The economy expanded by an estimated 13½ percent in 2011, boosted by the onset of oil production and strong broad based non-oil growth, while end-2011 inflation reached 8.6 percent—below the government’s 9 percent target. Despite a strong export performance, the provisional current account deficit rose to a level of nearly 10 percent of GDP in 2011 on account of rapid import growth. In 2012, the economy is expected to continue to grow at a robust rate of 8-9 percent, and with appropriately tight macroeconomic policies, inflation is projected to remain within the inner target band of 6.7-10.7 percent.
The fiscal deficit in 2011 of 4.4 percent of non-oil GDP (4.2 percent of total GDP) was below the program ceiling by 0.7 percentage points of non-oil GDP, supported by an impressive improvement in revenue collection. However, the wage bill, exceeded earlier projections, and spending obligations of about 1 percent of non-oil GDP were carried over into 2012. The government made commendable efforts in settling past arrears to the tune of GH¢ 1.5 billion (3 percent of non-oil GDP).
The government’s main challenge for 2012 will be to maintain the hard-won stabilization gains—strong broad-based growth, single-digit inflation, and fiscal consolidation—in the face of resurgent global risks. A sizeable depreciation of the cedi in January likely reflected a combination of seasonally high demand for foreign exchange and increased risk perceptions of foreign investors. Interventions by the Bank of Ghana and a subsequent increase in the policy rate helped reverse the slide partly in February. Nevertheless, Ghana’s economy is exposed to upside risks to inflation from currency depreciation and high domestic demand, as well as to a possible deterioration in the external position, should a deeper global slowdown weaken foreign inflows.
In light of these risks, the mission cautioned against any actions that could jeopardize the government’s 2012 fiscal deficit target of 5.2 percent of non-oil GDP. Achieving this target will now require additional efforts, in light of the carry-over of claims and residual costs from fuel price subsidies in 2011. Moreover, rising world oil prices, if not passed on to consumers, will result in the reemergence of costly subsidies, while the recently agreed pay increase for the public sector of 18 percent will require significant savings from a planned payroll audit to keep the wage bill in check. To this end, discussions focused on identifying opportunities for fiscal savings from higher revenues or reduced spending, including contingency measures that could be activated, if needed.
Discussions with the Bank of Ghana focused on sustaining low inflation and policies to strengthen monetary operations and liquidity management. The mission considered that further policy actions may be needed in the course of 2012 should upside risks to inflation become pronounced. It encouraged the Bank of Ghana to continue to build a strong buffer in foreign reserves and take measures to increase the liquidity in the foreign exchange market as a way to reduce excessive exchange rate volatility.
Leader Of IMF Mission To Ghana
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