The International Monetary Fund is warning that the Ghanaian economy is still facing some significant uncertainty in the coming months despite the economic outlook promising.

This is coming following a gradual recovery from COVID-19 shocks that severely hit the economy last year.

“Ghana was hit hard by the COVID-19 pandemic. The government response helped contain the pandemic and support the economy, but at the cost of a record fiscal deficit. The economic outlook is improving, even though risks remain, including from the evolution of the pandemic and rising debt vulnerabilities”, IMF Executive Board Article IV Consultation with Ghana indicated.

According to the fund, its assessment is based on the new COVID-19 wave, rising debt stock and large financing needs of government.

“An economic recovery is underway. Growth is expected to rebound to 4.7% in 2021, supported by a strong cocoa season and mining and services activity, and inflation remaining within the Bank of Ghana target. The current account deficit is projected to improve to 2.2% of Gross Domestic Product, supported by a pickup in oil prices, and gross international reserves are expected to remain stable”, it said.

“The 2021 budget envisages a fiscal deficit of 13.9% of GDP in 2021, including energy and financial sector costs, and a gradual medium-term fiscal adjustment which would support a decline in public debt starting in 2024. However, this outlook is subject to significant uncertainty, including from new pandemic waves and risks associated with large financing needs and increasing public debt”, it pointed out.

Risks to repay debt rise

The IMF in its report noted that whiles risk to the country’s capacity to repay its debt has increased, it believed that they are still manageable.

While noting that risks to Ghana’s capacity to repay have increased, the IMF Directors concurred that they are still manageable and that Ghana’s capacity to repay the Fund remains adequate.

“Directors welcomed the fiscal adjustment envisaged in the 2021 budget. They stressed that fiscal consolidation is needed to address debt sustainability and rollover risks, as Ghana continues to be classified at high risk of debt distress.”

“To protect the most vulnerable, considerations could be given to more progressive revenue measures and a faster return to the pre-pandemic level of spending, with a shift towards social, health, and development spending. The Directors also encouraged the timely completion of the planned audit of COVID‑19 emergency spending and new expenditure arrears”, it noted.

Monetary policy stance remains appropriate

The Directors agreed that the monetary policy stance remains broadly appropriate, while noting that tighter policy would be needed if inflationary pressures materialize. Although gross international reserves are relatively high, the Directors stressed the need to guard against erosion of external buffers and remain committed to a flexible exchange rate regime. They also encouraged the authorities to limit monetary financing of the deficit.

“Directors noted that the financial sector cleanup had made the sector more resilient but stressed that banks’ growing holdings of sovereign debt creates risks and crowds out private sector credit. In this regard, they took positive note of ongoing supervisory and regulatory reforms, which are important steps to protect financial stability. Directors also welcomed the improvements in the AML/CFT framework that allowed Ghana to exit the FATF “grey list”.”