Ghana: IMF approves additional $114.6 million disbursement

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The International Monetary Fund (IMF) has concluded the second review of Ghana’s economic performance, leading to additional approval of $114.6 million to boost growth, jobs and stability.

This brings total disbursements to the West African country to $346 million under the extended credit facility arrangement following the fund’s initial approval of $114.8 million in April and $116.6 million in August 2015.

The difficult financial situation of several state-owned enterprises in the utilities sector also calls for strong actions

The IMF also granted a waiver to Ghana for non observance of the performance criterion regarding non-accumulation of external arrears, based on what it described as corrective measures being taken by Ghanaian authorities. The Board further approved new programme targets for 2016.

Ghana’s three-year arrangement for SDR (special drawing rights) 664.20 million (about $918 million or 180 per cent of quota) was approved on April 3, 2015. It aims to restore debt sustainability and macroeconomic stability in the country to foster a return to high growth and job creation, while protecting social spending.

The fund described implementation of the programme by Ghana as “broadly satisfactory”, but warned that the country’s economic outlook remained difficult with risks tilted to the downside.

“It is encouraging that the government’s fiscal consolidation efforts are on track and that electricity production capacity is being gradually increased,” Min Zhu, acting chair and deputy managing director said.

While urging authorities to resolutely continue their fiscal consolidation efforts, he noted that with government debt continuing to increase and financing remaining a challenge, the 2016 budget aims at a stronger consolidation than originally envisaged.

In this regard, the fund cautioned it was crucial “the government sticks firmly to its policy of strict expenditure controls, by maintaining the wage bill within the budget limits, while controlling discretionary spending and protecting priority spending”.

“It is also important to continue to adhere to the domestic arrears clearance plan and avoid incurring new domestic or external arrears,” Zhu said.

The IMF welcomed Ghana’s commitment to addressing fiscal risks, but advised that authorities implement a wide range of ambitious reforms to ensure fiscal consolidation gains were sustained.

The international lender urged Ghana to take steps to broaden its tax base and enhance tax compliance, strengthen control of the wage bill, and enhance public financial management.

“The difficult financial situation of several state-owned enterprises in the utilities sector also calls for strong actions to avoid additional pressures on the budget,” Zhu said.

Against the backdrop of persistent large financing needs and tight domestic and external financing conditions, he lauded the country’s new medium-term debt management initiative.

He said it was a step to help reduce near-term financing risks, while balancing domestic and external financing in a way that would not jeopardise debt sustainability. However, the fund cautioned authorities to complement their strategy by stepping up work to deepen the domestic debt market.

“To help bring inflation down towards its medium-term target, Bank of Ghana (BoG) should stand ready to further tighten monetary policy if inflationary pressures do not recede as expected,” Zhu added.

The preparation of an amended BoG Act and its commitment to gradually deepen the foreign exchange market will help make inflation targeting framework more effective.

“Financial sector stability will need to be monitored closely in a context of deteriorating asset quality,” IMF said.

The fund also charged Ghana’s central bank to take immediate steps to increase resilience and address weaknesses in asset classification, stressing that rapid implementation of the country’s new banking laws was essential to safeguard financial sector stability.

The new laws are currently under review by the country’s parliament.

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