Ghana’s overall fiscal deficit deteriorated in 2016 – IMF
The International Monetary Fund (IMF) says Ghana’s overall fiscal deficit deteriorated in 2016. The fund in a press statement after a visit to Ghana from February 6 to 10, 2017 to review its programme with the country, noted that in 2016, the overall fiscal deficit (on a cash basis) deteriorated to an estimated nine per cent of GDP, instead of declining to 5¼ per cent of GDP as envisaged under the IMF-supported programme.
“The large deviation, was mainly due to poor oil and non-oil revenue performance and large expenditure overruns. As a result, the government debt-to GDP ratio increased further to close to 74 per cent of GDP at end-2016,” it says.
Following economic challenges, Ghana in 2015 signed onto a $918 million credit facility IMF programme. The three-year arrangement under the Extended Credit Facility (ECF) was in support of the country’s medium-term economic reform programme.
The IMF team led by Joël Toujas-Bernaté, took stock of the 2016 economic developments and the outlook for 2017, engaged in a dialogue about the new government’s economic plans, and discussed prospects for programme engagement with the IMF.
The team observed that Ghana’s economy continues to face challenges, indicating that while the estimated economic growth of 3.6 per cent in 2016 exceeded the target of 3.3 per cent, the decline in inflation has been slower than expected.
The current account deficit narrowed to 6 ½ per cent of GDP, contributing to a small buildup of foreign exchange reserves, it said.
The team also indicated that the new government of the New Patriotic Party (NPP) has expressed its intent to continue with the current programme 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 new government’s intentions to reduce tax exemptions, improve tax compliance and review the widespread earmarking of revenues should help in this regard,” it said.
According to the IMF team, the government reported significant public spending commitments that bypassed public finance management (PFM) systems.
“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. We welcome the new government’s commitments to encourage its departments and agencies to implement growth-enhancing reforms in a fiscally sustainable manner,” the statement said.
On the central bank’s efforts, the IMF team said the Bank of Ghana’s (BoG) monetary policy has been instrumental in mitigating inflationary pressures in 2016, adding that, adequately tight monetary policy will again be important for containing possible further pressures in 2017.
“We 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,” it said.
The Ghanaian banking sector is in crisis as a result of nonperforming loans (NPLs). A report by the rating agency Moody’s in June 2016, pointed out that rising non-performing loans in the country’s banking industry even though, bad for business, is not ending soon.
According to the report, the rising nonperforming loan ratio is credit negative for Ghanaian banks because as they require higher loan-loss provisions for the NPLs, it lowers profitability and impairs banks’ internal capital generation.
“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.
The IMF team met with the Vice President Dr. Mahamudu Bawumia; Senior Minister, Yaw Osafo-Maafo; Finance Minister, Ken Ofori-Atta; Minister of Food and Agriculture, Dr. Owusu Afriyie Akoto; the Bank of Ghana Governor, Dr. Abdul-Nashiru Issahaku, other senior officials and Ghana’s development partners, the statement said.
By Emmanuel K Dogbevi