Government is likely to cut costly and untargeted subsidies on petroleum products, cut tax exemptions in a number of sectors as well as make drastic efforts at cutting public sector wage cost deficits as part of moves to save the economy following negotiations with the International Monetary Fund (IMF).
The Bank of Ghana is also likely to cut its financing of government’s budget deficits.
Ghana yesterday completed its first round of negotiations with the IMF on a program that is expected to help the country out of its current economic challenges.
According to a press statement from the IMF on the negotiations, ‘government needs to implement a more ambitious and front loaded fiscal consolidation to help place public debt on a sustainable path, and to allow monetary policy to be more effective in bringing down inflation’.
Some industry players had earlier warned government to desist from moves to go to the IMF.
The TUC had warned the program will lead to public sector job cuts, while business groups including the AGI and GCCI have called for a business friendly program.
But recommendations from the IMF following the negotiations show a likely cut in public sector jobs, a cut in subsidies on petroleum products while business will have to cough up more in taxes as tax exemption in some sectors will be removed if talks are not swayed.
According to the lead negotiator of the IMF, Toujas-Bernaté budget deficit financing by the Bank of Ghana must be strictly limited also ‘front loaded adjustment should be realized through reductions in Ghana’s comparatively high public sector wage costs, the elimination of costly and untargeted subsidies for energy and petroleum products, and a better prioritization of capital spending;.
It adds with revenue, ‘reduction of tax exemptions and strengthened revenue administration through a better targeting of large taxpayers appear necessary.’
President Mahama this week announced the IMF program is likely to take off in January next year, according to the IMF ‘discussions on a possible program that could be supported by the IMF will continue in Washington during the Annual Meetings’ adding that ‘government has expressed their intent to prepare and implement additional upfront measures building on ongoing broad consultations’.
The mission which met with President Mahama, Vice- President Kwesi Amissah-Arthur, Dr. Kwesi Botchwey, Chairman of the National Development Planning Commission, Finance Minister Seth Terkper, Minister of Gender, Children and Social Protection Nana Oye Lithur, Bank of Ghana Governor Kofi Wampah, other senior officials, and representatives of the private sector, the donor community and civil society says Ghana continues to face significant domestic and external vulnerabilities due to its large fiscal deficit, slowdown in economic growth and rising inflation.
It says ‘these vulnerabilities are putting Ghana’s medium-term prospects at risk’.
It estimates growth to ‘decelerate to 4 ½ percent in 2014, from 7.1 percent in 2013, and inflation to reach an average of around 15 percent for the year’ while ‘fiscal deficit is expected to remain elevated at around 9 ¾ percent of GDP, driven by weak revenue performance, a large wage bill and substantially rising cost of debt service’.
‘The external current account deficit is projected to narrow to 10 percent of GDP, as imports declined substantially due to slower growth and a large depreciation of the currency, while export performance remained weak’.
It says though the cedi weakened sharply through August, before recovering very recently , the successful issuance of a US$1 billion Eurobond and Cocoa Board (Cocobod) successfully raising US$1.7 billion for the financing of a projected excellent cocoa crop were positive developments.
But adds gross international reserves will remain at a low level.
By: Vivian Kai Mensah/citifmonline.com/Ghana
