Ghana’s economic growth continues to slow down – says IMF

The Sierra Leone Telegraph: 31 May 2014

A statement published this week by the IMF Executive Director for Ghana, has painted yet another gloomy prospect for one of Sub-Saharan Africa’s giants.

Ghana’s economic growth is stalling fast. (Photo: President Mahama).

Despite previous reports of the country’s economy heading for a third successive year of slower growth, amid large current account and budget deficits, it seems the authorities are struggling to reverse this downward trend.

A recent report authored by economists at the IMF African Department, states that the main priority for the government is to restore macroeconomic stability, by addressing short-term vulnerabilities.

The government says that its ‘Transformation Agenda’ is focussing on economic diversification, social inclusion and macroeconomic stability. But is this enough to get Ghana out of the looming economic crisis?

Before the start of the global recession, the Ghanaian economy was experiencing strong and broadly inclusive growth, outperforming its West African counterparts in poverty reduction and other human social development indices.

Ghana’s democratic development and institutional reforms, since the return of civilian rule following the Jerry Rawlings military interregnum, have become the envy of several African countries.

Ghana’s elevation to global middle-income status, is now seriously at risk.

According to the statement released last week by the IMF Executive Director for Ghana, following its Article IV Consultation with the authorities in Accra; “short-term vulnerabilities have risen significantly, amid high fiscal and current account deficits.”

This is what the Executive Director said:

“The international reserve position has weakened alongside mounting public debt. High interest rates and a depreciating currency have begun to weaken private sector activity, and spreads on Ghana’s Eurobonds have risen above those of regional peers.

“Economic growth is slowing from previously high levels. Following estimated GDP growth of 5½ percent in 2013, staff projects a further deceleration to 4¾ percent in 2014.

“Driven by the depreciation and administered price increases, inflation reached 13½ percent at end-2013 and 14½ percent in March.

“Monetary policy was tightened, as the fiscal consolidation target was missed. Despite significant policy efforts, the 2013 fiscal (cash) deficit reached an estimated 10.9 percent of GDP, versus a target of 9 percent.

“In the absence of additional measures, the 2014 deficit is projected at 10¼ percent of GDP, with consolidation made more difficult by slower growth.

“To address rising inflation, the monetary policy rate was raised to 18 percent and reserve requirements were tightened. Current vulnerabilities put Ghana’s transformation agenda at risk.

“The government’s objectives of economic diversification, shared growth and job creation, and macroeconomic stability rely on the reallocation of resources from current to capital spending.

“Yet, high twin deficits and large interest payments on rising public debt are crowding out priority expenditure and private sector activity.

“Macroeconomic stability will need to be restored to preserve a positive medium- term outlook.

“The financial sector is adequately capitalized and liquid, but increasing exposures will need to be monitored closely.

“Stress tests conducted by the Bank of Ghana suggest that buffers are adequate in most banks and the system in aggregate.

“Nevertheless, the weaker macroeconomic outlook and currency depreciation expose the financial sector to credit and foreign exchange risks, warranting a strengthening of crisis prevention and management capabilities.”

This latest IMF report is unlikely to inspire much needed private sector confidence in Ghana’s crippling economy. But what is uncertain, is whether the government is prepared to make deeper public sector expenditure cuts in order to reduce the budget deficit.

Perhaps there is hope on the horizon. According to the latest report of the African Economic Outlook; “Over the medium term to 2015, the economy is expected to register robust growth of around 8%, bolstered by improved oil and gas production, increased private-sector investment, improved public infrastructure development and sustained political stability.”

The fact remains though, that Whilst public expenditure cuts are politically unpopular and highly risky, the government in Accra may soon find it has to make tougher fiscal policy choices, if it is to avoid serious economic meltdown and political instability.