Business News of 2014-05-14

IMF warns of further economic deterioration

The International Monitory Fund (IMF) is warning of a further deterioration of the economy and demanded for the adoption of “specific time-bound action plans” to reverse the downward trend.
The IMF Executive Board issued the warning, Tuesday, during consultations with Ghana after government submitted its medium term plan meant to salvage the economy.
The warning comes amidst discussions underway at the National Economic Forum at Senchi in the Eastern region.
The forum is aimed at reaching a consensus on how to transform the Ghanaian economy.
The IMF noted for instance that its directors, “expressed concern over the emergence of significant short-term vulnerabilities stemming from high fiscal and external current account deficits. These imbalances make the country vulnerable to a deterioration of external conditions and are creating pressure on interest rates and the exchange rate. If unaddressed, they risk weakening economic growth and public debt sustainability. Directors emphasized that macroeconomic stability will need to be restored to preserve a positive medium-term outlook.”
The Fund also urged government to take additional short-term measures to reduce the fiscal and external imbalances because in their assessment, achieving the 2014 fiscal deficit target, which is 8.5 per cent of GDP, “will be challenging, in light of high interest rates, a depreciating currency, and a possible growth slowdown.”
“In light of current imbalances, Directors recommended a more ambitious medium-term consolidation path to stabilize public debt and debt service at sustainable levels. While the risk of debt distress remains moderate, Directors expressed concerns about the high debt service-to-revenue ratio. A stronger medium-term adjustment could set off a virtuous cycle of lower fiscal deficits and falling interest rates, creating space for social and infrastructure spending and crowding-in of private sector activity.”
But Finance Minister, Seth Terkper, has downplayed the dire issues raised by the IMF.
He told Evans Mensah on Joy FM’s Top Story, Tuesday, that the prevailing situation is different from what was assessed by the IFM in February based on the third quarter report of the Ghana Statistical Service. He cited for instance the increasing prices of cocoa and gold, which is positive for the country.
“...the fourth quarter report has been released, and we all know that the economy has grown robustly at 7.4, the IMF has since not revised the 4.5, which was based on an economy, which was going to grow at about 5 percent. So I think that it is about timing issue in our discussions, which we must take into perspective.”
The Finance Minister also stated calls for specific time-bound action plans to reverse the downward trend, reinforces exactly what the government is doing.
He strongly defended the Bank of Ghana’s measures on foreign exchange, which the Fund says would not stabilize the Ghana cedi in the face of rising public spending and expenditure.
“The Bank of Ghana measures to arrest the cedi fall have not failed,” Mr. Terkper emphatically said to rebuff the suggestions of the IMF.
Additionally, estimations by government agencies, Mr. Terkper said, suggest “the trajectory for revenue would be different, the trajectory for growth itself would be different".
He recalled the President's show of faith in government's middle term policies at the ongoing National Economic Forum at Senchi near Akosombo, stating, "First of all, we know that we are going to be moving into a gas era, secondly we know that gold prices have tapered off, if not increased, the decline has stopped, cocoa prices have gone up, the one-year long disruption of gas supply from Nigeria has been resolved, even though we are not getting as much gas as we would, and our own gas is going to come on stream; we should be hopeful.”
He is certain by 2016, Ghana would see a turnaround in its economy. “No country, and Ghana is not exception, even when it is under an IMF programme turns around its economy in one-year. And Ghana has had IMF programmes, the minimum period for the turnaround is three years under all the programmes,” he said.