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2019 IMF Article IV Consultation with Ghana Summary

Core Content

The 2019 Article IV consultation with Ghana, conducted by the International Monetary Fund (IMF), evaluated the country's economic performance and policy framework. The consultation took place in Accra (October 30–November 11, 2019) and Washington, D.C. (October 15–19, 2019), with the Executive Board concluding the review on December 6, 2019. The consultation aimed to assess Ghana's macroeconomic stability, fiscal sustainability, and prospects for inclusive growth.

Main Views and Key Information

Economic Outlook

• Growth: Expected to rise from 6.3% in 2018 to 7% in 2019, with an average of around 5% in the medium term, supported by new oil discoveries and mining.
• Inflation: Stabilized near the Bank of Ghana's target, at 7.7% in 2019, and is projected to decline to 6% over the medium term, despite pressures from Cedi depreciation and higher utility tariffs.
• External Position: International reserves remained stable, supported by external borrowing, and are expected to increase over time with higher oil and gas exports.

Fiscal Policy

• Government Deficit: Projected at 4.7% of GDP in 2019 (excluding energy and financial sector costs), and 7% when including these costs. The 2020 budget is expected to deliver a headline deficit of 4.9% and an overall deficit of 6.4%.
• Debt Levels: Central government debt is projected to rise to 63.1% of GDP in 2019, with public and publicly-guaranteed debt reaching 66.5% of GDP at the end of 2019 and expected to peak at 68% in 2020 before gradually declining to 64% by 2024.
• Fiscal Challenges: The fiscal stance has improved but continues to put pressure on the external position. The 2020 election may create additional spending pressures. The government needs to reduce off-budget spending and avoid new collateralized borrowing to improve transparency and credibility.

Monetary Policy

• Monetary Stance: The focus on price stability is appropriate. Tightening monetary policy may be necessary if inflationary pressures arise.
• Reserves: The IMF recommended increasing international reserves by limiting central bank intervention and entrenching monetary financing limits in domestic law to protect the Bank of Ghana's balance sheet.
• Inflation Targeting: Directors suggested lowering the inflation target range over the medium term.

Structural Reforms

• Energy Sector: The Energy Sector Recovery Program (ESRP) is crucial to limit fiscal costs and support inclusive growth. The automatic pricing formula for electricity tariffs and private sector participation are key components.
• Financial Sector: The clean-up of the financial sector is ongoing, with the need to complete restructuring, address nonperforming loans (NPLs), and improve regulatory frameworks.
• Productivity and Diversification: Boosting export competitiveness and economic diversification is essential for long-term growth. The authorities should continue improving the business environment through anti-corruption measures and digitalization.

Risk Assessment

• Downside Risks: Include election-related spending pressures, financing challenges due to tighter global conditions, and larger-than-expected energy and financial sector costs.
• Upside Potential: New oil discoveries, higher cocoa prices, and the benefits of the African Continental Free Trade Area (AfCFTA) could support growth.
• Debt Distress: The Debt Sustainability Analysis (DSA) indicates a high risk of debt distress, driven by debt service to revenue exceeding thresholds.

Key Recommendations

• Fiscal Rules: Implement and enforce the 2018 Fiscal Responsibility Act to ensure fiscal discipline.
• Debt Management: Adopt a formal debt anchor and phase out off-budget operations to ensure sustainability.
• Sector Recovery: Complete the Energy Sector Recovery Program and financial sector restructuring to reduce fiscal risks.
• Anti-Corruption: Strengthen the anti-corruption framework and improve law enforcement and prosecutorial capacity.
• Digitalization: Promote digitalization to enhance efficiency and support growth.
• Monetary Policy: Maintain inflation targeting and ensure the central bank's independence.

Next Steps

• The next Article IV consultation with Ghana is expected to follow the standard 12-month cycle.
• Ghana is currently under Post-Program Monitoring due to its exposure to the Poverty Reduction and Growth Trust (PRGT) fund and the need to implement ongoing reforms.

Summary Table

Conclusion

The IMF acknowledged Ghana's strong macroeconomic performance and commendable efforts to maintain fiscal discipline and stabilize the economy. However, it emphasized the need for continued structural reforms, improved fiscal transparency, and prudent management of public debt to ensure long-term macroeconomic stability and inclusive growth. The "Ghana beyond Aid" agenda remains a critical focus for reducing poverty and inequality.