The International Monetary Fund (IMF) mission has completed a working visit to Ghana covering the period May 16-29, 2012, to conduct
discussions for the sixth and seventh review under the IMF’s
Extended Credit Facility. A statement at the end of consultations expressed concerns about the ailing economy due to the high cost of living and continuous
depreciation of the Ghana Cedi against the US dollar. The IMF is now
asking government to be swift in arresting the situation.
The IMF Mission led by Christina Daseking is thus holding high level meeting with President Mills and all the top managers of Ghana’s economy including the Finance Minister and
the Governor of the Bank of Ghana. the Mission is also anxious about the economic challenges in Ghana raising the red flag, especially
over rising oil imports without corresponding increases in fuel prices
domestically. “Price of oil import is risen a lot and the domestic price, however, has
not been adjusted,” Daseking pointed out at a meeting with President
Mills on Tuesday May 29, 2012. “This is now creating cost of about GhC60 million
every month.” She added: “ Certainly, we want more people to support social
programmes. The cost of living has increased because of the
depreciation. Most people know the subsidies on fuel benefit the higher
income groups and we’ll encourage you to take necessary [action]…
“We know you are committed to fiscal discipline and we hope with that we’ll be able to continue our very productive relationship.
“After Ghana’s very successful economic performance in 2011, with growth of 14½ percent and inflation in single digits, risks to macroeconomic stability are rising. Despite buoyant exports, the current account deficit exceeded 9 percent of GDP in 2011 on account of high import growth. A rapid depreciation of the cedi in the first five months of this year has begun to feed into domestic prices, while adding to short-term balance of payments pressures through higher cost of imports. With economic growth fueled by strong domestic demand, policies will need to be tightened to safeguard macroeconomic stability and keep inflation within the target band of 5.7-11.7 percent. This should still allow the economy to expand at a robust pace of more than 8 percent in 2012. The main external risk is that of a deeper global slowdown with its negative impact on economic growth and the balance of payments from weaker commodity prices and foreign inflows.
“Discussions with the Bank of Ghana (BoG) focused on policies to stem the recent decline in the cedi to defend the inflation target. There was broad agreement that a cedi depreciation was consistent with underlying economic factors, such as inflation differentials and a high current account deficit, but that the pace of the depreciation in recent months created challenges for anchoring expectations. Contributing factors included seasonally strong demand for foreign exchange, but also high domestic liquidity. In this environment, the large interventions by the Bank of Ghana in January provided only temporary relief. More recent actions to tighten liquidity and hike domestic interest rates appear to have been more effective in halting the cedi’s slide. The mission encouraged the Bank of Ghana to maintain a tight policy stance to help stabilize the currency and achieve its inflation target, while gradually rebuilding its stock of foreign reserves. It further suggested measures to improve the liquidity and functioning of the foreign exchange market as a way to reduce excessive exchange rate volatility.
“The otherwise strong fiscal performance in 2011, supported by an impressive improvement in revenue collection, met some challenges toward the end of the year and in early 2012. The cash deficit in 2011 of 4.3 percent of non-oil GDP was below the program ceiling by 0.7 percentage points of non-oil GDP. The government also made strong progress in reducing its previous stock of domestic payment arrears by GH¢ 1.5 billion. However, some spending obligations from 2011 were carried over into 2012, and new spending pressures have emerged from the agreed 18 percent public sector wage hike and the rising cost of fuel subsidies.
“Discussions focused on preserving fiscal discipline in the context of elevated macroeconomic risks and new spending demands. The mission encouraged the government to accelerate the ongoing public payroll audit and discontinue payments to those not eligible, as quickly as possible. It further urged an elimination of costly subsidies on fuel and energy consumption, which benefit predominantly the higher income groups. Both measures together could generate monthly savings of about GH¢160 million which are needed to protect more productive expenditure and allow for an expansion of well-targeted social programs to help the most vulnerable groups cope with the higher cost of living.
“At the end of the mission, agreement was reached on a wide range of policies, and discussions will continue over the coming week on a few pending issues. Subject to agreement on these issues, the mission will recommend to the IMF Executive Board the completion of the sixth and seventh review, with the Board meeting expected to take place in mid-July.”
“We know you are committed to fiscal discipline and we hope with that we’ll be able to continue our very productive relationship.
“After Ghana’s very successful economic performance in 2011, with growth of 14½ percent and inflation in single digits, risks to macroeconomic stability are rising. Despite buoyant exports, the current account deficit exceeded 9 percent of GDP in 2011 on account of high import growth. A rapid depreciation of the cedi in the first five months of this year has begun to feed into domestic prices, while adding to short-term balance of payments pressures through higher cost of imports. With economic growth fueled by strong domestic demand, policies will need to be tightened to safeguard macroeconomic stability and keep inflation within the target band of 5.7-11.7 percent. This should still allow the economy to expand at a robust pace of more than 8 percent in 2012. The main external risk is that of a deeper global slowdown with its negative impact on economic growth and the balance of payments from weaker commodity prices and foreign inflows.
“Discussions with the Bank of Ghana (BoG) focused on policies to stem the recent decline in the cedi to defend the inflation target. There was broad agreement that a cedi depreciation was consistent with underlying economic factors, such as inflation differentials and a high current account deficit, but that the pace of the depreciation in recent months created challenges for anchoring expectations. Contributing factors included seasonally strong demand for foreign exchange, but also high domestic liquidity. In this environment, the large interventions by the Bank of Ghana in January provided only temporary relief. More recent actions to tighten liquidity and hike domestic interest rates appear to have been more effective in halting the cedi’s slide. The mission encouraged the Bank of Ghana to maintain a tight policy stance to help stabilize the currency and achieve its inflation target, while gradually rebuilding its stock of foreign reserves. It further suggested measures to improve the liquidity and functioning of the foreign exchange market as a way to reduce excessive exchange rate volatility.
“The otherwise strong fiscal performance in 2011, supported by an impressive improvement in revenue collection, met some challenges toward the end of the year and in early 2012. The cash deficit in 2011 of 4.3 percent of non-oil GDP was below the program ceiling by 0.7 percentage points of non-oil GDP. The government also made strong progress in reducing its previous stock of domestic payment arrears by GH¢ 1.5 billion. However, some spending obligations from 2011 were carried over into 2012, and new spending pressures have emerged from the agreed 18 percent public sector wage hike and the rising cost of fuel subsidies.
“Discussions focused on preserving fiscal discipline in the context of elevated macroeconomic risks and new spending demands. The mission encouraged the government to accelerate the ongoing public payroll audit and discontinue payments to those not eligible, as quickly as possible. It further urged an elimination of costly subsidies on fuel and energy consumption, which benefit predominantly the higher income groups. Both measures together could generate monthly savings of about GH¢160 million which are needed to protect more productive expenditure and allow for an expansion of well-targeted social programs to help the most vulnerable groups cope with the higher cost of living.
“At the end of the mission, agreement was reached on a wide range of policies, and discussions will continue over the coming week on a few pending issues. Subject to agreement on these issues, the mission will recommend to the IMF Executive Board the completion of the sixth and seventh review, with the Board meeting expected to take place in mid-July.”
It is not clear what specific recommendations the IMF will be putting on the table except the usual demand for removal of subsidizes and consequent increment in the pump price of fuel. Already the Supreme Court has affirmed that President Mills' government is illegally charging nearly GHS1.00 per gallon of fuel. The government has refused to recognise the Supreme Court verdict that government should declare and refund 'the stolen money' into the consolidated fund. It remains to be seen how this government can muster the moral high ground to increase fuel price in the face of flagrant disregard of the Supreme Court. The free fall of the Cedi is nothing new to the NDC and the men currently at the helm of affairs. It is very apparent that they never learnt any lessons from their experience during the fiscal year 2000 which largely contributed to the defeat of the party and the then candidate Mills. Is history about to repeat itself on December 7, 2012?
We learn from history that we learn nothing from history. Those who cannot learn from history are doomed to repeat it. What experience and history teach is this that
people and governments never have learned anything from history, or
acted on principles. History repeats itself often and Ghanaians are reliving history in a little over a decade. A any rate, a lot of people seem to agree that people get what they deserve in life as hence Ghanaians are reaping what they sowed. Do you think Ghanaians really deserve the treatment they are getting at the hands of President Mills and members of his Economic
Advisory Council?
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