The International Monetary Fund (IMF) has approved a three-year loan for Ghana under the Enhanced Structural Adjustment Facility (ESAF),1 equivalent to SDR 155 million (about US$209.4 million) to support the government’s economic reform program for 1999–2001. The loan will be disbursed in seven installments, the first equivalent to SDR 22.16 million (about US$29.9 million) and will be available immediately.
Background
Ghana has made significant progress in reducing macroeconomic imbalances since 1997 while implementing structural reforms. In 1998, real GDP growth increased from 4.2 percent in 1997 to 4.6 percent despite the drought related energy crisis, and inflation fell to 16 percent from 21 percent at end-1997. Real interest rates dropped sharply, the overall budget deficit declined, and the external current account improved. The value-added tax was introduced at the end of 1998, and the separate governing boards of the tax agencies were replaced by a central revenue board. While progress was made on structural reforms, key measures in the energy and cocoa sectors were delayed.
Medium-Term Strategy and the 1999 Program
The main objectives of the 1999–2001 program are to consolidate the achievements already made in macroeconomic stability and accelerate the pace of structural reform. Real GDP growth is projected to increase to 6 percent. The government intends to bring inflation down to 5 percent or less, reduce the current account deficit, including grants, to 2.5 percent of GDP, and bring gross official reserves to the equivalent of three months of imports.
The objectives of the 1999 program are to obtain real GDP growth of 5.5 percent, end-of-period inflation of 9 percent, an external current account deficit, including grants, of about 2.5 percent of GDP, and gross official reserves equivalent to three months of imports. To achieve these objectives, domestic budget financing will be limited to about 2.8 percent of GDP and the primary domestic balance is expected to show a surplus of about 3.5 percent of GDP. Monetary growth in 1999 will support the inflation and balance of payments objectives.
Structural Reforms
Ghana intends to take significant steps to liberalize the cocoa and energy sectors, accelerate the divestiture of state enterprises, and strengthen the banking system. Public sector reforms will be carried out to limit the scope of government to core areas, in particular,agriculture, the social sectors, and basic infrastructure. The medium-term cocoa strategy aims to ensure that Ghana remains a leading cocoa producer in the next decade and raise incomes in the rural sector. Further trade liberalization will help increase the efficiency of the economy. As private sector activity is boosted by rising confidence and expanding business opportunities, such as in nontraditional exports, the share of private investment in GDP is expected to rise by more than 3 percentage points over 1999–2001.
Addressing Social Needs
Ghana’s economic program emphasizes education and health, since the government believes the levels of growth required to reduce poverty will be difficult to achieve without significant increases in labor productivity. Expenditure programs have been designed for education and health, and are being implemented with donor support. An important element is the development of a monitoring system to ensure that increased expenditures accomplish better results. Improvements in agriculture and rural development are crucial for reducing poverty in the rural sector. A national poverty-reduction plan for 1999–2001 is being prepared in collaboration with donors.
The Challenge Ahead
Strong macroeconomic performance will depend on further fiscal consolidation and public sector reforms. Limits on government borrowing, both domestically and externally, particularly on nonconcessional terms, will also be important to ensure that interest costs and government debt remain sustainable. While macroeconomic stability is an important element of the government’s medium-term program, the objective of making Ghana a middle-income country within one generation cannot be attained without decisive structural transformation. Implementation of reforms in the cocoa sector, strengthening of the financial sector, and divestiture of large enterprises are essential to the success of its economic program.
Ghana joined the IMF on September 20, 1957. Its quota2 is SDR 369.0 million (about US$498.6 million) and its outstanding use of IMF resources currently totals SDR 230.1 million (about US$310.9 million) at end-February 1999.
| Ghana: Selected Economic and Financial Indicators 1996-2001 | |||||||
| 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | ||
| Prog. | Prel. | Prog. | Prog. | Prog. | |||
| (Annual percentage change, unless otherwise specified) | |||||||
| National income and prices | |||||||
| Real GDP | 4.6 | 4.2 | 5.6 | 4.6 | 5.5 | 6.0 | 6.0 |
| Real GDP per capita | 1.8 | 1.5 | 2.8 | 1.8 | 2.7 | 3.2 | 3.2 |
| Nominal GDP | 46.3 | 24.5 | 25.1 | 23.0 | 14.6 | 13.7 | 12.2 |
| GDP deflator | 39.8 | 19.5 | 20.6 | 17.6 | 8.6 | 7.4 | 5.9 |
| Consumer price index (annual average) | 46.6 | 27.9 | 15.5 | 19.3 | 10.0 | 6.4 | 5.0 |
| Consumer price index (end of period) | 32.7 | 20.8 | 11.0 | 15.8 | 9.0 | 5.0 | 5.0 |
| External sector | |||||||
| Exports, f.o.b. | 9.9 | -5.2 | 9.7 | 22.8 | 2.7 | 12.8 | 13.8 |
| Imports, f.o.b. | 15.0 | 9.9 | 9.8 | 4.0 | 1.8 | 9.3 | 10.4 |
| Export volume | 12.5 | -0.7 | 7.5 | 16.3 | 3.5 | 9.2 | 7.8 |
| Import volume | 13.8 | 14.4 | 10.3 | 24.5 | 7.1 | 6.2 | 6.2 |
| Terms of trade | -3.3 | -0.7 | 2.6 | 26.4 | 4.3 | 0.3 | 1.5 |
| Nominal effective exchange rate1 | -26.8 | -14.7 | ... | -9.2 | ... | ... | ... |
| Real effective exchange rate1 | 12.2 | 7.2 | ... | 7.8 | ... | ... | ... |
| Cedis per U.S. dollar1 | 1,637 | 2,050 | ... | 2,314 | ... | ... | ... |
| Government budget | |||||||
| Domestic revenue | 26.1 | 22.5 | 30.4 | 29.8 | 17.7 | 14.4 | 13.2 |
| Total expenditure | 42.8 | 19.8 | 25.3 | 22.7 | 7.4 | 9.0 | 6.6 |
| Current expenditure | 46.5 | 22.7 | 18.9 | 31.4 | 3.8 | 4.2 | 7.7 |
| Capital expenditure and net lending2 | 38.6 | 16.4 | 35.3 | 11.4 | 12.8 | 15.8 | 5.3 |
| Money and credit3 | |||||||
| Net domestic assets4 | 32.3 | 33.5 | 9.5 | 15.5 | 8.6 | 11.7 | 7.3 |
| Credit to government4 | 12.8 | 22.0 | 9.2 | 10.5 | 5.4 | ... | ... |
| Credit to the rest of the economy4 | 15.7 | 20.9 | 5.3 | 13.0 | 8.1 | ... | ... |
| Broad money (including foreign currency deposits) | 39.7 | 40.8 | 18.0 | 17.7 | 14.6 | 13.7 | 12.2 |
| Reserve money | 44.3 | 33.4 | 17.0 | 16.7 | 11.4 | 11.2 | 10.9 |
| Velocity (GDP/average broad money) | 5.6 | 4.9 | 5.0 | 4.4 | 4.4 | 4.4 | 4.4 |
| Treasury bill rate (in percent; end of period) | 42.8 | 40.0 | ... | 26.8 | ... | ... | ... |
| (In percent of GDP, unless otherwise specified) | |||||||
| Investment and saving | |||||||
| Gross investment | 21.5 | 24.1 | 17.9 | 22.9 | 23.7 | 24.7 | 25.4 |
| Private | 8.2 | 11.7 | 5.5 | 11.6 | 12.6 | 13.4 | 14.8 |
| Public | 13.3 | 12.4 | 12.4 | 11.3 | 11.1 | 11.3 | 10.6 |
| Gross national saving | 16.7 | 15.4 | 13.7 | 19.4 | 20.8 | 22.2 | 23.0 |
| Private | 13.7 | 15.0 | 8.3 | 16.2 | 15.2 | 15.5 | 16.0 |
| Public | 3.0 | 0.4 | 5.4 | 3.2 | 5.6 | 6.6 | 7.0 |
| Government budget | |||||||
| Domestic revenue | 17.6 | 17.3 | 18.3 | 18.3 | 18.8 | 18.9 | 19.1 |
| Total grants | 2.6 | 1.4 | 2.9 | 2.2 | 2.4 | 2.0 | 1.7 |
| Total expenditure2 | 29.7 | 28.6 | 27.5 | 28.6 | 26.8 | 25.6 | 24.4 |
| Overall balance (commitment basis) | -9.5 | -9.9 | -6.3 | -8.1 | -5.5 | -4.7 | -3.6 |
| Domestic primary balance | 0.3 | 3.2 | 3.8 | 3.6 | 3.5 | 3.6 | 3.7 |
| Divestiture receipts | 1.3 | 0.7 | 0.8 | 0.6 | 0.5 | 0.4 | 0.2 |
| External sector | |||||||
| Current account balance5 | -4.7 | -8.8 | -4.2 | -3.5 | -2.9 | -2.5 | -2.4 |
| External debt outstanding | 84.2 | 82.5 | 95.2 | 79.2 | 76.9 | 74.6 | 71.4 |
| External debt service, including to the IMF | 8.9 | 7.6 | 8.7 | 7.5 | 6.2 | 6.7 | 5.3 |
| (in percent of exports of goods and nonfactor services) | 35.7 | 31.6 | 33.2 | 28.1 | 24.5 | 24.7 | 18.7 |
| (in percent of government revenue) | 38.7 | 44.9 | 38.1 | 34.7 | 29.8 | 26.2 | 20.3 |
| (In millions of U.S. dollars, unless otherwise specified) | |||||||
| Current account balance5 | -328 | -603 | -290 | -261 | -234 | -211 | -227 |
| Overall balance of payments | -14 | 25 | 119 | 99 | 77 | 34 | 88 |
| External payments arrears (end of period) | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Gross international reserves (end of period) | 591 | 508 | 478 | 502 | 561 | 616 | 730 |
| (in months of imports, c.i.f.) | 4.4 | 2.6 | 2.7 | 2.5 | 2.7 | 2.8 | 3.0 |
| Use of IMF resources | |||||||
| Purchases/disbursements | 27 | 41 | 110 | 111 | 61 | 60 | 60 |
| Repurchases/repayments | 86 | -165 | 137 | 105 | 78 | 39 | 35 |
| Credit outstanding | 377 | 354 | 317 | 321 | 316 | 337 | 362 |
| Quota (in millions of SDR’s) | 274 | 274 | 274 | 274 | 369 | ... | ... |
| Nominal GDP (in billions of cedis) | 11,339 | 14,113 | 17,655 | 17,357 | 19,885 | 22,619 | 25,378 |
| Sources: Ghanaian authorities; and IMF staff estimates and projections. | |||||||
| 1Annual average data. | |||||||
| 2Including capital outlays financed through external project aid and transfers to the local authorities. | |||||||
| 3From December 1996, the coverage was increased from 11 to 17 banks. | |||||||
| 4In percent of broad money at the beginning of the period. | |||||||
| 5Including official grants. | |||||||
The International Monetary Fund (IMF) has approved a three-year loan for Ghana under the Enhanced Structural Adjustment Facility (ESAF),1 equivalent to SDR 155 million (about US$209.4 million) to support the government’s economic reform program for 1999–2001. The loan will be disbursed in seven installments, the first equivalent to SDR 22.16 million (about US$29.9 million) and will be available immediately.
Background
Ghana has made significant progress in reducing macroeconomic imbalances since 1997 while implementing structural reforms. In 1998, real GDP growth increased from 4.2 percent in 1997 to 4.6 percent despite the drought related energy crisis, and inflation fell to 16 percent from 21 percent at end-1997. Real interest rates dropped sharply, the overall budget deficit declined, and the external current account improved. The value-added tax was introduced at the end of 1998, and the separate governing boards of the tax agencies were replaced by a central revenue board. While progress was made on structural reforms, key measures in the energy and cocoa sectors were delayed.
Medium-Term Strategy and the 1999 Program
The main objectives of the 1999–2001 program are to consolidate the achievements already made in macroeconomic stability and accelerate the pace of structural reform. Real GDP growth is projected to increase to 6 percent. The government intends to bring inflation down to 5 percent or less, reduce the current account deficit, including grants, to 2.5 percent of GDP, and bring gross official reserves to the equivalent of three months of imports.
The objectives of the 1999 program are to obtain real GDP growth of 5.5 percent, end-of-period inflation of 9 percent, an external current account deficit, including grants, of about 2.5 percent of GDP, and gross official reserves equivalent to three months of imports. To achieve these objectives, domestic budget financing will be limited to about 2.8 percent of GDP and the primary domestic balance is expected to show a surplus of about 3.5 percent of GDP. Monetary growth in 1999 will support the inflation and balance of payments objectives.
Structural Reforms
Ghana intends to take significant steps to liberalize the cocoa and energy sectors, accelerate the divestiture of state enterprises, and strengthen the banking system. Public sector reforms will be carried out to limit the scope of government to core areas, in particular,agriculture, the social sectors, and basic infrastructure. The medium-term cocoa strategy aims to ensure that Ghana remains a leading cocoa producer in the next decade and raise incomes in the rural sector. Further trade liberalization will help increase the efficiency of the economy. As private sector activity is boosted by rising confidence and expanding business opportunities, such as in nontraditional exports, the share of private investment in GDP is expected to rise by more than 3 percentage points over 1999–2001.
Addressing Social Needs
Ghana’s economic program emphasizes education and health, since the government believes the levels of growth required to reduce poverty will be difficult to achieve without significant increases in labor productivity. Expenditure programs have been designed for education and health, and are being implemented with donor support. An important element is the development of a monitoring system to ensure that increased expenditures accomplish better results. Improvements in agriculture and rural development are crucial for reducing poverty in the rural sector. A national poverty-reduction plan for 1999–2001 is being prepared in collaboration with donors.
The Challenge Ahead
Strong macroeconomic performance will depend on further fiscal consolidation and public sector reforms. Limits on government borrowing, both domestically and externally, particularly on nonconcessional terms, will also be important to ensure that interest costs and government debt remain sustainable. While macroeconomic stability is an important element of the government’s medium-term program, the objective of making Ghana a middle-income country within one generation cannot be attained without decisive structural transformation. Implementation of reforms in the cocoa sector, strengthening of the financial sector, and divestiture of large enterprises are essential to the success of its economic program.
Ghana joined the IMF on September 20, 1957. Its quota2 is SDR 369.0 million (about US$498.6 million) and its outstanding use of IMF resources currently totals SDR 230.1 million (about US$310.9 million) at end-February 1999.
| Ghana: Selected Economic and Financial Indicators 1996-2001 | |||||||
| 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | ||
| Prog. | Prel. | Prog. | Prog. | Prog. | |||
| (Annual percentage change, unless otherwise specified) | |||||||
| National income and prices | |||||||
| Real GDP | 4.6 | 4.2 | 5.6 | 4.6 | 5.5 | 6.0 | 6.0 |
| Real GDP per capita | 1.8 | 1.5 | 2.8 | 1.8 | 2.7 | 3.2 | 3.2 |
| Nominal GDP | 46.3 | 24.5 | 25.1 | 23.0 | 14.6 | 13.7 | 12.2 |
| GDP deflator | 39.8 | 19.5 | 20.6 | 17.6 | 8.6 | 7.4 | 5.9 |
| Consumer price index (annual average) | 46.6 | 27.9 | 15.5 | 19.3 | 10.0 | 6.4 | 5.0 |
| Consumer price index (end of period) | 32.7 | 20.8 | 11.0 | 15.8 | 9.0 | 5.0 | 5.0 |
| External sector | |||||||
| Exports, f.o.b. | 9.9 | -5.2 | 9.7 | 22.8 | 2.7 | 12.8 | 13.8 |
| Imports, f.o.b. | 15.0 | 9.9 | 9.8 | 4.0 | 1.8 | 9.3 | 10.4 |
| Export volume | 12.5 | -0.7 | 7.5 | 16.3 | 3.5 | 9.2 | 7.8 |
| Import volume | 13.8 | 14.4 | 10.3 | 24.5 | 7.1 | 6.2 | 6.2 |
| Terms of trade | -3.3 | -0.7 | 2.6 | 26.4 | 4.3 | 0.3 | 1.5 |
| Nominal effective exchange rate1 | -26.8 | -14.7 | ... | -9.2 | ... | ... | ... |
| Real effective exchange rate1 | 12.2 | 7.2 | ... | 7.8 | ... | ... | ... |
| Cedis per U.S. dollar1 | 1,637 | 2,050 | ... | 2,314 | ... | ... | ... |
| Government budget | |||||||
| Domestic revenue | 26.1 | 22.5 | 30.4 | 29.8 | 17.7 | 14.4 | 13.2 |
| Total expenditure | 42.8 | 19.8 | 25.3 | 22.7 | 7.4 | 9.0 | 6.6 |
| Current expenditure | 46.5 | 22.7 | 18.9 | 31.4 | 3.8 | 4.2 | 7.7 |
| Capital expenditure and net lending2 | 38.6 | 16.4 | 35.3 | 11.4 | 12.8 | 15.8 | 5.3 |
| Money and credit3 | |||||||
| Net domestic assets4 | 32.3 | 33.5 | 9.5 | 15.5 | 8.6 | 11.7 | 7.3 |
| Credit to government4 | 12.8 | 22.0 | 9.2 | 10.5 | 5.4 | ... | ... |
| Credit to the rest of the economy4 | 15.7 | 20.9 | 5.3 | 13.0 | 8.1 | ... | ... |
| Broad money (including foreign currency deposits) | 39.7 | 40.8 | 18.0 | 17.7 | 14.6 | 13.7 | 12.2 |
| Reserve money | 44.3 | 33.4 | 17.0 | 16.7 | 11.4 | 11.2 | 10.9 |
| Velocity (GDP/average broad money) | 5.6 | 4.9 | 5.0 | 4.4 | 4.4 | 4.4 | 4.4 |
| Treasury bill rate (in percent; end of period) | 42.8 | 40.0 | ... | 26.8 | ... | ... | ... |
| (In percent of GDP, unless otherwise specified) | |||||||
| Investment and saving | |||||||
| Gross investment | 21.5 | 24.1 | 17.9 | 22.9 | 23.7 | 24.7 | 25.4 |
| Private | 8.2 | 11.7 | 5.5 | 11.6 | 12.6 | 13.4 | 14.8 |
| Public | 13.3 | 12.4 | 12.4 | 11.3 | 11.1 | 11.3 | 10.6 |
| Gross national saving | 16.7 | 15.4 | 13.7 | 19.4 | 20.8 | 22.2 | 23.0 |
| Private | 13.7 | 15.0 | 8.3 | 16.2 | 15.2 | 15.5 | 16.0 |
| Public | 3.0 | 0.4 | 5.4 | 3.2 | 5.6 | 6.6 | 7.0 |
| Government budget | |||||||
| Domestic revenue | 17.6 | 17.3 | 18.3 | 18.3 | 18.8 | 18.9 | 19.1 |
| Total grants | 2.6 | 1.4 | 2.9 | 2.2 | 2.4 | 2.0 | 1.7 |
| Total expenditure2 | 29.7 | 28.6 | 27.5 | 28.6 | 26.8 | 25.6 | 24.4 |
| Overall balance (commitment basis) | -9.5 | -9.9 | -6.3 | -8.1 | -5.5 | -4.7 | -3.6 |
| Domestic primary balance | 0.3 | 3.2 | 3.8 | 3.6 | 3.5 | 3.6 | 3.7 |
| Divestiture receipts | 1.3 | 0.7 | 0.8 | 0.6 | 0.5 | 0.4 | 0.2 |
| External sector | |||||||
| Current account balance5 | -4.7 | -8.8 | -4.2 | -3.5 | -2.9 | -2.5 | -2.4 |
| External debt outstanding | 84.2 | 82.5 | 95.2 | 79.2 | 76.9 | 74.6 | 71.4 |
| External debt service, including to the IMF | 8.9 | 7.6 | 8.7 | 7.5 | 6.2 | 6.7 | 5.3 |
| (in percent of exports of goods and nonfactor services) | 35.7 | 31.6 | 33.2 | 28.1 | 24.5 | 24.7 | 18.7 |
| (in percent of government revenue) | 38.7 | 44.9 | 38.1 | 34.7 | 29.8 | 26.2 | 20.3 |
| (In millions of U.S. dollars, unless otherwise specified) | |||||||
| Current account balance5 | -328 | -603 | -290 | -261 | -234 | -211 | -227 |
| Overall balance of payments | -14 | 25 | 119 | 99 | 77 | 34 | 88 |
| External payments arrears (end of period) | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Gross international reserves (end of period) | 591 | 508 | 478 | 502 | 561 | 616 | 730 |
| (in months of imports, c.i.f.) | 4.4 | 2.6 | 2.7 | 2.5 | 2.7 | 2.8 | 3.0 |
| Use of IMF resources | |||||||
| Purchases/disbursements | 27 | 41 | 110 | 111 | 61 | 60 | 60 |
| Repurchases/repayments | 86 | -165 | 137 | 105 | 78 | 39 | 35 |
| Credit outstanding | 377 | 354 | 317 | 321 | 316 | 337 | 362 |
| Quota (in millions of SDR’s) | 274 | 274 | 274 | 274 | 369 | ... | ... |
| Nominal GDP (in billions of cedis) | 11,339 | 14,113 | 17,655 | 17,357 | 19,885 | 22,619 | 25,378 |
| Sources: Ghanaian authorities; and IMF staff estimates and projections. | |||||||
| 1Annual average data. | |||||||
| 2Including capital outlays financed through external project aid and transfers to the local authorities. | |||||||
| 3From December 1996, the coverage was increased from 11 to 17 banks. | |||||||
| 4In percent of broad money at the beginning of the period. | |||||||
| 5Including official grants. | |||||||
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