Ghana Gets $918 Million IMF Loan to Back Growth, Jobs Plan

Economic prospects at risk from fiscal, external imbalances, power shortages

Reforms aim at tighter fiscal discipline, stronger public finances, lower inflation

Government committed to safeguard social, other priority spending

The financing package extends over three years under the IMF’s Extended Credit Facility, backing a plan that was agreed by an IMF staff team in February.

The reform program seeks to boost growth and help cut poverty by restoring macroeconomic stability through tighter fiscal discipline, strengthened public finances, and slowing inflation. The reform measures are expected to dampen non-oil growth initially in 2015 ahead of a projected growth rebound in subsequent years.

The government’s program projects an economic growth pickup to start in 2016, driven by expected large increases in Ghana’s hydrocarbon production. The West African country started oil production from offshore wells in 2010.

Lower inflation and interest rates, combined with a more stable exchange rate, would help support private sector activity. Increased oil exports and lower oil imports on the back of domestic gas production would help improve the current account and support reserves over the medium term.

Ghana is one of Africa’s frontier emerging markets, having entered the global capital market for the first time in September 2007. Its past wealth lay in gold and cocoa―commodities that have remained in high demand, and which have helped the country weather the recent global recession.

Imbalances, power shortages

Ghana’s economic growth rate topped 9 percent in 2011, but three difficult years followed that were characterized by slowing activity, accelerating inflation, and rising debt levels and financial vulnerabilities. The country’s economic prospects were put at risk by the emergence of large fiscal and external imbalances, as well as by electricity shortages.

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.

Inflationary pressures rose on the back of a large...