Ghana needs fiscal consolidation to address debt sustainability—IMF

Fiscal consolidation is needed to address Ghana’s debt sustainability and rollover risks, the International Monetary Fund (IMF) has said.

In a statement on its latest review of the Ghanaian economy under the Article IV Consultation issued on Tuesday, the IMF lauded the government for the fiscal adjustment outlined in the 2021 budget.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year in which  staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies.

On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board, and after the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarises the views of Executive Directors, and this summary is transmitted to the country’s authorities.

The IMF said Ghana continued to be classified as high risk of debt distress. 

“While noting that risks to Ghana’s capacity to repay have increased, Directors concurred that they are still manageable and that Ghana’s capacity to repay the Fund remains adequate,” the IMF said.

It said while there were encouraging signs of an economic recovery amid the COVID-19 pandemic, it remained uneven across sectors.

“In this context, directors stressed the importance of entrenching prudent macroeconomic policies, ensuring debt sustainability, and pressing ahead with structural reforms to deliver a sustainable, inclusive, and green economic recovery,” the IMF said.

The statement said the IMF directors agreed with the monetary policy stance of the BoG and it remained broadly appropriate, stressing that tighter policy would be needed if inflationary pressures materialised.

Although gross international reserves are relatively high, the statement said the directors stressed the need for the BoG to guard against erosion of external buffers and remain committed to a flexible exchange rate regime and also encouraged the Ghanaian authorities to limit monetary financing of the deficit.

“The IMF Directors emphasized that the authorities’ structural transformation and digitalisation agendas are critical to support the recovery. They noted that the structural transformation can be complemented by the ongoing energy sector review, diversification in tourism, and the digital transition, which has the potential to reduce corruption, boost tax revenues, and improve service delivery. Directors supported continued capacity development efforts in these areas,” the statement said.

On the banking sector, the IMF said the directors noted that the financial sector cleanup had made the sector more resilient but stressed that banks’ growing holdings of sovereign debt created risks and crowds out private sector credit.

“In this regard, they took positive note of ongoing supervisory and regulatory reforms, which are important steps to protect financial stability. Directors also welcomed the improvements in the AML/CFT framework that allowed Ghana to exit the FATF ‘grey list’,” the statement said.


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