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IMF revises growth forecast to 5.9% ; urges fiscal consolidation

June 29, 2017, 3:27 p.m.

The International Monetary Fund (IMF) has revised its 2017 growth forecast for Ghana to 5.9 per cent, below the government’s budgetary target of 6.3 per cent for the year.

The projection is based on developments in the first five months of the year and assumptions about the impact that domestic and global economy on growth prospects, the Resident Representative of the fund in the country, Ms Natalia Koliadina, told the Graphic Business.

The new forecast is slightly above the 5.8 per cent that the fund initially projected for the economy. Just like the March projection, the fund anticipates that the current forecast will be driven by the recent recovery in oil production.

Non-oil growth will, however, be subdued by anticipated fiscal consolidation, Ms Koliadina said in an email interview.

She explained that the consolidation, which has no “alternative,” was needed to correct the fiscal imbalances caused by election year excesses. While siding with the fund that non-oil gross domestic product will be subdued, the Head of the Economics Department at the University of Ghana, Legon, Prof. Peter Quartey, said he was confident overall gross domestic product (GDP) would hit six per cent this year.

“For me, I think we will do something in the range of six per cent,” he said, explaining that the fund’s projections could be a reflection of depressed revenue inflows in the first quarter of the year. Although the government was projecting to gross GH¢9.7 billion in the first four months of the year, data showed that the country realisedGH¢8.3 billion, reflecting a defict of GH¢1.4 billion.

Given that revenue inflow is a reflection of the level of economic activities in an economy, Prof. Quartey, who is also with a research tink-tank, the Institute for Statistical Social and Economic Research (ISSER), said the revenue shortfalls could be signaling a lower than expected growth rate.

“It is only when your revenue improves that you can generate more revenue but looking at the revenue situation, it shows that economic activities are not as vibrant as initially thought,” he said. Prioritise projects After moderating to nine per cent in 2015, fiscal deficit widened to nine per cent on cash basis, last year, as election pressures forced public expenditures above budgetary targets.  The excess spending was financed by increased borrowings and that resulted in the debt stock rising to GH¢122.6 billion, equivalent to 73.3 per cent of GDP in December 2016.

With these pressures still in place, Ms Koliadina said it was prudent that the government was aiming at striking a balance between “restoring fiscal discipline and embarking on ambitious programmes and projects to support growth.”

While emphasising the IMF’s support for that decision, the Resident Representative explained that “the prioritisation of the projects and their phased implementation would allow the authorities to keep spending within the budget envelope and to avoid excessive borrowing.”

Extending ECF

On the three-year facility the country has with the fund, the Resident Representative said the two sides had made progress on discussions to extend and now expect to resolve the remaining issues before end-June. The conclusion of the discussions is needed for the outcome to be presented to the IMF Executive Board in late July. 

Ms Koliadina explained that the extension was needed to correct the setback that the US$918 million facility suffered last year, since achieving the original programme objectives “will take more time than initially expected.” “Given a significant fiscal slippage last year, it will take longer to bring debt on a clearly declining path, which explains the need for programme extension,” she said.

On the fourth review, Ms Koliadina said the fund was currently dialoguing with the government to set the stage for a review by the Executive Board. The review will be followed by the release of US$116.2 million of the bailout money.

It should bring to US$580.8 million, the total amount the country has under the programme that was scheduled to run from April 2015 to April, next year.