Business News of 2014-05-31

IMF staff report warns economic outlook for Ghana is still bleak

The International Monetary Fund is warning that the economic outlook for the country is still not favorable despite measures introduced by government to help stabilize the economy. “To address rising inflation, the monetary policy rate was raised to 18 percent and reserve requirements were tightened.

Current vulnerabilities put Ghana’s transformation agenda at risk,” an IMF Staff Report stated based on their recent engagements with managers of the economy in Ghana.

IMF Staff Report is done as part of Article IV Consultation. The current report is based on information available to the team at the time of discussions. Ghana's report was completed in April this year.

?Below is a summary of the Staff Report???

 KEY ISSUES Short-term vulnerabilities have risen significantly amid high fiscal and current account deficits. The international reserve position has weakened alongside mounting public debt. High interest rates and a depreciating currency have begun to weaken private sector activity, and spreads on Ghana’s Eurobonds have risen above those of regional peers.

Economic growth is slowing from previously high levels. Following estimated GDP growth of 5½ percent in 2013, staff projects a further deceleration to 4¾ percent in 2014.?Driven by the depreciation and administered price increases, inflation reached 13½ percent at end-2013 and 14½ percent in March.

Monetary policy was tightened as the fiscal consolidation target was missed.?Despite significant policy efforts, the 2013 fiscal (cash) deficit reached an estimated 10.9 percent of GDP, versus a target of 9 percent. In the absence of additional measures, the 2014 deficit is projected at 10¼ percent of GDP, with consolidation made more difficult by slower growth. To address rising inflation, the monetary policy rate was raised to 18 percent, and reserve requirements were tightened. Current vulnerabilities put Ghana’s transformation agenda at risk.

The government’s objectives of economic diversification, shared growth and job creation, and macroeconomic stability rely on the reallocation of resources from current to capital spending. Yet, high twin deficits and large interest payments on rising public debt are crowding out priority expenditure and private sector activity.?Macroeconomic stability will need to be restored to preserve a positive medium- term outlook.

The financial sector is adequately capitalized and liquid, but increasing exposures will need to be monitored closely. Stress tests conducted by the Bank of Ghana suggest that buffers are adequate in most banks and the system in aggregate.?Nevertheless, the weaker macroeconomic outlook and currency depreciation expose the financial sector to credit and foreign exchange risks, warranting a strengthening of crisis prevention and management capabilities.