By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF) on Friday approved $918 million facility for Ghana aimed at restoring debt sustainability, economic growth and job creation, and said it will immediately disburse114.8 million.
The deal will help the government of Ghana check inflation reduce, budget deficit and restore currency stability and sustain higher growth which had hitherto hampered economic growth in the West Africa nation.
Growth decelerated markedly in 2014, to an estimated 4.2 percent, driven by a sharp contraction in the industrial and service sectors. “This was due to the negative impact of the currency depreciation on input costs, declining domestic demand and increasing power outages,” the IMF said.
Inflation rose on the back of a large depreciation of the cedi and the financing of the fiscal deficit by Bank of Ghana (BoG).
Despite several hikes in Ghana’s policy interest rate in 2014 to 21 percent, headline CPI inflation reached 17.0 percent at end-2014, well above the 8 +/-2 percent target range of the BoG.
The West Africa nation’s fiscal deficit remained high in 2014 despite gradual fiscal consolidation efforts undertaken since mid-2013. Also, the government of Ghana started facing increasing financing difficulties as delays in implementing some adjustment measures and unbudgeted wage allowances resulted in a higher-than-budgeted cash fiscal deficit of 9.5 percent of GDP.
Ghana’s domestic arrears were accumulated and the overall fiscal deficit on a commitment basis remained close to 10 percent of GDP.
To check this, the government has had to resort increasingly to short-term domestic debt, which now carries interest rates at around 25-26 percent, and significant monetary financing.
A$1 billion Eurobond was successfully issued in September 2014, but at significantly higher interest rate than other issuers in sub-Saharan Africa.