana in January provided only temporary relief. More recent actions to tighten liquidity and hike domestic interest rates appear to have been more effective in halting the cedi’s slide. The mission encouraged the Bank of Ghana to maintain a tight policy stance to help stabilize the currency and achieve its inflation target, while gradually rebuilding its stock of foreign reserves. It further suggested measures to improve the liquidity and functioning of the foreign exchange market as a way to reduce excessive exchange rate volatility.
“The otherwise strong fiscal performance in 2011, supported by an impressive improvement in revenue collection, met some challenges toward the end of the year and in early 2012. The cash deficit in 2011 of 4.3 percent of non-oil GDP was below the program ceiling by 0.7 percentage points of non-oil GDP. The government also made strong progress in reducing its previous stock of domestic payment arrears by GH¢ 1.5 billion. However, some spending obligations from 2011 were carried over into 2012, and new spending pressures have emerged from the agreed 18 percent public sector wage hike and the rising cost of fuel subsidies.
“Discussions focused on preserving fiscal discipline in the context of elevated macroeconomic risks and new spending demands. The mission encouraged the government to accelerate the ongoing public payroll audit and discontinue payments to those not eligible, as quickly as possible. It further urged an elimination of costly subsidies on fuel and energy consumption, which benefit predominantly the higher income groups. Both measures together could generate monthly savings of about GH¢160 million which are needed to protect more productive expenditure and allow for an expansion of well-targeted social programs to help the most vulnerable groups cope with the higher cost of living.
“At the end of the mission, agreement was reached on a wide range of policies, and discussions will continue over the coming week on a few pending issues. Subject to agreement on these issues, the mission will recommend to the IMF Executive Board the completion of the sixth and seventh review, with the Board meeting expected to take place in mid-July.”
