The International Monetary Fund says Ghana's 2021 Budget and Economic Policy is pivotal towards fiscal consolidation, which it describes as an important step in the right direction but a difficult one in a pandemic.

This comes after its staff mission led by Carlo Sdralevich held consultations under the Article IV during April 28 – May 12, 2021 through virtual meetings. 

“The 2021 budget’s recent policy pivot towards fiscal consolidation is an important step in the right direction and a difficult one in a pandemic. Fiscal consolidation should be deepened and anchored around debt and debt service reduction to create space for social, health, and development spending”, the Fund said in a statement.

“Given the social and equity implications, fiscal consolidation should rely more on progressive revenue and spending measures, while guaranteeing fiscal support to the most vulnerable and social safety nets”, it added.

The team had collaborative and constructive discussions with Vice President Bawumia, Finance Minister Ken Ofori-Atta, Governor Dr. Ernest Addison of the Bank of Ghana, other senior government officials, Finance Committee of Parliament, private sector representatives, and civil society organizations.

It said policy interventions in 2020 were also critical to safeguard livelihoods and paved the way for a faster rebound of economic activity, adding real GDP growth is projected at 4.8 percent in 2021, driven by a rebound in mining and services.

Additionally, inflation is expected to remain around the Central Bank’s target of 8 percent by end-2021.

It also said the CARES programme has the potential to be transformative and inclusive for the Ghanaian economy, buttressed by its emphasis on SMEs and digitalization as well as leveraging the AfCFTA.

Fund commends Ghana for managing covid-19 well

The Bretton Wood institution applauded the country for managing very effectively the COVID-19 outbreak in the country, and thus succeeded in protecting lives.

“Almost 93,000 cases have been confirmed, and unfortunately 780 people have died as of today. The launch of mass vaccine rollout has been a breakthrough, with the administration of approximatively a million doses as of end-May”, it emphasized.

It welcomed the planned audits of COVID-19 emergency spending and arrears accumulated in 2020 in addition to routine budgetary reporting practices.

According to the Fund, they will help account for the increase of spending and its effectiveness, and provide lessons to improve the robustness of Public Financial Management systems.

Power sector challenges

Despite progress in rationalizing power generation, the Fund said the financial viability of the energy sector affects people’s daily life and will remain a drag on productivity and a driver of public debt if not addressed decisively.

It added that improving efficiency and collections remains a priority to achieve substantial savings.

Conclusions

The IMF said “the impact of the pandemic on the economy has been severe. Real GDP growth slowed to 0.4 percent in 2020 from 6.5 percent in 2019, due to lower activity in the extractive industries and a collapse in hospitality and retail services, including the informal sector that especially employs female workers. Inflation spiked to double digit because of food price pressures, before falling to 8.5 percent in April 2021”, it pointed out.

Furthermore it said “government interventions in 2020 also exacerbated pre-existing fiscal rigidities and public debt vulnerabilities. The government deficit, including energy and financial sector costs, reached 15.5 percent of GDP, while annual gross financing needs exceeded 20 percent of GDP. Public debt rose to 78 percent of GDP in 2020, from 64.4 percent in 2019, including ESLA of GHs7.63 billion in 2020.”