IMF Readies Loan for Ghana to Support Reform Plan

Ghana’s economic growth expected to slow for fourth straight year in 2015

Additional measures adopted to mitigate budget’s oil revenue shortfall

Priority is to restore debt sustainability by sustained fiscal consolidation

The loan, which could receive final approval in early April, would back a program aimed at boosting economic growth and tightening fiscal discipline.

Ghana would implement its reform program under a three-year Extended Credit Facility arrangement from the IMF, which is still subject to approval by the IMF’s management and Executive Board. One of the priorities of Ghana’s program is to restore debt sustainability through a sustained fiscal consolidation.

Offshore oil production came on stream in Ghana in 2010, and the slump in world oil prices since mid-2014 has resulted in a shortfall of budget revenue of about 2 percent of GDP. Under its new program, the government has acted to buttress the 2015 budget with additional measures to lower spending ceilings and draw from an oil stabilization fund, to offset the budget’s oil revenue shortfall arising from the recent slump in world oil prices.

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.

Sustained slowdown

An IMF statement said Ghana’s economic growth rate is expected to slow for a fourth consecutive year in 2015 to 3 ½ percent on the back of a severe energy crisis and the budget-tightening measures. Growth topped 9 percent in 2011, but had been followed by three difficult years characterized by slowing activity, accelerating inflation, and rising debt levels and financial vulnerabilities.

In 2014 economic growth reached its lowest level in many years amid high interest rates, a fast depreciating currency, low aggregate demand, and a deepening energy crisis. Inflation reached 17 percent, well above the central bank’s inflation target. Large fiscal deficits caused by a ballooning wage bill, poorly targeted energy subsidies, and commodity price shocks pushed government debt and financing costs to very high levels.

The main priority of the program is to restore debt sustainability through a sustained fiscal consolidation, and to support growth with adequate capital spending and a reduction in financing costs. The program rests on three...