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IMF Applauds Ghana’s Proactive Response To Covid-19 Pandemic

(AFRICAN EXAMINER) – International Monetary Fund (IMF) has commended the Government of Ghana for its proactive response to the COVID-19 pandemic, which mitigated its economic impact and contributed to a record fiscal deficit and increased public debt vulnerabilities.

The pandemic had a severe impact on Ghana’s economy, with slower growth, higher food prices, and increased poverty. Growth slowed to 0.4 percent in 2020 from 6.5 percent in 2019, food prices spiked, and poverty increased.

Similarly, the fiscal deficit including energy and financial sector costs worsened to 15.2 percent of Gross Domestic Product (GDP), with a further 2.1 percent of GDP in additional spending financed through the accumulation of domestic arrears.

Moreover, the current account deficit widened slightly to 3.1 percent of GDP as the decline in oil exports was partially offset by higher gold prices, resilient remittances, and weaker imports.

IMF gave the commendation at the conclusion of its 2021 Article IV Consultation with the West African nation.

The Fund said the government response helped contain the pandemic and support the economy, but at the cost of a record fiscal deficit., adding that the economic outlook is improving, even though risks remain, including from the evolution of the pandemic and rising debt vulnerabilities.

While there are encouraging signs of an economic recovery, according to IMF, it remains uneven across sectors.  Against this backdrop, the Fund stressed the importance of entrenching prudent macroeconomic policies, ensuring debt sustainability, and pressing ahead with structural reforms to deliver a sustainable, inclusive, and green economic recovery .

IMF further noted that the Ghanaian Cedi remained stable against the US dollar, partly due to central bank intervention, and gross international reserves remained at 3.2 months of imports.

“External and domestic financing conditions tightened considerably at the start of the pandemic, but have improved since, and Ghana successfully returned to international capital markets for a US$3 billion Eurobond issuance in March 2021.

“An economic recovery is underway. Growth is expected to rebound to 4.7 percent 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 percent of GDP, supported by a pickup in oil prices, and gross international reserves are expected to remain stable”, the Fund said a statement. 

The statement added that the 2021 budget envisages a fiscal deficit of 13.9 percent 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.

It further pointed out that this outlook, is however subject to significant uncertainty, including from new pandemic waves and risks associated with large financing needs and increasing public debt.

IMF also welcomed the fiscal adjustment envisaged in the 2021 budget, noting 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 Fund added.

The Fund also encouraged the timely completion of the planned audit of COVID‑19 emergency spending and new expenditure arrears.

It equally agreed that the monetary policy stance remains broadly appropriate, while noting that tighter policy would be needed if inflationary pressures materialize. It also stressed the need to guard against erosion of external buffers and remain committed to a flexible exchange rate regime and further encouraged the authorities to limit monetary financing of the deficit.

IMF equally 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.

It also they took positive note of ongoing supervisory and regulatory reforms, which are important steps to protect financial stability. It also welcomed the improvements in the AML/CFT framework that allowed Ghana to exit the FATF “grey list”.

IMF also emphasized that the authorities’ structural transformation and difgitalization agendas are critical to support the recovery, adding that the structural transformation can be complemented by the ongoing energy sector review, diversification in tourism, and the digital transition, which has the potential to reduce corruption, boost tax revenues, and improve service delivery. The Fund also expressed its support for the continued capacity development efforts in these areas.

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