The International Monetary Fund (IMF) is cautioning Ghana to be mindful of its public spending ahead of next year’s general elections in order not to undo the macroeconomic gains made in the aftermath of the IMF bailout program.
The Fund in a statement issued after its routine assessment of the country’s economy asked the government to, as much as possible, prepare a budget that controls the government’s appetite for borrowing and also ensures that it spends within its limit.
“While 2020 budget preparations are ongoing, the mission underlined the need to adopt an appropriately tight budget to limit financing needs, contain debt build-up, and support the external position.
This will likely require both spending and revenue measures. The IMF team recommended avoiding spending and financing operations outside the budget to enhance budget credibility and transparency;” the Bretton Woods institution stated.
From its statement, the IMF is urging the government to work on increasing its domestic revenue else it may have no choice than to cut its spending rather than borrowing to execute its planned programme and activities.
“In the medium term, raising domestic revenues remains a priority to create fiscal space and buttress fiscal sustainability. The authorities should also forge ahead with the implementation of the Energy Sector Recovery Plan to limit contingent liabilities in the energy sector,” said Carlo Sdralevich, who led the IMF Mission to Ghana.
The Fund also urged the Monetary Policy Committee of the Bank of Ghana not to hesitate to increase its policy rate should the inflation rate, currently at 7.6 percent, rise above the government target of 8 percent.
Macroeconomic gains
According to IMF, the country’s macroeconomic outlook remains favorable, supported by strong activity in the extractive industry and a safer banking system.
The Fund projects that the country’s economy will grow at around 7 percent in 2019.
September inflation which stood at 7.6 percent is just below the 8 percent target.
The local currency has since the beginning of the year depreciated by about 10 percent compared to the 8.4 percent recorded in the whole of 2018.
The Fund also predicts that the Bank of Ghana’s international reserves are to record a build-up in 2019, supported mainly by an improving trade balance and external borrowing with the primary risk to the outlook remains policy relaxation in the run-up to the 2020 elections.