Ghana’s economy will outperform peers – IMF

The International Monetary Fund (IMF) is projecting that the Ghanaian economy will outperform the sub-Saharan Africa growth this year.

It forecasts that the economy will grow by 4.5 per cent for this year, while growth in sub-Saharan Africa is expected to remain weak this year at three per cent.

The Economic Counsellor and Director of the Research Department of the IMF, Mr Maurice Obstfeld, made the projection at a news conference in Washington DC, to launch the World Economic Outlook.

Although that growth rate is lower than what the 2016 Budget projects, Mr Obstfeld said it will be ahead of most of its peers in sub-saharan Africa.
In the last three years, Ghanaians have suffered a fall in living standards with a decline in the performance of the economy. In particular, real incomes have been decimated by stubbornly high inflation.

Inflation for February 2016 stood at 18.5 per cent, marginally down from the 19 per cent in January 2016 as against the 17.7 per cent recorded in December 2015.
The Ghanaian economy grew by a provisional 4.1 per cent last year, when it was hampered by power deficit, fiscal consolidation and a slump in commodity prices on the world market.

However, the IMF has high hopes for countries such as Cote d’Ivoire, Tanzania, Rwanda, Senegal. They are expected to drive growth at rates between six per cent and seven per cent, this year and 2017.

Ghana’s Extended Credit Facility programme with the IMF has clocked its first anniversary. The programme’s key aims are to restore debt sustainability, macroeconomic stability and high economic growth while protecting social spending.

However, the programme has been criticised in some quarters for its failure to bring down the debt level so far. In fact, Ghana’s debt burden and debt costs have increased under the programme.

But the IMF says the level of increases has started slowing which is good news for the target of reversing the trend.

From IMF Staff projections in the second review of the programme, debt to Gross Domestic Product (GDP) will be at 69.6 per cent in 2017, the last year of the programme.

This cannot count as a sustainable debt level for Ghana and probably means the programme may not restore debt sustainability after all.

Another sticky point is the programme’s call for an end to the central bank’s deficit financing, starting from 2016. Domestic financing of the 2015 Budget amounted to GH¢4.68 billion, out of which the Bank of Ghana financing amounted to GH¢1.86 billion, while financing from commercial banks through treasury instruments was GH¢516.8 million.

The call appears unrealistic in the light of arguments that the local financial sector lacks the capacity and depth to fully accommodate the government’s borrowing requirements, without triggering higher interest rates and crowding out the private sector.

A more reasonable option would be to proceed gradually towards the cessation of government borrowing from the central bank. This is illustrated by the fact that although the 2015 Budget had projected a zero central bank financing, it ended up doing about GH¢2 billion financing.

That notwithstanding, the zero financing by the central bank has already started and it is expected to boost the stability of the cedi.