Accra - Ghana and the International Monetary Fund (IMF) reached agreement on Thursday on a three-year funding deal they hope will restore fiscal stability to an economy hailed until recently as an African star.
The deal was clinched after months of talks prompted by the failure of President John Mahama's government to hit a series of targets on inflation, the budget deficit and growth and a steep fall in the West African nation's currency.
For years Ghana's economy grew at around 8 percent on the back of gold, cocoa and oil exports and it was rated one of the most attractive countries in Africa for investors because of its stable democracy and middle income status.
But in 2014 economic growth fell to 4.2 percent as the government grappled with macro-economic instability and lower global commodity prices. Under the new deal, the IMF sees growth of 3.5 percent in 2015, rising to 5.0-6.0 percent in 2017.
By contrast, the Fund expects average GDP growth in sub-Saharan Africa to stand at 4.9 percent in 2015.
Africa Department division chief Joel Toujas-Bernate said the short-term priority was to stabilise Ghana's economy.
“We are confident that the programme ... will enable the authorities to achieve their objectives,” he told Reuters.
“We see the prospects at somewhat of a lower level of growth than we have seen in the last four of five years because indeed this period of large spending through large public borrowing now will not be able to continue,” he said in an interview.
GHOST WORKERS
The IMF board should ratify the agreement by April and under its terms Ghana will receive 664 million in Special Drawing Rights to be disbursed in tranches, conditional on the government meeting a series of targets.
These targets include cleaning up government payrolls - whose ranks have been swelled by the addition of 'ghost workers' - and to curb public sector wages so the total bill falls to 7 percent of national output from 8.5 percent within three years.
“We expect this agreement to lead to policy certainty and make markets to react more positively, (and) donors to react more positively in their support,” Finance Minister Seth Terkper told a news conference.
Ghana's budget deficit surged to nearly 12 percent of gross domestic product (GDP) before 2012 elections. Some economists say it will be hard to maintain the terms of the new deal ahead of 2016 polls in which Mahama is expected to seek re-election.
Toujas-Bernate said the government had deliberately chosen a timeframe for the agreement that straddled the election season. While there is always a risk of policy slippage, he said he expected the programme to be implemented.
The government aims to use the IMF programme to propel deeper economic changes in a country long reliant on the export of natural resources and the import of consumer goods.
It is also seeking to end a power crisis that has affected growth and angered many voters due to lengthy electricity cuts.
Under the terms of the agreement, inflation should fall to 11-12 percent by the end of 2015.
The deficit should stand at 7.5 percent in 2015, above a 6.5 percent target set in the annual budget, but this is partly due to a slump in global oil prices, which has dealt a blow to revenues, Toujas-Bernate said.
Reuters