Monday, 12 March 2018

IMF, WB worried about Ghana's fiscal management

Image result for International Monetary Fund 

Adnan Adams Mohammed

At the time when the International Monetary Fund (IMF) is worried about Ghana's revenue generation,  the World Bank is urging Ghana to ensure more forward-looking expenditure planning

The World Bank in a new report has indicated that the  2017 macroeconomic performance was largely positive

But, it urged the government to ensure more “forward-looking expenditure planning” to sustain its fiscal consolidation efforts.

It additionally asked that government took steps to improve domestic resource mobilization.
This was contained in the WB’s third edition of the Ghana Economic Update – focusing on agriculture as the engine of growth and jobs creation.
But, the IMF wants Ghana to legislate new measures to boost revenues by at least 0.5 percent of gross domestic product before the IMF reviews a US$918 million credit deal next month,

It also wants Ghana to outline plans to clean up the financial sector and show stronger commitment to cutting debt, including limiting its next Eurobond for budget support to US$500 million.

However, Finance Minister Ken Ofori-Atta, last week, said that, the government planned to issue up to US$2 billion of sovereign issuance by June to pay down debt that hit 68.7 percent of GDP last November and help finance the 2018 budget.

Ghana is seeking a combined fifth and sixth review of the IMF programme in early April, government and IMF sources have said.

The fifth review, originally scheduled for December, had delayed pending implementation of benchmark structural reforms.

The mission was in Accra to discuss the actions required for the next review, as well as other reforms needed to exit the programme early next year. It is unclear if the talks were conclusive.

“Parliament needs to adopt revenue measures equivalent to 0.5 percent of GDP (one billion cedis) by March 31 and do more later,” the Fund said. 

The Fund said the government must publish by end of March an agreement between the Finance Ministry and Bank of Ghana to reinforce zero financing of the budget deficit, a core condition of the programme.

Meanwhile, in the World Bank’s report, it gave a positive assessment of the country’s macroeconomic performance and said it had improved in 2017 after a difficult 2016.

The economy expanded for the fifth successive quarter in the third quarter of 2017 , at a rate almost twice that of the corresponding period of 2016.

It indicated that the service sector bounced back and that the fiscal consolidation was paying off with inflation down to close to 10 percent.

The report predicted a likely inflation fall to within or close to the Bank of Ghana’s medium-term target range of 6-10 percent in 2018.

It said based on the 2017 trends and sustained fiscal consolidation the fiscal deficit could fall within the government’s target of below five percent of Gross Domestic Product (GDP) from 2018 onwards.

“To sustain the fiscal consolidation efforts, two areas are particularly important over the medium-term – domestic resource mobilization and expenditure controls.

Despite the positive outlook, challenges remain, including further containing inflation and strengthening and deepening the financial sector to lower interest rates.”

The report pointed out that “Ghana’s economic performance over the medium term will to a large extent depend on the success of the economic stabilization programme”.

It added that fiscal consolidation would only be sustainable when social and economic activities could thrive in an expanding and increasingly diverse economy.

The higher financing costs in both the domestic and external markets in the context of a strong United States (US) dollar and rising global bond yields were also highlighted.

It stated that with the right reforms, agriculture had the potential to become one of the leading sectors for a more diverse economy – transformed into an engine of growth and job creation.

According to the report, agriculture had a large multiplier effect on employment, creating in excess of 750 jobs for every additional $1million of output.

It recommended three policy options to strengthen the agriculture sector: improving the quality and effectiveness of public expenditure, improving the environment for agriculture businesses to promote value addition and fixing challenges in the cocoa sector given the large size of the cocoa economy.

Mr. Henry Kerali, World Bank Country Director for Ghana, said: “the macroeconomic outlook was largely positive based on the 2017 performance.”

The external position, he noted, had improved as the trade balance shifted to a surplus.

“Ghana has made good progress in macro-stabilization in 2017, but it needs to sustain the fiscal consolidation efforts.”

Mr. Michael Geiger, Senior Economist and co-author of the report, said the country’s heavy reliance on primary commodities, including cocoa, gold, and oil -all prone to volatility in international commodity prices – could create uncertainty about its actual future paths for growth, inflation, export receipts, and domestic revenue.

Mr Hardwick Tchale, Senior WB Agriculture Economist, who co-authored the report, said “there is need to channel public resources into research to increase the use of technology, invest in irrigation infrastructure to increase productivity and mitigate the potential adverse effects of climate change, and leverage increased private sector investment in agriculture”.