Ghana's economic progress wins qualified IMF approval

Although the Ministry of Finance's recordkeeping has been the subject of heavy criticism in the PAC enquires described above, the Ministry was able to report positive economic news last week.

Minister Kwabena Duffour has pointed to a lower than expected budget deficit of 4.3% of GDP compared with a target of 5.1%. This is supported among other things by improvements in tax collection of around 15% and by improvements in other sources of revenue and grants by over 8%, and the budget deficit is expected to remain relatively stable at 4.4% during 2012. Given concerns from ratings agencies and others about the levels of Ghana's deficits in an election year, these figures seem like positive news at first glance.

The International Monetary Fund (IMF), however, presents a more nuanced view. It was articulated during its 22 February to 2 March mission to Ghana as part of a review under Ghana's Extended Credit Facility with the IMF during which officials met Duffour and Bank of Ghana (BoG) governor Kwesi Amissah-Arthur as well as other officials.

Among other things, the IMF noted that the 2011 budget deficit - quoted as 4.4% of non-oil GDP and 4.2% of total GDP - was indeed supported by improvements in revenue collection. This is an improvement used by a number of African governments following the global financial crisis but it also hides a large increase in the public wage bill. This trend that looks set to continue with recent reports of significant increases in guaranteed wages for many public-sector workers. In addition the government's “spending obligations”, including fuel price subsidy claims, of around 1% of non-oil GDP are being “carried over into 2012”.

According to the IMF, the combination of inflation risks, deteriorations in the trade balance and fiscal deficit, and a slowdown in global demand, are still risks for Ghana's economy in 2012. In addition there are excessive exchange rate fluctuations and the risk that rising oil prices will force the government to pay subsidies so that Ghanaian consumers can afford fuel. This view of downside risks, along with encouragement for the government to rebuild its foreign exchange buffers, largely echoes the views of senior research analysts that have been issued in recent months.

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© 2012 Menas Associates