Ghana’s economy deteriorated in 2016 – IMF

• Posted on February 13, 2017
• by Nana Kwesi Coomson
• Comment

THE International Monetary Fund (IMF) has expressed shock at the level of deterioration of various economic indicators in 2016 saying Ghana’s fiscal problems required strong efforts of consolidation and the government also needed to urgently address a problem of debt among state enterprises

The Fund listed large fiscal slippages, deterioration of overall fiscal deficit, large expenditure overruns and the slow rate at which inflation is falling among others as worrying.

“Significant public spending commitments that bypassed public finance management (PFM) systems were reported,” it added. 

In a statement issued after a visit led by mission chief, Joel Toujas-Bernate, the IMF said budget deficit for 2016 is 9 percent of economic output rather than declining to the Fund’s target of 5.25 percent.

Ghana started a three-year bailout programme with the Fund in April 2015 that aims to reduce inflation, the deficit and public debt, stabilise the currency and boost growth.

It turned out that most of the targets were missed, raising questions about the effectiveness of the programme. 

$2.5b energy sector debts

“We welcome the new government’s intention to conduct a full audit of outstanding obligations, its commitment to transparency and its readiness to take strong remedial actions to ensure the integrity of the PFM systems going forward.

“The large financial imbalances of state-owned enterprises in the energy sector also need to be addressed with urgency to avoid the buildup of contingent liabilities for the new government,” the IMF added. 

Emerging figures indicate that energy sector debts alone amount to some $2.5billion.

 GH¢17.2billion roads sector debts

The Roads and Highways, Minster Kwasi Amoako-Atta, has revealed that the immediate past government left behind an outstanding debt of GH¢17.2 billion in the roads sector.

It covers 1,282 road contracts with 87 bridges ongoing and almost GH¢900 certificates that been raised but is yet to be paid by the Ministry of Finance unpaid. 

He described the figures as alarming as government’s revenue streams are inadequate to meet the rising debts.

Debt to GDP jumps to 74% in 2016

The IMF said debt to GDP ratio increased further to close to 74 percent of GDP at end-2016.

As at the end of November 2016, Ghana’s debt rose to GH¢119.9 billion, representing 71.9 of GDP – therefore, the 74 percent of debt to GDP at end-2016 means the actual exceeds GH¢120 billion.

Inflation reducing slowly than expected

The IMF stated that the inflation rate is also coming down more slowly than expected. Annual inflation stood at 15.4 percent in December.

However, the IMF said the Bank of Ghana’s (BoG) monetary policy had been instrumental in mitigating inflationary pressures in 2016. 

Adequately tight monetary policy will again be important for containing possible further pressures in 2017. 

3.6% GDP growth in 2016

“Ghana’s economy continues to face challenges. While the estimated economic growth of 3.6 percent in 2016 exceeded our target of 3.3 percent, the decline in inflation has been slower than expected,” the Fund said.

Government targeted a growth rate of 4.1% in 2016 which means the target was missed by over 4%.

The current account deficit narrowed to 6½ percent of GDP, contributing to a small buildup of foreign exchange reserves.

“In 2016, the overall fiscal deficit (on a cash basis) deteriorated to an estimated 9 percent of GDP, instead of declining to 5¼ percent of GDP as envisaged under the IMF-supported program.

“The new government has expressed its intent to continue with the current program with the IMF. 

“Officials outlined bold policies to restore fiscal discipline and debt sustainability and also to support growth and private sector development. 

“The large fiscal slippages observed last year will, indeed, require strong efforts of fiscal consolidation to support debt sustainability,” the Fund said. 

Current account deficit narrowed to 6.5% of GDP

The current account deficit narrowed to 6.5 percent of GDP, contributing to a small buildup of foreign exchange reserves.

IMF backs govt  

The new government’s intentions to reduce tax exemptions, improve tax compliance and review the widespread earmarking of revenues should help in this regard.

 “We welcome the new government’s commitments to encourage its departments and agencies to implement growth-enhancing reforms in a fiscally sustainable manner.

“We look forward to working closely with the new government in their efforts to design the required policies for restoring macroeconomic stability, high and sustainable growth and job creation,” the IMF said.

BoG’s Roadmap for the banking sector

The Fund welcome BoG’s continued roll-out of the Roadmap for the banking sector and look forward to the actions that can strengthen banks’ balance sheets and contribute to a gradual reduction of the level of nonperforming loans.

The mission met with H.E. Vice-President Dr. Mahamudu Bawumia; Senior Minister Yaw Osafo-Maafo; Finance Minister, Kenneth Ofori-Atta; Minister of Food and Agriculture Dr. Owusu Afriyie Akoto; Bank of Ghana Governor Dr. Abdul-Nashiru Issahaku; other senior officials; and Ghana’s development partners.

By Elvis DARKO, Accra