Higher-than-expected wage claims and fuel subsidies will mean Ghana must take additional steps to stick to its 2012 deficit target of 5.2 percent of gross domestic product, the International Monetary Fund said.
"To this end, discussions focused on identifying opportunities for fiscal savings from higher revenues or reduced spending including contingency measures that could be activated if needed," IMF mission chief Christina Daseking said in a statement after a nine-day visit to the country.
The mission led by Christina Daseking, visited the country during February 22 to March 2, 2012, to conduct discussions for the sixth review under the IMF’s Extended Credit Facility. The mission met with Finance Minister Kwabena Duffuor, Bank of Ghana Governor Kwesi Amissah-Arthur, other senior officials, members of the Parliamentary Finance Committee, and representatives of the private sector and trade unions.
The statement posted on the IMF website said “The economy expanded by an estimated 13.5 per cent in 2011 which was boosted by the onset of oil production and strong broad based non-oil growth, while end-2011 inflation reached 8.6 per cent—below the government’s 9 percent target.
The statement said despite a strong export performance, the provisional current account deficit rose to a level of nearly 10 per cent of GDP in 2011 on account of rapid import growth and pointed out that the economy is expected to grow at a robust rate of 8-9 percent, and with appropriately tight macroeconomic policies, inflation is projected to remain within the inner target band of 6.7-10.7 per cent.
“The fiscal deficit in 2011 of 4.4 percent of non-oil GDP (4.2 percent of total GDP) was below the programme ceiling by0.7 percentage points of non-oil GDP, supported by an impressive improvement in revenue collection. However, the wage bill, exceeded earlier projections, and spending obligations of about 1 percent of non-oil GDP were carried over into 2012. The government made commendable efforts in settling past arrears to the tune of GH˘ 1.5 billion (3 percent of non-oil GDP)” the statement said.
It said “The government’s main challenge for 2012 will be to maintain the hard-won stabilisation gains—strong broad-based growth, single-digit inflation, and fiscal consolidation—in the face of resurgent global risks.
The statement pointed out that a sizeable depreciation of the cedi in January reflected on the combination of seasonally high demand for foreign exchange and increased risk perceptions of foreign investors. Interventions by the Bank of Ghana and a subsequent increase in the policy rate helped reverse the slide partly in February.
It said the economy was exposed to upside risks to inflation from currency depreciation and high domestic demand, as well as to a possible deterioration in the external position, should a deeper global slowdown weaken foreign inflows.
“In light of these risks, the mission cautioned against any actions that could jeopardize the government’s 2012 fiscal deficit target of 5.2 percent of non-oil GDP.
Achieving this target will now require additional efforts, in light of the carry-over of claims and residual costs from fuel price subsidies in 2011.
Moreover, rising world oil prices, if not passed on to consumers, will result in the reemergence of costly subsidies, while the recently agreed pay increase for the public sector of 18 percent will require significant savings from a planned payroll audit to keep the wage bill in check.
To this end, discussions focused on identifying opportunities for fiscal savings from higher revenues or reduced spending, including contingency measures that could be activated, if needed, the stated said.
The statement concluded that “Discussions with the Bank of Ghana focused on sustaining low inflation and policies to strengthen monetary operations and liquidity management”.
Source: Daily Graphic
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