The International Monetary Fund (IMF) has stated that Ghana was making progress in its economic management but cautioned that the country will have to ride on a bumpy path to economic recovery.
Assistant Director and Head of Fiscal Policy and Surveillance Division of the IMF, Ms Catherine Pattillo said the fiscal consolidation remains on track as the government move to ambitiously trim its overall deficit target from 10.1 per cent in 2014 to 5.2 per cent this year.
Speaking to Graphic Online on the sidelines of an IMF/World Bank annual meeting in Washington DC, Ms Pattillo said though Ghana was making a lot of economic progress in recent times, there were lot of risks that it had to overcome.
“We have seen Ghana made some progress recently, which had resulted in its primary balance swing into surplus and projected at 1.1 per cent of GDP this year, which should help in reducing the public debt ratio”, she said.
“The difficulty remains with the developments in the oil and banking sectors coupled with the fiscal tightening could make economic conditions difficult”.
Ghana saw sustained GDP growth above 8 per cent until 2013 on its exports of gold, cocoa and oil. It has since seen a slump in part because of lower global commodity prices and also due to a fiscal crisis that forced the country to secure an aid deal with the International Monetary Fund, which began last year.
The health of the economy is a major issue for voters in the run up to an election in December, when President John Mahama faces opposition leader Nana Akufo-Addo in what is expected to be a tight vote.
Returning to growth
The government says it has fixed fiscal problems and the economy will return to a growth rate above 8 per cent in 2017. The opposition New Patriotic Party says only it can rebuild the economy and put it on a sustainable footing.
But the Head of Fiscal Policy and Surveillance Division of the IMF said the challenge for the country that is facing commodity price slowdown, that has been taking place and revenue has under performed and the priority is to meet the fiscal target that require maintaining strict control of spending especially wage spending in the run up to the elections.
“Avoiding any related spending overruns as happened in the past will be critical in the coming months”, she cautioned.
“This is important for Ghana, which has boosted market confidence, but there are still a range of financing constraints particularly the domestic financing, which still poses a threat to the economy”, she said.
Halving the deficit
Analysts say, the country is on target to halve its fiscal deficit this year after its US$ 918 million aid deal with the IMF.
The government issued a bill to eliminate central bank financing of the budget deficit in line with the requirements of the deal but on Aug 2 Parliament passed the bill with an amendment allowing financing of up to five per cent.
Ghana’s public debt eased to 63 per cent of GDP in May from 72 per cent at the end of 2015, while consumer inflation dropped to 16.7 per cent in July from 19 per cent in January, with the impact of the IMF deal that began in April 2015 paying off.
The central bank expects inflation to slow to eight per cent, plus or minus two, by September 2017.
Ghana, which exports cocoa, gold and oil, signed the assistance programme to bring down inflation and the budget deficit and stabilize the currency.
Rating agency
International rating agency, Moody’s Investors Service has also affirmed the Government of Ghana’s issuer and senior unsecured rating at B3 and changed the outlook to stable from negative.
The rating agency cites the significant fiscal deficit reduction and institutional reform implementation over the past year under the umbrella of the 3-year IMF programme starting April 2015 as a major factor.
It also welcomed the reduced government liquidity risk on the external side after the successful issuance of a US$750 million Eurobond in September earmarked to redeem the remaining US$400 million October 2017 Eurobond maturity.
The rating agency also considered the improved balance of payments dynamics amid continued development of oil and gas resources through higher foreign direct investment (FDI) inflows, supporting reserve buffers and reduced currency volatility.
The stable outlook on the B3 rating balances these improvements against Ghana’s continuing credit challenges and vulnerabilities, including a high debt burden, very low debt affordability, elevated funding requirements and challenging medium-term international bond maturity profile.
For now, the government appears to be winning the economic battle ahead of a fierce elections in December, it remains to be seen whether the government will be tempted to falter by spending beyond its limits and derail the successes chalked so far.
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