Focus on revenue, not spending cuts, IMF tells Ghana
Further spending cuts are not sustainable in the country as government capital spending is already low at 3% of GDP
Accra — Ghana needs to improve revenue collection and can’t keep reducing spending on capital items to achieve its fiscal targets, the International Monetary Fund (IMF) has said.
That’s one of the recommendations made by the Washington-based lender during a review of the country’s $1bn extended credit-facility programme, country representative Natalia Koliadina said. Under the plan, which started in April 2015 and is due to end in December, Ghana committed to implementing reforms to rein in chronic over-spending and improve economic governance.
"Fiscal consolidation has to be revenue-based," Koliadina told reporters in the capital, Accra. "Further spending cuts are not sustainable as government capital spending is already low at 3% of GDP."
While Ghana missed its revenue target for 2017, it met fiscal-consolidation goals, with the budget deficit declining to 5.9% of GDP, she said. The gap was 8.7% of GDP the year before, according to government data.
The state, which hasn’t borrowed from the central bank to finance the budget since 2016, must continue to support the goal of bringing down inflation to 8% in the medium term, and also continue to stabilise the exchange rate, Koliadina said. Ghana’s inflation rate fell to 10.3% in January.
Efforts by the Bank of Ghana to resolve weaknesses in the financial industry and lower non-performing loans are welcome and should continue because they will help trim private-sector borrowing costs, she said. Non-performing loans increased 43% to 8.6-billion cedis ($726m) at end-December from a year earlier, according to the central bank.
The IMF supports Ghana’s plans to issue $1bn of eurobonds this year because it would help the authorities refinance more costly domestic debt. It also agrees with Ghana’s goal to further reduce the fiscal deficit to 4.5% of GDP in 2018, because this will result in a primary surplus of 2% of GDP and means meeting interest payments on debt without having to borrow, she said.
"Eliminating the risk of debt distress requires that only priority projects be financed through external borrowing on market terms," Koliadina said.
IMF staff and the Ghanaian authorities will use the coming weeks to reach an understanding on measures being put in place to continue fiscal discipline and structural reforms, focusing on sound public financial management before the IMF board’s meeting in April.
Said Koliadina, a positive outcome of the fifth and sixth reviews of the programme will lead to the IMF disbursing $190m to Ghana.