GHANA IS PURSUING RIGHT ECONOMIC POLICIES
THE International Monetary Fund (lMF) has said that the government has taken the right measures to address expenditure imbalances and external shocks.
An IMF mission, which just left the country after reviewing the 'country's macroeconomics policies, said when fully implemented, various steps by the government, such as the elimination of subsidies for non- residential users by bringing utility prices to cost-recovery levels as of May 1, 2008, will yield positive results in a worsening global environment.
The mission, headed by Mr Piroska M. Nagy, which visited the country from March 26 to April 8, 2008 to hold discussions for its annual Article IV review of Ghana's macroeconomics policies, welcomed the government's efforts to increase the low level of government revenue from the gold sector (estimated at less than six of gold export receipts).
The government is also developing administrative measures to keep the wages bill within budgeted levels.
"The mission welcomes the policy measures,the government has developed recently to address fiscal and external imbalances. When fully implemented, these will limit the increase in the fiscal and current account deficits in 2008 and go a long way to reducing the fiscal deficit to seven per cent of Gross Domestic Product (GDP) or less, starting in 2009," a statement issued at the end of the visit said.
The IMF team was particularly intrigued by the government's intention of full cost recovery for utility tariffs, against the backdrop of rising world market oil a prices and continued delays in starting deliveries through the West African Gas Pipeline (WAGP).
The mission met with the Finance and Economic Planning Minister, Mr Kwadwo Baah-Wiredu, the Minister of State at the Ministry of Finance and Economic Planning, Dr Anthony Akoto Osei, the Governor of the Bank of Ghana, Dr Paul Acquah and senior officials of the bank, as well as representatives of the private sector, non-governmental organisations, labour unions, and the donor community, the mission said.
The mission observed that the increasing fiscal and external current account deficits came from demand pressures from
a rising fiscal deficit which combined with robust private sector growth.
The country's fiscal deficit reached about nine per cent of GDP in 2007, reflecting in part the impact of world oil price increases and necessary investment to address the recent energy crisis, as well as higher-than-budgeted wage bill and rising price subsidies for utilities.
The IMF Mission said although the strong lending to the private sector was a positive development, it added to demand and that risks to debt distress had increased, although they remained moderate.
"Financial deepening through deposit funded private sector credit growth is welcome, but its speed requires supervisory vigilance. The recently announced increase in the level of minimum capital and steps towards a more risk-sensitive regulatory system, with an eventual introuction of Base lI, are appropriate," the team said.
Bank lending to the private sector on year-on-year basis up to January 2008 grew by 60.4 per cent from GH¢1.26 billion to GH¢3.34 billon, compared with 46.9 per cent (GH¢664.3 million) in a year to January 2007.
It also welcomed the Bank of Ghana's newly adopted inflation targeting posture which started in November, 2007 and said further tightening was necessary in the presence of strong demand pressures.
"Ghana's medium-term prospects are bright, with the outlook depending closely on actions taken now," the statement said, adding that the prospect of oil production could accelerate Ghana's timetable for reducing poverty and reaching middle income status, provided that it avoids the "oil curse" of government problems and boom-bust cycles.
The mission called for appropriate regimes for oil revenue and demand management and commended the authorities , for having started a nation-wide consultation on how best to use oil resources to the benefit of the people.
Credit Daily Graphic
