Ghana’s economic outlook is still subject to some uncertainties, despite the current recovery being experienced, the International Monetary Fund (IMF)’s latest Article IV consultation, which was concluded on July 19, said.

According to the IMF, their concerns are based on threats from the new Covid-19 wave, risks associated with large financing needs and increasing public debt.

The IMF in the Article IV consultation noted that, because of this challenge, the directors of the Fund stressed the importance of macroeconomic policies, ensuring debt sustainability to be pursued aggressively by government.

It added, “pressing ahead with structural reforms to deliver a sustainable, inclusive, and green economic recovery”.

It was also worried that the Debt-to-GDP ratio, which it says will increase further this year, crossing the 80 per cent mark by the end of 2021. 

According to the Bank of Ghana, it currently stands at 79 per cent of GDP.

However, the Fund was quick to add that, while risks to Ghana’s capacity to repay have increased, the Directors of the IMF  argued that they are e still manageable and that Ghana’s capacity to repay the Fund remains adequate.

What is Article IV consultation?
This engagement is done for all members of the IMF to assess threats and what can be described as the health of their economies.

Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses the country's economic developments and policies with officials.

On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. After the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.

Managing projected threats to Ghana’s economy

The IMF noted that because Ghana is still classified as high risk of debt distress, there is a need for fiscal consolidation to focus on debt sustainability and rollover risk.

It maintained that it must be focused on protecting  the most vulnerable, “considerations could be given to more progressive revenue measures” The FUND is also projecting that “that faster return to the pre-pandemic level of spending, with a shift towards social, health, and development spending.” Is needed.

Directors also encouraged the timely completion of the planned audit of Covid‑19 emergency spending and new expenditure arrears.

Economic recovery underway despite threats to outlook

The IMF believed that, despite the threat to the economic outlook, Growth is expected to rebound to 4.7 per cent in 2021, supported by a strong cocoa season and mining and services activity, and inflation remaining within the Bank of Ghana target.

The current account deficit is projected to improve to 2.2 per cent of GDP, supported by a pickup in oil prices, and gross international reserves are expected to remain stable.

The 2021 budget envisages a fiscal deficit of 13.9 per cent of GDP in 2021, including energy and financial sector costs, and a gradual medium-term fiscal adjustment which would support a decline in public debt starting in 2024.

IMF on Ghana’s response to the Pandemic

The pandemic had a severe impact on economic activity in Ghana. Growth slowed to 0.4 per cent in 2020 from 6.5 per cent in 2019, food prices spiked, and poverty increased.

The fiscal deficit, including energy and financial sector costs, worsened to 15.2 per cent of GDP, with a further 2.1 per cent of GDP in additional spending financed through the accumulation of domestic arrears.

But FUND, however, maintained that government’s response has helped contain the pandemic and support the economy, but at the cost of a record fiscal deficit.

It also praised the Central Bank on how it has used its intervention to stabilize the cedi in the midst of the pandemic, a development that helped gross international reserves remained at 3.2 months of imports.

External and domestic financing conditions tightened considerably at the start of the pandemic but have improved since Ghana successfully returned to international capital markets for a $3 billion Eurobond issuance in March 2021.

The Banking Sector and the IMF
Directors agreed that the monetary policy stance remains broadly appropriate while noting that tighter policy would be needed if inflationary pressures materialise.

On the other hand, gross international reserves are relatively high; however, the Fund stressed the need to “guard against erosion of external buffers and remain committed to a flexible exchange rate regime”.

Directors also encouraged the authorities to limit the monetary financing of the deficit.

Directors noted that “the financial sector cleanup had made the sector more resilient but stressed that banks’ growing holdings of sovereign debt creates risks and crowds out private sector credit.

In this regard, they took positive note of ongoing supervisory and regulatory reforms, which are important steps to protect financial stability.

Directors also welcomed the AML/CFT framework improvements that allowed Ghana to exit the FATF “grey list".