Despite approving the release of the third instalment of funds to Ghana under the Extended Credit Facility, the IMF says there are still fiscal risks in the economy that need attention.
Acting Chair and IMF Deputy Managing Director, Tao Zhang, said Ghana’s implementation of the Extended Credit Facility is broadly satisfactory, but the economic outlook remains challenging.
“There has been progress in stabilizing the macroeconomic situation and reducing financial imbalances, but fiscal risks remain elevated,” he said in a release.
He acknowledges that managers of the economy are continuing their fiscal consolidation program and aim to strengthen policy and reform implementation, but said further efforts are needed to address revenue shortfalls, while expenditure control measures should be fully enforced to contain the wage bill and other current spending.
“The government is projected to run a primary surplus this year, which, along with the stability of the cedi, should contribute to a marked decline in the debt-to-GDP ratio. Ongoing fiscal consolidation and implementation of the medium-term debt management strategy will be key to further reducing domestic refinancing risks in 2017.
The authorities will need to remain cautious in accessing external market financing with due consideration to costs and debt sustainability,” said Mr. Zhang.
The following are other recommendations by Mr. Zhang on how managers of the economy can tackle existing challenges in the economy:
To ensure that the gains from fiscal consolidation are sustained over the medium term, the government needs to continue its efforts to effectively implement a wide range of ambitious reforms.
These include measures to broaden the tax base and enhance tax compliance, strengthen control of the wage bill, and enhance public financial management (PFM).
In this regard, the recently adopted PFM legislation is an improvement over previous laws. Steps taken to address SOEs financial problems are welcome, but more work is needed to reduce risks to the economy, the financial sector, and the government budget from their underperformance.
The Bank of Ghana (BoG) should maintain a tight monetary policy stance to bring inflation back to target.
Recent amendments to the BoG Act have introduced some improvements to central bank governance but continued scope for central bank financing of the government and government influence on central bank operations remain significant shortcomings.
The authorities’ commitment to maintaining zero BoG financing of the government under the program and to introducing additional amendments to the BoG Act in 2017 are welcome.
Full and timely implementation of the BoG’s roadmap for the banking system is essential to address financial sector risks.
Although the adoption of the two new banking sector laws strengthens the authorities’ toolkit, the new legislation warrants further improvements to enable the authorities to effectively safeguard financial stability.”
The Executive Board of the IMF last Wednesday approved the disbursement of some $116 million to the country, paving way for release of $116 million to be transferred to Bank of Ghana’s account within the next 10 days.
Funds are expected to support the Ghana’s balance of payment.
Ghana signed the three-year Extended Credit Facility with the IMF for $918 million on April 3, 2015, to cushion the troubled economy.
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