By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-Ghana over the past two decades has recorded a declining poverty rate over the past two decades, the International Monetary Fund (IMF) said on Tuesday at the conclusion of 2014 article IV consultation with the country.
The IMF said the country has outperformed regional peers in reducing poverty, and has experienced strong and broadly inclusive growth over the past two decades, and its medium-term prospects are supported by rising energy production with robust democratic credentials and a highly-rated business climate attracting significant foreign direct investment (FDI) and supporting economic growth.
The Fund said Ghana’ short-term economic outlook is subject to significant risks and growth is projected to slow to 4¾ percent in 2014, as high interest rates and a weaker currency are compressing domestic demand.
However, the Fund said Ghana’s current account deficit exceeded 12 percent (12%) of gross domestic product (GDP) last fiscal year which is only a moderate slowdown in growth to about 7 percent, “the fiscal deficit target of 9 percent of GDP was missed by about 1 percentage point, despite significant policy efforts,” the IMF affirmed.
“At the same time, the economy’s continued large twin deficits, and high financing needs, leave it vulnerable to a deterioration of external conditions,” the IMF said.
Also, inflation overshot the 9 +/- 2 percent target range, prompting a further tightening of Ghana’s monetary policy in early 2014.
The IMF executive board in its assessment commended the country for its strong and broadly inclusive growth and declining poverty over the past two decades, and supported the government’s transformation agenda, focused on economic diversification, social inclusion, and macroeconomic stability.
The Fund executive board however, expressed concern over the emergence of significant short-term vulnerabilities stemming from high fiscal and external current account deficits.
According to the IMF, these imbalances make the country vulnerable to a deterioration of external conditions and are creating pressure on interest rates and the exchange rate. “If unaddressed, they risk weakening economic growth and public debt sustainability,” the IMF said.
The IMF board noted that achieving the 2014 fiscal deficit target will be challenging for Ghana, in light of high interest rates, a depreciating currency, and a possible growth slowdown; advising the authorities to take additional short-term measures to reduce the fiscal and external imbalances.
The IMF directors urged Ghana to do a more ambitious medium-term consolidation path to stabilise public debt and debt service at sustainable levels and address the current imbalances.
On the high debt service-to-revenue ratio, the IMF expressed worry that a stronger medium-term adjustment could set off a virtuous cycle of lower fiscal deficits and falling interest rates, creating space for social and infrastructure spending and crowding-in of private sector activity.
The IMF advised Ghana to further tighten its monetary policy in order to steer inflation back into the target range. “The Bank of Ghana limiting its net credit to the government, strengthening its liquidity management and the inflation forecasting framework, and continue to allow the exchange rate to adjust to prevent further erosion of the reserve buffer,” the Fund afifrmed.
The Fund’s board said the country’s financial system is currently sound, adequately capitalised and liquid, but stressed the need to monitor exposures closely, “a weaker macroeconomic outlook, rising interest rates, and currency depreciation expose the financial sector to credit and currency risks,” they said.
