Abstract
This paper assesses Ghana’s 2003 Article IV Consultation, and Requests for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF) and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries (HIPC). Program implementation in 2002 was mixed. Further gains were made on inflation, and the reserve accumulation target was met. In view of the strength of the authorities’ program, including the prior actions to be taken, the IMF staff supports the request for a three-year PRGF arrangement in the amount of SDR 184.5 million, and for additional interim HIPC relief.
1. This statement reports on (i) implementation of the prior actions for approval of Ghana’s arrangement under the Poverty Reduction and Growth Facility, as specified in the staff report, Appendix I, Attachment I, (Table I.2) and (ii) provisional fiscal and monetary data for the first quarter of 2003. This information does not alter the thrust of the staff appraisal.
2. The Ghanaian authorities informed the staff on April 30, 2003, that all of the prior actions had been implemented:
On March 28, 2003, parliament passed a budget for 2003 with aggregate revenues, expenditures, and net domestic financing that are consistent with the memorandum of economic and financial policies (MEFP).
The budget passed by parliament included the revenue measures specified in paragraphs 17 and 18 of the MEFP, with an estimated yield of 01,687 billion in 2003.
On April 3, 2003, a circular was issued to all ministries, departments, and agencies (MDAs), requiring them to adhere strictly to the 2003 quarterly expenditure ceilings on personal emoluments (Item 1) and notifying them that any MDA in breach of a quarterly ceiling will be required to make offsetting savings in subsequent quarters. This circular was issued pursuant to an order of the President of Ghana, in his capacity as chairman of the cabinet.
On April 30, 2003, the authorities provided the staff with calculations showing that the current level of petroleum prices (as established in January 2003) remained in line with the automatic adjustment formula, providing full import cost recovery and incorporating all applicable taxes and levies. In consultation with the staff, the authorities computed the formula using the cost of imported crude oil in April 2003—rather than a three-month average of crude oil prices, as had originally been intended—to abstract from the effect of the temporary spike in world oil prices that had occurred during February and March 2003 as a result of the conflict in Iraq. For June 2003, the formula will use the average prices of imported crude oil during April and May, and from July 2003 a three-month average price will be used. In their letter of April 30, communicating this information, the authorities also proposed some minor technical modifications to the cost build-up in the formula. The staff considers these modifications to be appropriate, and for program purposes the modified formula will replace that previously transmitted to the staff and cited in the technical memorandum of understanding. The government has announced publicly that future price adjustments will be made in line with the formula without further government review or authorization.
The first monthly fiscal report covering December 2002, as described in paragraph 28 of the MEFP, was submitted to the cabinet (including the Economic Management Team) on March 31, 2003.
3. The authorities have provided provisional data for budget execution and the central bank’s balance sheet for the first quarter of 2003. These data show that:
Net domestic financing of the government totalled 0369 billion during the first quarter of 2003, well below the applicable program ceiling of 0823 billion. Tax revenues exceeded the program target for the quarter by more than 10 percent.
Reserve money contracted by 0978 billion (17 percent) between December 31, 2002 and March 31, 2003. As a result, the stock of reserve money was around 3 ½ percent below the program’s indicative benchmark at end-March.
The net domestic assets of the Bank of Ghana (valued at the program exchange rate) declined by ¢725 billion during the first quarter of 2003, or some ¢600 billion more than was programmed.
The net international reserves of the Bank of Ghana declined by US$17 million during the first quarter of 2003, compared to a decline of US$80 million envisaged under the program.
While the data needed to apply the program adjustors to the first quarter outturns are not yet available, it would appear that the program’s quantitative performance targets for the quarter ended March 31, 2003 are likely to have been met by comfortable margins.