Ghana
2013 Article IV Consultation
Author:
International Monetary Fund. African Dept.
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Publication Date:
27 Jun 2013
eISBN:
9781484377673
Language:
English
Keywords:
ISCR; CR; deficit; debt; GDP; debt ratio; private sector; core inflation; monetary policy; output gap; Sub-Saharan Africa
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This 2013 Article IV Consultation highlights that economic growth in Ghana continued at a robust pace of 8 percent in 2012 amid rising fiscal and external imbalances. Fiscal pressures came to the fore in a mounting public sector wage bill and costly energy subsidies that pushed the deficit close to 12 percent of GDP. The growth momentum continues into 2013, with increased oil production projected to keep overall GDP growth close to 8 percent. Non-oil growth is likely to decelerate, however, as a result of energy disruptions and high real interest rates.

Abstract

This 2013 Article IV Consultation highlights that economic growth in Ghana continued at a robust pace of 8 percent in 2012 amid rising fiscal and external imbalances. Fiscal pressures came to the fore in a mounting public sector wage bill and costly energy subsidies that pushed the deficit close to 12 percent of GDP. The growth momentum continues into 2013, with increased oil production projected to keep overall GDP growth close to 8 percent. Non-oil growth is likely to decelerate, however, as a result of energy disruptions and high real interest rates.

Recent Developments and Outlook: High Potential but Short-Term Risk

1. Peaceful elections in December 2012 confirmed Ghana’s strong democratic credentials. President Mahama’s National Democratic Congress was reelected in December with a small margin in the popular vote, but a sizeable parliamentary majority. Uncertainty arises from the opposition’s challenge of the election results in court. The government faces high expectations for transforming Ghana’s nascent oil and gas resources into quality jobs and improved services and living conditions for its people.

2. Growth continued at a robust pace amid rising fiscal and external imbalances. 2012 GDP growth of close to 8 percent was supported by expansionary fiscal policy, mirroring patterns of past election years. Fiscal pressures came to the fore in a rising public sector wage bill and costly energy subsides that pushed the deficit close to 12 percent of GDP. The fiscal expansion also led to a significant deterioration in the public debt ratio and a widening current account deficit.

Macroeconomic Indicators, 2012-2018

article image
Sources: Ghanaian authorities and IMF staff projections.

Imports are defined as imports of goods and services plus income outflows minus investment income.

3. The policy mix was suboptimal. While fiscal policy became increasingly expansionary in the course of 2012, the Bank of Ghana (BoG) tightened monetary policy in the second quarter of the year to arrest a rapid depreciation of the cedi. The currency has since stabilized, with recent depreciations in line with inflation differentials, but at the cost of double-digit real interest rates. Although consumer price inflation stayed in the single digits in 2012, this outcome was helped by low food and repressed domestic fuel prices. With rising core inflation (excluding food and energy) and a February increase in fuel prices, inflation has moved back above 10 percent.

4. The growth momentum continues into 2013, with inflation on the rise. While non-oil growth is likely to decelerate, as a result of energy disruptions and high real interest rates, increased oil production is projected to keep overall growth close to 8 percent. Survey-based inflation expectations remain elevated at above 10 percent. The current account deficit is projected to stay high at 12 percent of GDP, despite a moderation in import growth, reflecting a weaker outlook for cocoa and gold exports. Staff projects a small reduction in the fiscal deficit (financing) to 10 percent of GDP this year, about 1 percent of GDP higher than the authorities’ budget projections, mainly reflecting a continuation of energy subsidies.

Figure 1.
Figure 1.

Ghana: Real Sector Indicators

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Source: Ghanaian authorities and IMF staff estimates and projections.1 The CIEA is the Bank of Ghana’s composite index of real economic activity.
Figure 2.
Figure 2.

Ghana: External Indicators

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Source: Ghanaian authorities and IMF staff estimates.

5. Ghana’s medium-term outlook is positive, if vulnerabilities are addressed. The economy continues to attract significant FDI, aided by the prospect of rising oil and gas production. Non-oil growth is projected to stabilize at a still robust level of 5–6 percent. A planned reduction in the fiscal deficit to about 6 percent of GDP is feasible by 2015, if policies are implemented as envisaged, contributing to a gradual decline in inflation. The current path of fiscal consolidation together with increased oil and gas production from new fields would reduce the current account deficit to a still high level of 7½ percent of GDP by 2018.

6. Short-term stability risks are significant (Appendix I). Deteriorating public debt dynamics and low official reserve buffers make the economy susceptible to risks from delayed fiscal adjustment, weaker terms of trade, and rollover risks from foreign holdings of government bonds. Domestically, energy sector problems pose downside risks to growth and fiscal outcomes.

7. Recommendations from the 2011 Article IV consultation remain valid today. At the time, Executive Directors stressed the importance of stronger fiscal management and called for rigorous implementation of the authorities’ plan to reduce the cash deficit, including the re-establishment of cost-recovery pricing of energy products and the avoidance of domestic arrears. Other recommendations included improvements in tax administration, payroll management, and debt management, supported by prudent borrowing strategies. While the government implemented a number of important measures in these areas, with impressive improvements particularly on the revenue side, the latest fiscal developments have substantively reversed the achievements of 2011.

Policy Discussions

Economic Policy Agenda: Advancing Middle-Income Status

There was full agreement that successful realization of the government’s growth agenda will require careful prioritization and sequencing, supported by fiscal consolidation.

8. Ghana is at a critical stage in its economic development. While having reached lower middle-income status, the economy still relies heavily on agriculture and natural resources and most jobs are in the informal sector. Similarly, the concentration of exports on three commodities (gold, cocoa, and oil) makes the economy vulnerable to terms-of-trade shocks. Although poverty and social indicators have improved significantly, about a quarter of the population still lives below the poverty line, and demographic trends will require the creation of 6–7 million jobs in the next 20 years to absorb new entrants into the labor market. Appendix II discusses Ghana’s inclusive growth successes and challenges in more detail. It concludes that the government will need to leverage Ghana’s strong governance and business environment and decisively tackle current growth constraints to diversify production toward manufacturing and higher-value agriculture. Better infrastructure, improved access to credit, further investment in health and education, and sustained macroeconomic stability will be central to ensure Ghana’s continued robust and inclusive growth.

9. The government’s transformation agenda provided the context for the discussions. It pursues three broad objectives:

  • Economic diversification. Leveraging oil and gas resources to create a robust job-creating manufacturing sector will require significant infrastructure investments and removal of the main bottlenecks to growth—inadequate and unreliable energy provision and lack of affordable private sector financing.

  • Social inclusion. To make further advancements in poverty reduction, ensure that the benefits of growth are widely shared, and build a workforce ready to take on higher-skilled jobs, the government wants to further strengthen Ghana’s social safety net and continue investments in utilities, health, and education, while improving the quality of social spending.

  • Macroeconomic and debt sustainability. An updated debt sustainability analysis suggests that Ghana’s risk of debt distress has risen, but remains moderate, provided the government successfully implements a sizeable fiscal adjustment (see supplement).

10. The government’s immediate priority is to restore macroeconomic stability. Fiscal consolidation is needed to reduce existing vulnerabilities and allow for a gradual realignment in the policy mix in support of private investment and growth. At the same time, the government recognized that successful transformation requires administrative and institutional reforms to promote reliable policy implementation—including resilience to the political cycle—higher efficiency of public infrastructure investment, and deeper financial intermediation.

Fiscal Policy: Realigning Priorities

There was agreement that fiscal consolidation and a shift in the composition of spending from wages and subsidies to investment are needed to support growth, reduce external pressures, and keep debt sustainable. The mission strongly supported the government’s plans for improving public financial management, while advocating more ambitious fiscal consolidation than currently planned.

11. The government’s main policy task is to reverse the large fiscal slippages of 2012. The fiscal deficit (financing basis) rose to almost 12 percent of GDP—nearly twice the level anticipated in the revised budget (Figure 3). The government also accumulated net arrears of 2.8 percent of GDP, of which nearly half was to state-owned enterprises, mainly linked to the under-pricing of fuel and utilities. A shortfall in revenue and grants added to the deficit, but the main cause for the large fiscal deterioration was higher spending.

Figure 3.
Figure 3.

Ghana: Fiscal Indicators

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Source: Ghanaian authorities and IMF staff estimates.

12. Failure to control the public wage bill was the key driver behind the larger deficit. Recurrent spending rose by 4¼ percentage points of GDP between 2011 and 2012, reflecting higher interest cost, energy subsidies and, in particular, a much larger wage bill, which grew by 47 percent in nominal terms. An 18 percent pay hike explains part of this increase, and new hiring appears to have offset the smaller-than-expected savings from the recent payroll audit, but many of the factors that could explain the increase have not yet been quantified. In addition, deferred wage payments from the single spine salary reform amounted to 2½ percent of GDP, twice the level included in the mid-year revised budget. The government has initiated a thorough examination of the payroll, realizing that its ability to control wages in the future hinges on its understanding of the significant overruns in 2012.

13. The mission saw difficulties in meeting the 2013 fiscal target in the absence of additional policy measures. The budget foresees a deficit of 9 percent of GDP on a cash basis, assuming a 12 percent nominal increase in the wage bill and higher tax revenue, mainly as a result of further efforts to strengthen the performance of the Ghana Revenue Authority (GRA). Other revenue measures—an audit and subsequent streamlining of VAT exemptions, an improved VAT bill (including VAT on financial services), and a windfall profit tax on mining—are expected to become effective only in 2014. Pressures on the expenditure side arise from the need to cover subsidies on fuel and utilities. While the former were significantly reduced with the February price increases, utility tariffs remain below cost-recovery levels. Without price adjustments, compensation to state-owned energy companies could exceed the budgeted amount by 1 percent of GDP by the end of the third quarter. Incorporating these additional expenditures, a delayed impact from the envisaged revenue measures, but also a higher nominal GDP (as a result of recent upward revisions to the 2012 data), staff projects a deficit of 10 percent of GDP this year.

14. The authorities acknowledged the challenges, but were positive that their deficit target could be achieved. They anticipated that the repair of the West African Gas Pipeline and new domestic power facilities would restore stable energy supply soon, which would then allow regular adjustments in utility tariffs. Spending control would be significantly strengthened with the full rollout of the Ghana Integrated Financial Management Information System (GIFMIS) and improved cash management, including closer scrutiny of monthly expenditure relative to forecasts. In response to revenue shortfalls in the first four months of the year, the authorities announced in late May their plans to submit new tax measures to parliament. These include the reintroduction of a stabilization levy—a temporary additional profit tax on certain sectors, such as financial services and mining which was in place also in 2009-11—levies on certain imports, increases in excise duties, a review of fees and charges, and administrative measures to raise GRA collections. The estimated combined impact is close to ½ percent of GDP for the six months starting in July, which would be broadly sufficient to offset the revenue shortfall through April. In addition, the government plans to undertake a major mid-term review of its policies in the summer, to assess the need for additional measures. The mission welcomed this review, stressing the urgency of reducing vulnerabilities.

15. Staff deemed the government’s medium-term deficit target of 6 percent of GDP feasible by 2015, but saw implementation risks. Factors expected to support consolidation include: (i) the elimination of energy subsidies, deferred single spine wage payments, and past arrears; (ii) implementation of the envisaged tax policy measures and improvements in revenue administration; (iii) full rollout of GIFMIS; (iv) complete migration of all nonsecurity subvented agencies to the mechanized payroll and set up of an integrated HR management system; (v) strengthening of cash management, with a consolidation of government accounts; and (vi) ongoing improvements in the integrated public investment and debt management framework. Success, however, depends on whether politically difficult measures—such as adjustments of energy prices to full cost-recovery levels—will be implemented in a timely and durable manner. The mission also pointed to implementation risks from possible delays and difficulties in implementing public financial management reforms, as has been the case in the past.

Projected Fiscal Savings, Change: 2012-15

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Source: IMF staff estimates and Ghanaian authorities.

Includes projected reduction of tax exemptions, and adoption of: a new Value Added Tax bill, including VAT on financial services, a customs and excise tax bill, and a windfall profit tax on mining.

16. Irrespective of feasibility, the mission viewed a deficit target of 6 percent of GDP as insufficiently ambitious. Informed by its external sustainability assessment, staff made the case for an additional adjustment in public consumption of 3-4 percent of GDP by 2017 to reduce the large current account deficit, while making room for increased public and private investment (Box 1). A lower fiscal and external current account deficit would also allow the buildup of official reserves toward the authorities’ target of more than 4 months of imports—up from 2.8 months of imports in December 2012. This target is consistent with staff’s analysis of optimal reserves, which suggests that a cover of 4.2 months of imports would provide a reasonable cushion against plausible shocks, such as deteriorating terms of trade or reversals of capital inflows invested in government bonds (Box 2).

17. An updated debt sustainability analysis supports the case for a more ambitious fiscal consolidation effort.1 Ghana’s risk of debt distress remains moderate, provided fiscal adjustment continues beyond the medium term. This would stabilize the debt ratio at its relatively high current level of about 50 percent of GDP (baseline). Absent further medium-term adjustment, the debt ratio would continue to rise (passive scenario). A more front-loaded adjustment, with additional savings of 3 percent of GDP by 2015, would set the debt ratio on a much more benign trend (active scenario).

uA01fig01

PV of Debt-to-GDP ratio, 2013-2033

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

1/ Incorporates budget provisions for 2013-15, and gradual further adjustment in primary balance.2/ Incorporates budget provisions for 2013-15, and no further adjustment in primary balance.3/ Incorporates additional adjustment of 3 percent of GDP by 2015, and unchanged primary balance thereafter.

Assessing Reserve Adequacy in Ghana

Ghana’s official reserves are low compared to its sub-Saharan peer group and rule-of-thumb benchmarks. Ghana’s reserves have recovered since 2008, but still fall short of the standard import threshold of 3 months. In relation to monetary aggregates, reserves have fallen and were just above the minimum benchmark of 20 percent of M2 at the end of 2012.

uA01fig02

Ghana has been outperformed by its peers in terms of reserves per months of imports…

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: IMF staff estimates based on World Economic Outlook
uA01fig03

…and its gross reserve holdings as a share of monetary aggregates have been declining.

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: IMF staff estimates based on World Economic Outlook

While the above measures give some guidance of reserve adequacy, they have been criticized to provide only imprecise benchmarks. A conceptually superior approach is to estimate the “optimal” level of reserves which maximizes their net benefits. Following the method applied by Dabla-Norris et al. (2011), the net benefits depend on the expected cost of a crisis given the stock of reserves, a vector of fundamentals (exchange rate regime, fiscal balance, institutions), the exposure to shocks (external demand, FDI, aid), and the opportunity cost of holding reserves (interest differential).1

Optimal reserve holdings, inputs

article image

Shocks defined as one standard deviation of respective time series (2000-2012)

Worst deterioration of exports since 2000 used as high s.d. driven by large upward swings

Source: IMF staff estimates based on Dabla-Norris, Kim, and Shirono (2011).

The approach implies optimal reserve holdings of 4.2 months of imports ($8.1 billion) for 2012, compared with actual reserves of 2.8 months of imports ($5.3 billion). Raising reserves to the suggested level would reduce the predicted cost of a crisis, in the event of a large shock, by about 24 percent.

The assessment of Ghana’s reserve buffer must also be seen in the context of strong terms of trade in 2012 and increased foreign holdings of government paper. Oil, gold, and cocoa account for 85 percent of Ghana’s total exports of goods, and the value of gold and cocoa exports alone has risen by more than 90 percent since 2009. A return of gold and cocoa exports to their 2009 levels could curb net current account inflows by $1.6 billion. At the same time, high yields on government bonds have increased foreign participation, with nonresidents now holding about one-third of government domestic debt (in three and five-year bonds). This creates potential for net portfolio inflows, as bonds are typically held to maturity and those maturing in 2013 had very low foreign participation. However, if instead foreigners decided to reduce their exposure by selling, for example, half of their holdings (arguably at a significant discount) on the secondary market, this would translate into capital outflows of $1.4 billion. Thus, a confluence of adverse developments could seriously weaken the balance of payments, lending strong support to the model-based conclusion that current reserve levels provide an inadequate buffer against plausible countryspecific shocks.

uA01fig04

Ghana: Optimal Reserve Holdings in Months of Imports (2012)

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: Staff estimates and projections based on Dabla-Norris, Kim and Shirono (2011).
1 See Dabla-Norris, Kim and Shorono (2011): “Optimal Precautionary Reserves for Low-Income Countries: A Cost-Benefit Analysis”, WP/11/249.

External Sustainability Assessment1

Medium-term current account benchmarks for Ghana range from -4 to -2.8 percent of GDP.Ghana’s optimal path in the next five years should lead to a reduction in the current account deficit combined with a significant fiscal consolidation and a shift from public consumption to public investment.

The three methodologies used—external sustainability (ES), macroeconomic balance (MB), and model-based—approach the assessment from different perspectives. Combining their results provides a richer picture of Ghana’s external position. The ES approach provides a current account benchmark consistent with stabilizing NFA at a certain level, but abstracts from the country’s underlying internal fundamentals. The MB approach estimates a benchmark based on the country’s fundamentals relative to its trading partners, but does not capture Ghana’s recent oil windfall and its potential use for infrastructure investment. In a capital-scarce economy, like Ghana, this may warrant higher current account deficits. By calibrating the dynamic neoclassical model by Araujo et al. (2012) to the case of Ghana, the recent discovery of offshore oil and gas reserves is explicitly incorporated into the assessment of the current account.

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Sources: Staff projections and calibration based on Araujo et al. (2012).

Both the ES and MB approaches suggest that the current account deficit should decline in the medium run, but magnitudes of adjustment differ. Stabilizing Ghana’s NFA-to-GDP ratio at its 2009 preoil discovery level of -26.8 percent implies a current account benchmark of -2.8 percent of GDP. The MB approach predicts a medium-run benchmark of -3.5 percent of GDP which is strongly influenced by Ghana’s relatively high rates of GDP per capita and population growth. Under this approach a fiscal adjustment would narrow the gap from two sides: directly, by reducing the actual current account deficit, and indirectly by lowering the benchmark, with every percentage point improvement in Ghana’s fiscal balance translating into a 0.3 percentage point increase in the sustainable current account deficit.

A model-based approach is used to qualify the above results and to provide quantitative indications of the optimal composition of consumption and investment in Ghana in the medium run.2 The paths of the current account, as well as private and public consumption and investment implied by the model, are the result of the optimal choice of a social planner maximizing social welfare. The optimal choice takes account of the need for infrastructure scaling up and incorporates inefficiencies inherent in investment projects in developing countries, given a long-run level of NFA (note that FDI is treated as decreasing NFA in the model). Once calibrated to Ghana’s economy, the model can provide a current account benchmark, as well as information on the optimal composition of consumption and investment.

uA01fig05

Current Account: All approaches suggest that the current account deficit has to decline in the medium term.

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: Staff projections and calibration based on Araujo et al. (2012).

First, the optimal composition of spending is estimated consistent with the projected current account deficit in the medium run. This step reveals the long-run level of NFA under which the currently projected deficit for 2017 would be optimal and the optimal levels of private and public consumption and investment given this projection. A current account benchmark broadly in line with the projected path of the current account deficit in the medium run is consistent with a long-run NFA level of -78 percent of GDP. This level would place Ghana in the lowest 20thpercentile within the group of middle income countries.3 Given this long-run NFA level, the model predicts that recurrent government expenditure is around 4.5 percentage points of GDP above and public investment more than 2 percentage points below the optimal value in 2012. In 2017, government consumption is projected to be more than 3 percentage points of GDP higher than its benchmark and public investment almost 0.5 percentage point below its optimal value.

Second, the spending composition and the current account benchmark are derived based on a more conservative long-run NFA to GDP ratio. The optimal macroeconomic path is now derived assuming an NFA-to-GDP ratio of -40 percent corresponding to the median NFA level of lower-middle income countries. This NFA level implies a benchmark for the current account deficit of 9.8 percent of GDP in the short run and 4 percent of GDP in the medium run. The medium-term adjustment of the current account occurs mainly through an optimal decline in public and private consumption to 8.8 and 75.6 percent of GDP in 2017. It implies that public consumption would have to adjust by 3.5 percentage points more than currently projected, whereas public investment would be at its optimal level in 2017. While the model predicts consumption shares to fall on an optimal path, the decline would have to be much stronger without the discovery of oil, i.e. the effect of the oil windfall on private and public consumption is positive (about 4 percent of GDP for private and 0.5 percent of GDP for public consumption in the medium term). The model also suggests room to increase private investment by 0.5 percentage point of GDP in both the short and medium run.

Medium-Term Current Account Adjustment Model1 vs. Projections

(In percent of GDP)

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NFA/GDP=-0.40

Sources: Staff projections and calibration based on Araujo et al. (2012)
uA01fig06
Sources: IMF staff projections and calibration based on Araujo et al. (2012)

The current account deviations from the benchmarks obtained above suggest that the Ghana cedi is overvalued by 13.6 to 17.1 percent in the medium run, but call for different policies to support external sustainability. In particular, both MB and model-based approaches suggest that the adjustment in the current account can be achieved through fiscal consolidation, with the latter approach highlighting that the adjustment of fiscal expenditure should arise through a disproportionate cut in current expenditure, while public and private investment should be safeguarded.

1 Based on research by Bin Grace Li, Monique Newiak, Geneviève Verdier, and Felipe Zanna. 2 The quantitative results depend partly on the specific assumptions made about the efficiency of public and private investment, as well as the calibration of the adjustment cost. The possible effects of these parameter changes are explored in Araujo et al. (2012). 3 Maria Milesi-Feretti (2007): The External Wealth of Nations Mark II. Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004, Journal of International Economics, 73. 223-250.

18. A model-based analysis confirms these conclusions and provides further insights on the trade-offs between different policy choices. Appendix III presents the results of a dynamic stochastic general equilibrium (DSGE) model, capturing the interaction between public investment, growth, and debt sustainability, calibrated to the Ghanaian economy. The analysis illustrates that achieving a long-term debt ratio of about 50 percent may require a stronger fiscal effort than assumed in the standard DSA. It confirms that further upfront consolidation would reduce the debt ratio significantly with only small reductions in the growth dividend. Alternative policy scenarios suggest that such a front-loaded adjustment could generate significant benefits if combined with reforms to enhance investment efficiency. The latter would even create scope for a more ambitious scaling up of public investment and a larger growth dividend, without endangering the debt dynamics. A more ambitious investment profile without improved efficiency, however, would raise the debt ratio significantly.

19. In light of these findings, the mission recommended policy measures to generate savings of another 3 percent of GDP by 2015, complemented by further institutional reforms. While there are limits to achieving faster consolidation in 2013, staff viewed prompt action on measures that can be implemented quickly as critical to reduce fiscal and external risks. This, together with an ambitious and credible action plan for the coming years, would go a long way in reinforcing confidence. The mission suggested a thorough expenditure review, with possible support from the Fund’s Fiscal Affairs Department, to identify areas for savings and reprioritization, consistent with the government’s own agenda.

20. There was broad consensus on the areas for reform:

  • On the expenditure side, it was agreed that a return to full cost-recovery pricing for fuel and utilities—cushioned by targeted social programs—should be pursued as soon as possible, not only to generate savings, but also to restore the financial viability of the public energy companies, as part of a comprehensive reform of the sector. The largest potential for savings could be achieved by rationalizing the wage bill, including actions to streamline, discontinue, or commercialize the activities of subvented agencies. A public sector reform secretariat has been established under the office of the president to develop specific plans. The authorities saw benefits in the mission’s proposal to move to multi-year wage agreements and to negotiate salary increases before the budget is finalized to enhance predictability. Decisive action on these and other fronts, in the context of a broad public expenditure review, could reasonably generate savings of another 2 percent of GDP by 2015. On wages alone, savings of 1¾ percent of GDP could be achieved, relative to current projections, by limiting pay increases to inflation, while keeping the size of the public sector unchanged.

  • On the revenue side, a far-reaching removal of exemptions, together with further tax policy measures, for example in the area of property taxes, could generate additional revenue of 1 percent of GDP by 2015.

These measures, taken together, would help rebuild external buffers, establish favorable debt dynamics, improve the composition of fiscal spending toward priority areas, and allow a readjustment in the policy mix to reduce high real interest rates.

21. The authorities also recognized the importance of institutional reforms to strengthen budgetary control and predictability:

  • Debt management and investment planning. Building on past achievements, the authorities are committed to further strengthen their performance in these key areas that will only increase in importance with growing reliance on nonconcessional financing. The planned issuance of another Eurobond of up to $1 billion is part of their strategy to smooth rollover needs and reduce debt-servicing costs—by replacing more expensive borrowing from the less liquid domestic market—while shoring up international reserves. The authorities are also taking a more systematic approach to the implementation of investment projects, prioritizing completion of existing over new projects.

  • Budget allocation rules for statutory funds. Fixed allocation to these funds, established for priority areas, such as roads, education, and fiscal decentralization, limit budget flexibility but are constitutionally mandated. Rather than attempting to change the underlying principle, the authorities saw scope in reviewing the transfers and associated spending obligations, with a view to streamlining overall government expenditure and creating more flexibility to adjust spending in response to shocks or changed priorities.

  • Fiscal rules. The authorities were open to renew the dialogue over the adoption of comprehensive fiscal rules to support fiscal prudence and debt sustainability, once consolidation is firmly on track and fiscal predictability has been established.

Monetary Policy: Little Room for Easing

There was broad agreement that monetary policy needs to remain tight until fiscal consolidation is firmly established.

22. The mission raised concerns about the BoG’s direct financing of the fiscal deficit in the run-up to the 2012 elections. The sharp increase in net credit to the government far exceeded the statutory limit of 10 percent of revenue for total bank financing and risked weakening the perception of the BoG’s independence, as well as the credibility of the inflation targeting regime. The authorities explained that the high recourse to BoG financing reflected revenue shortfalls at the end of 2012, when the BoG had already covered government payments on the basis of higher revenue projections. Going forward, they expected that ongoing improvement in cash management and forecasting would allow them to significantly reduce such unintentional recourse to BoG’s financing, but did not think that a full elimination was practical. The mission agreed with the BoG’s proposal to establish a separate ceiling for its component of government financing that is consistent with macroeconomic stability objectives and enforced.

uA01fig07
Sources: Bank of Ghana and IMF staff estimates.
Figure 4.
Figure 4.

Ghana: Monetary and Financial Indicators

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Source: Ghanaian authorities; DataStream; and IMF staff estimates.

23. Faced with a rapidly depreciating currency, the BoG took a number of measures in 2012 to tighten domestic liquidity. Apart from raising its policy rate by 250 basis points and directly mopping up liquidity, the BoG reduced banks’ maximum net open forex position and required them to hold mandatory reserves on foreign currency deposits in cedi, rather than foreign currency. These measures were successful in absorbing excess liquidity and stabilizing the cedi, while raising interbank rates well above the policy rate. Thus, the effective policy stance, as evidenced by market rates, has been tighter than suggested by the policy rate.

uA01fig08

Ghana: Bank Liquidity and Interest Rates July 2007 - February 2013

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: Bank of Ghana and IMF estimates.

24. There was agreement that interest rates will need to remain high until inflationary expectations decline and fiscal consolidation is firmly established. Both actual inflation and inflation expectations have risen recently in the context of aggregate demand pressures from expansionary fiscal policies, consistent with staff’s assessment of a positive output gap (text chart and analysis in Box 3). With upside risks from the sharp increase in reserve money, driven by net credit to the government, the mission advised keeping a tight monetary stance at this juncture.

Figure 6.
Figure 6.

Ghana Output Gap and Factors

Explaining Utilization of Economic Resources (in percent)

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Six Years of Inflation Targeting in Ghana: Policy Lessons and Challenges1

Ghana is one of the few lower-middle income countries that adopted inflation targeting (IT) as a formal framework for its monetary policy. This box summarizes the key findings of a joint study by the IMF African and Research Departments on the performance of Ghana’s IT regime over the six years of its existence (2007-12). It applies a stylized macroeconomic model of the kind typically used by central banks to guide their policy in the early phases of their IT experience.2 The key findings and policy conclusions are: the IT regime has been successful in bringing inflation down to single digits, but there remain significant operational challenges to make the framework more transparent and accountable.

Inflation Record and Monetary Transmission

The IT regime has been successful in delivering on its goal of reducing inflation and keeping it stable at the authorities’ target level. The Bank of Ghana (BoG) reduced headline inflation from 20-percent levels in 2004 to 10.7 percent by end2010 (above the 8.6 percent mid-point target, but within the target band); since then, inflation has stayed within the official target bands (Figure 1). This was helped, however, by low food inflation and administered energy prices; core inflation, excluding food and energy, has been persistently in double digits throughout the IT period (2007-to date) and within the upper limit of the official target bands since 2011.

Figure 1.
Figure 1.

Inflation in Ghana (2007Q1-2013Q1)

(in percent)

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

The interest rate channel, a key channel of IT policy, seems to function in a standard way. This conclusion takes account of the fact that the overnight interbank market rate has at times deviated quite significantly from the official policy rate. Because the former is a better proxy of the BoG’s effective policy stance, it is used instead of the official policy rate to analyze the implementation of the IT framework. Figure 2 shows the correlation between the interbank market rate and economic activity, measured by the output gap (the difference between actual output and its potential level). Past interest rate tightening is associated with moderating economic activity in the future (Figure 2, SW quadrant showing negative correlation), indicating that the BoG is forward-looking by tightening rates when an output gap is expected to open up. Also, the BoG seems to appropriately tighten the policy rate in response to past increases in the output gap (Figure 2, NE quadrant showing positive correlation).

Interpreting interest rates, inflation, and economic activity over the IT period

Figure 2.
Figure 2.

Stylized facts on monetary policy transmission (2004–12)

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Note: The level of economic activity is proxied by the Indicator of Real Economic Activity estimated by the Bank of Ghana (RCIEA). Output gap is estimated by detrending the RCIEA with an HP-filter over the 2004 Q4 - 2012Q4 period.Source: Bank of Ghana and IMF Staff estimates

The six-year experience of IT in Ghana can be divided into three sub-periods: (i) transition period (2007-2008), (ii) IT- gaining-credibility period (2009-2010), and (iii) complacent period (2011-2012). A macroeconomic model is used to shed light on the key drivers of economic cycles and the policy transmission mechanism during those periods. The model reflects the essence of the macroeconomic relationship between output, prices, interest rates, and exchange rates as predicted by economic theory. Specifically, monetary policy follows a Taylor-type rule in which the policy interest rate responds to expected future deviations of inflation from the target and to the output gap. Formally, the behavior of output and inflation is captured by an IS curve, which captures demand shocks, including fiscal policy changes, and a Phillips curve. As a small open economy, Ghanaian economic activity is further affected by foreign factors. The exchange rate, satisfying risk-adjusted uncovered interest-rate parity, is a nominal shock absorber between the domestic and foreign developments.

The model can explain volatility in interest rates, prices, and output by underlying (model-estimated) “fundamentals.” Figure 3 shows the actual interbank rate and the fundamental rate estimated by the model. Figure 4 decomposes the interbank (policy) rate into its structural components, including unexpected shocks (other factors). During the IT transition period, the actual rate was close to its fundamental level, but policy still lacked credibility: when the food and fuel price shock hit the economy in 2008, inflation expectations surged (Figure 5). This prompted the authorities to increase rates by more than warranted by economic fundamentals (Figure 3) in an attempt to gain credibility and anchor inflation expectations. During the following five quarters (2009Q3–2010Q4), inflation declined, reaching its 9 percent target by end-2010. Subsequently, the monetary stance turned too accommodative, planting the seeds for yet another credibility test. As the economy entered an expansionary period with the start of oil production, liquidity conditions eased rapidly. The interest rate fell below its fundamental rate, and associated capital outflows triggered a sharp exchange rate depreciation. Inflation expectations accelerated again (light green bars in Figure 5). At this point, breaking the cycle required aggressive action, leading to double–digits real interest rates.

Figure 3.
Figure 3.

Actual Interbank Rate vs Modal-based “Fundamental” Rate

(in percent}

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Figure 4.
Figure 4.

Factors Explaining Interest Rate Changes

(in percent)

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Figure 5.
Figure 5.

Factors Explaining Core Inflation

(in percent)

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Source: Bank of Ghana and IMF Staff estimates.

What are the conclusions?

Stronger commitment to single-digit inflation could have benefited the real economy through lower financing costs. The ‘lack of credibility’ premium in interest rates, comes from different sources: an imperfect alignment of market rates with the BoG policy rate, delayed reaction to growing liquidity pressures, and insufficient communication of the policy stance. Credibility of the IT framework could also be enhanced by setting a medium-term inflation target to better anchor expectations. The BoG may want to adopt a more ambitious medium-term inflation target of 5-6 percent, to realize the significant welfare gains from a lower inflation environment. Looking forward, the BoG should make further improvements in the systematic use of a model-based forecasting and policy analysis (FPAS) and in communicating effectively to the public its policy decisions, including policy and forecasting mistakes, in line with best practice in IT-based monetary policy frameworks.

Considerations beyond the model-based analysis

A successful implementation of the IT framework cannot be seen in isolation from fiscal policy shocks which may threaten the inflation target. An expansionary fiscal policy that relies directly on BoG financing, as it has occurred in Ghana in the past two elections (2008 and 2012), makes it difficult to achieve and sustain lower inflation rates. Such a policy of monetizing the fiscal deficit raises inflation directly, while also entrenching it through higher inflationary expectations.

1The authors of this box are Alfredo Baldini (AFR) and Martin Fukac (RES). 2See Douglas Laxton, Alasdair Scott, and David Rose, 2009. “Developing a Structured Forecasting and Policy Analysis System to Support Inflation-Forecast Targeting (IFT),” IMF Working Papers 09/65, International Monetary Fund.

It recommended an increase in the policy rate to counter inflationary pressures, supported by active liquidity management that keeps market rates appropriately tight. This would also strengthen the signaling role of the policy rate within the inflation-targeting framework by narrowing the gap with current interbank rates. The mission suggested that a further tightening of the policy stance could be warranted, should recent hikes in domestic fuel prices create second-round effects, or should the cedi come under renewed pressure. In the latter case, the mission cautioned against direct interventions that would further deplete an already low reserve cover. Subsequent to the mission, during its May meeting, the Monetary Policy Committee (MPC) raised the policy rate by 100 basis points to 16 percent.

25. The mission also advised the BoG to strengthen the implementation of the inflationtargeting framework. It welcomed the BoG’s interest in improving its liquidity management, based on a consistent and user-friendly liquidity-forecasting framework. To strengthen its policy effectiveness, the BoG should manage liquidity in a manner that results in a close alignment of market rates with its policy rate. Following the May MPC meeting, the BoG announced two welcome changes to its monetary operations to strengthen the effectiveness and signaling functioning of the policy rate: (i) a widening of the interest rate corridor by raising the upper bound to 200 basis points above the policy rate (with the lower bound remaining at 100 basis points); and (ii) introduction of a standing facility to manage liquidity more effectively in the interbank market, enhancing the transmission mechanism. Looking forward, the mission encouraged the BoG to make further improvements in the systematic use of a structural model-based inflation forecasting tool, and in communicating effectively to the public its policy decisions—including policy and forecasting mistakes—in line with best practice in IT-based monetary policy frameworks. Finally, it suggested that credibility of the IT framework would be further enhanced by setting a one- to two-year rolling inflation target, as opposed to the current end-year target, to better anchor expectations. The mission also noted that a more ambitious target could generate significant welfare gains from a lower inflation environment.

Financial Sector: Containing Vulnerabilities and Removing Structural Constraints

The Bank of Ghana is focused on strengthening its regulatory and supervisory powers, in line with the 2011 FSAP recommendations, and to keep pace with new risks in the financial sector. The mission’s advice benefited from enhanced financial sector surveillance (Box 4).

uA01fig09

Private Credit to GDP, 2002–2011

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: World Bank, FINSTATS Database, 2013, and IMF staff estimates.

26. The authorities shared the missions concerns about high interest rates pricing out profitable investment projects. While private credit has grown strongly in 2012, this has occurred from a low base. Banks’ lucrative investments in government securities have reduced their incentives to actively seek lending opportunities to the private sector. The authorities fully agreed that decisive fiscal consolidation was necessary to reduce the crowding out of private investment.

27. While the banking system has grown steadily in assets and profitability, the mission cautioned about the buildup of new risks. Despite strong credit growth, the ratio of nonperforming loans (NPLs) has not fallen since mid-2012, but merely stabilized at around 13 percent, and high interest rates spell risks of a renewed deterioration in banks’ credit portfolios. Moreover, strong profits from high treasury-bill rates can reduce banks’ incentives to improve efficiency, potentially delaying otherwise warranted consolidation and cost reduction in the industry. Overhead costs relative to total assets are already significantly above peer countries, and the cost-to-income ratio is high. While, on average, only 30 percent of banks’ income results from treasury bills, retaining profitability in some institutions may prove challenging, once the government’s high borrowing demands are reversed. Concentration is also high with large exposures to single obligors and economic sectors. In light of these risks, the BoG is encouraging banks to make effective use of the existing credit reference bureaus and was open to suggestions to raise minimum capital buffers against a future downturn.

Enhanced Financial Sector Surveillance: Main Conclusions1

Ghana was selected as one of the pilot cases for enhancing surveillance of financial systems in low-income countries. The purpose is to go beyond the traditional surveillance focus on banking system soundness and solvency, by analyzing in more depth the interplay between financial development, macroeconomic and financial stability, and effectiveness of macroeconomic policies. The main conclusions of the study are as follows:

  • While the banking system has grown rapidly and is competitive by standard metrics (barriers to entry and concentration of assets), private credit has remained relatively low as a share of GDP and access to affordable credit is a major constraint on growth.

  • High real interest rates—a result of structural factors, such as high operating cost, but also excessive government borrowing—are constraining private sector access and create risks of a renewed increase in nonperforming loans (NPLs).

  • An upgrading of financial sector legislation and supervisory practices is ongoing and is needed to deal with the growing complexities of an evolving financial landscape with increased foreign participation and a growing role of microfinance institutions.

  • Rural and Community Banks have become a main channel for financial inclusion, though only about 30 percent of adults have an account at a formal institution. A sizeable part of the population relies instead on the services of about 600 microfinance companies, as well as 3,000-5,000 individual susu collectors that serve over half a million customers.

  • The ownership role of the state, especially of the BoG, in the financial sector raises concerns about a level playing field and reputational risks to the BoG’s credibility as an independent regulator and supervisor. Risks also arise from the slow decision-making and resolution process for the two remaining weak banks.

  • The BoG has the tools to conduct effective inflation targeting, but there is room to improve its forecasting and liquidity management framework to restore the signaling role of its policy rate.

  • A return to fiscal discipline and effective policy coordination are needed for successful further disinflation and increased financial deepening.

1 See accompanying Supplement on Enhancing Financial Sector Surveillance.

28. Building on recent improvements in supervisory practices, the mission urged the BoG to focus on the remaining gaps and challenges identified in the 2011 FSAP.2 The BoG has greatly improved its offsite supervision, backed by enhanced risk-assessment processes. It is now focusing on strengthening its regulatory powers and standards in areas such as consolidated supervision and has requested Fund technical assistance to help address gaps and inconsistencies in the laws that constrain its ability to set and enforce prudential regulations. Further areas for improvement include deepened cross-border supervision, where the BoG has signed MoUs and begun to supervise some foreign-owned banks jointly with its relevant supervisory counterparts. Finally, while the number of weak banks has declined since the 2011 FSAP, the mission encouraged the authorities to address the risks posed by the two remaining problem banks, either through their sale or orderly liquidation, while developing contingency plans in case of further stress. This would also reduce reputational risks to the BoG’s credibility as a supervisor, arising from its ownership stake in one of the banks.

Staff Appraisal

29. Despite a strong growth momentum, short-term stability risks are significant. Ghana’s strong democratic credentials and favorable prospects for oil and gas production continue to attract significant FDI. Yet, low external buffers and a rising domestic debt ratio expose the economy to risks, such as weaker terms of trade, reduced capital inflows, or unanticipated spending needs. Energy sector problems could curtail growth, while excessive domestic government borrowing is raising the cost of credit to the private sector. Both factors have been identified as key constraints to growth.

30. Ghana’s positive medium-term outlook is contingent on strong political will to confront these challenges decisively. The immediate policy priority is to safeguard stability by rebuilding fiscal and external buffers. Decisive fiscal consolidation will, in due course, also allow for a reduction in interest rates. Going forward, successful economic transformation will require a realignment of spending away from wages and subsidies toward investment in infrastructure, while structural fiscal reforms are needed to restore policy credibility and build institutional resilience to the political cycle. Ultimately, better infrastructure, improved access to credit, further investment in health and education, and sustained macroeconomic stability will be central for Ghana’s ambition of achieving full middle-income status and raising the living standards of all its citizens.

31. The government’s primary policy task is to reverse the large fiscal slippages of 2012. Gaining control over the wage bill is the first priority, starting with a thorough examination, already initiated by the government, of the factors that drove the spending overrun in 2012. Improvements in revenue administration and new tax measures are welcome, but much of their impact is likely to be felt only in the coming years. The announced reintroduction of the stabilization levy combined with other immediate measures will provide an important offset for early-year revenue shortfalls, but prompt action is also needed to curtail tax exemptions and bring fuel and utility prices back to full cost-recovery levels. The latter is essential not only to eliminate costly subsidies, but also to restore the financial viability of the power sector companies as a requirement for tackling Ghana’s energy problems. In the absence of additional policy measures, and assuming a delayed removal of energy subsidies, staff sees significant risks that this year’s deficit target of 9 percent of GDP will be missed.

32. The government’s deficit target of 6 percent of GDP by 2015 is achievable, but would keep public debt high and external buffers low. Staff recommends an additional fiscal adjustment of 3 percent of GDP by 2015, using a combination of revenue and expenditure measures, including a reduction in the wage bill as a share of GDP to make room for investment in critical infrastructure and social priority areas. Without the additional fiscal adjustment, Ghana’s public debt burden would likely remain high, and official reserves would continue to fall short of the authorities’ target of 4 months of imports, leaving the economy exposed to terms-of-trade shocks and destabilizing shifts in confidence.

33. Staff’s external stability assessment confirms the need for reducing recurrent government spending. Ghana’s projected medium-term current account deficit exceeds the sustainability benchmarks, suggesting an overvaluation of the real exchange rate by 13½ to 17 percent in the absence of further policy adjustment. An additional reduction in public consumption of 3-4 percent of GDP by 2017, would facilitate a reduction in the current account deficit to a sustainable level of about 4 percent of GDP, without the need for an exchange rate adjustment, while making room for increased public and private investment.

34. The monetary policy stance will need to remain tight until inflationary pressures decline and fiscal consolidation is firmly established. Both actual inflation and inflation expectations have risen recently, with upside risks from the sharp increase in government borrowing and a still positive output gap. The latest increase in the policy rate was warranted to counter inflationary pressures and should continue to be supported by active liquidity management to keep market rates appropriately tight. A further tightening of the policy stance could be warranted in the event of second-round effects from recent hikes in domestic fuel prices or renewed pressure on the cedi, while foreign reserves should be protected. Successful fiscal consolidation would provide scope for lowering interest rates in due course.

35. The Bank of Ghana has room to improve the functioning of its inflation targeting framework. Recent decisions to raise the policy rate, combined with measures to steer market rates back into the policy corridor, are welcome and important steps to restore the policy rate’s signaling role within the inflation-targeting framework. Going forward, the BoG should manage liquidity consistently in a manner that maintains a close alignment of market rates with the policy rate, with the latter being set at a level consistent with the inflation target. The process for selecting the policy rate could be strengthen by the systematic use of a model-based inflation forecasting tool which—together with improved communication to the public—would bring the BoG closer to best practice in IT-based monetary policy frameworks. Credibility of the IT framework could be further enhanced by setting a one- to two-year inflation target to better anchor expectations, while a more ambitious target could generate significant welfare gains from a lower inflation environment.

36. The priority in the financial sector is to contain vulnerabilities and remove structural constraints. Ghana’s banking sector has grown steadily in assets and profitability, but high interest rates are pricing out profitable investment projects, while raising the risk of a renewed increase in nonperforming loans. Higher minimum capital buffers may be warranted as protection against a future downturn. The BoG has implemented important actions over the past years to improve bank supervision. It should now focus on addressing gaps and inconsistencies in the banking laws, and deepening cooperation with regional counterparts to improve the regulation and supervision of foreign banks active in Ghana. Dealing with the remaining two weak banks is also a priority, as is the divestiture of the BoG’s financial stake in banks that it supervises.

37. It is recommended that the next Article IV Consultation be held on the regular twelvemonth cycle.

Table 1.

Ghana: Selected Economic and Financial Indicators, 2011–18

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Sources: Ghanaian authorities; and Fund staff estimates and projections.

Based on new national accounts rebased to 2006, including ECF program indicators. For 2018, it is assumed that new oil fields will come to stream.

Percent of broad money (including foreign currency deposits) at the beginning of the period.

Including public enterprises and errors and omissions.

Table 2A.

Ghana: Summary of Central Government Budgetary Operations, 2011–18

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Sources: Ghanaian authorities; and IMF staff estimates and projections.

Excludes deferred wage payments.

Includes clearance of liabilities of government to state-owned enterprises. For 2012, includes carry over payments from 2011 of 1.8 percent of 2012 GDP.

Excludes government liabilities to State-owned enterprises, non-cash payments and deferred wage payments.

Excludes clearance of government liabilities to state-owned enterprises, includes 0.1 percent of GDP of reconciliation and 0.3 percent of GDP of securitization.

Table 2B.

Ghana: Summary of Central Government Budgetary Operations, 2011–18

article image
Sources: Ghanaian authorities; and IMF staff estimates and projections.

Excludes deferred wage payments.

Includes clearance of government liabilities to state-owned enterprises. For 2012, includes carry over payments from 2011 of GHc 1,335 million.

Excludes liabilities to state-owned enterprises, non-cash payments, and deferred wage payments.

Excludes liabilities to state-owned enterprises’ includes GHc 48 million of reconciliation and GHc 203 million of securitization.

Table 2C.

Ghana: Summary of Budgetary Central Government Operations, 2008–18 (GFS 2001)

article image
Sources: Ghanaian authorities; and IMF staff estimates and projections.

Excludes deferred wage payments which are reported on an independent line.

Includes new arrears classified under this definition.

Includes cash arrears and promisory notes to statutory funds.

Includes new project-arreras.

Net transfers to Oil Fund.

Divestiture receipts (net).

Reflects net change in arrears stock (excludes government liabilities to state-owned enterprises).

Table 2D.

Ghana: Summary of Budgetary Central Government Operations, 2008–18 (GFS 2001)

article image
Sources: Ghanaian authorities; and IMF staff estimates and projections.

Excludes deferred wage payments which are reported on an independent line.

Includes new arrears classified under this definition.

Includes cash arrears and promisory notes to statutory funds.

Includes new project-arreras.

Net transfers to Oil Fund.

Divestiture receipts (net).

Reflects net change in arrears stock (excludes government liabilities to state-owned enterprises).

Table 3.

Ghana: Monetary Survey, 2011–18

article image
Sources: Ghanaian authorities; and Fund staff estimates and projections.

End of period.

Include public enterprises and the local government.

Including valuation.

Table 4.

Ghana: Balance of Payments, 2011–18

article image
Sources: Ghanaian authorities; and Fund staff estimates and projections.
Table 5.

Ghana: Financial Soundness Indicators, 2007–12

article image
Source: Bank of Ghana.

Average lending rate minus average (saving and demand) deposit rate.

Appendix I: Risk Assessment Matrix3

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Appendix II: Inclusive Growth Successes and Challenges4

Ghana has experienced strong and broadly inclusive growth over the last 20 years, defined as growth that raises the income of most or all in society, including the poorest groups. Significant progress in poverty reduction has been achieved as well as the establishment of a highly rated governance and business environment. Growth over the medium term will depend more heavily on extractive industries, which will need to be complemented by diversified, private sector-led growth, particularly in more labor-intensive industries. This note reviews past successes and focuses on three major challenges: access to credit, energy infrastructure, and growth in labor-intensive sectors. In all three areas current macroeconomic challenges constrain the government’s ability to promote robust, inclusive growth. Fiscal consolidation followed by policies targeted at these critical issues will be crucial for Ghana to advance to full middle-income status while creating 6–7 million quality jobs in the next 20 years.

Background

1. Ghana has experienced strong per capita GDP growth over the last 20 years, consistently outperforming Sub-Saharan Africa and the world. Growth has accelerated over the last 5 years, with strong performance in 2011, in particular, due to investment in oil extraction. This growth experience has recently vaulted the country into lower-middle income status. Yet over the same two decades middle-income countries as a group have experienced even stronger performance, suggesting that the government’s objective of achieving full middle-income status will require sustained improvements in growth over the medium term.

uA01fig10

Per Capita Growth

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: World Bank, World Development Indicators, 2013; Staff estimates.
uA01fig11

Per Capita GDP

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: World Bank, World Development Indicators, 2013.
uA01fig12

Poverty Ratio

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: World Bank, World Development Indicators, 2013.
uA01fig13

Evolution of Gini Coefficient, Ghana and Selected Comparators

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: Staff estimates based on data reported by Bastagli, Coady, Gupta (2012). Income Inequality and Fiscal Policy. SDN/12/08.

2. Ghana’s period of sustained growth appears to have been widely shared. The fraction of the population living on less than $1.25 a day has declined significantly, outperforming regional peers. Ghana has become a regional leader by poverty measures. It has significantly lower levels of poverty than the group of middle-income countries did in the early nineties, but still lags relative to those countries today. At the same time, measures of inequality have increased, with Ghana’s Gini coefficient converging to regional comparators. Measures of the share of income going to the poorest 10 percent and 20 percent tell a similar story. While a rise in inequality may be considered a natural consequence of sustained growth, the experience of Senegal and Sub-Saharan Africa as a whole suggests that it is possible to reduce inequality while raising growth.

uA01fig14

Other Social Indicators

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: World Bank, World Development Indicators, 2013.

3. Ghana’s successes in poverty reduction have been also reflected in significant improvements in other Millennium Development Goal measures (Table A1). Ghana has kept pace with or outperformed the Sub-Saharan African average in mortality rates for mothers and children during births—increasingly attended by skilled health staff, in access to better water and sanitation, and in school enrollment and youth literacy. Ghana has had some success protecting particularly vulnerable populations. It has made progress in its urban/rural poverty divide from a very unequal starting point but still had the largest urban/rural consumption divide of the 6 countries studied in the Fall 2011REO. Ghana has outpaced the region in erasing gender inequality in education, and has reduced the economic activity rate of its 15–24 year olds by nearly a third between 2000 and 2006, while increasing educational opportunities, but has moved backwards in some other areas of women’s equality. These achievements have been strong on balance and demonstrate that recent growth has translated into social investment and development by a variety of measures.

4. Ghana’s successes in growth, poverty reduction, and quality of life improvements have been underpinned by a high-quality governance environment. Ghana has been highly rated in the World Bank’s World Governance Indicators since their first observation in 1996. Its ratings have continued to improve, accelerating past even the average Upper-Middle Income Country in the World Bank’s latest ease of doing business indicators.

uA01fig15

Ease of Doing Business

(Percentile rank; 100= better)

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: World Bank, International Finance Corporation, Doing Business 2013
uA01fig16

Governancer Indicators

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: World Bank, World Governance Indicators, 2013.

Three Constraints to Inclusive Growth

A recent analysis by the U.S. and Ghanaian governments, based on firm-level surveys reporting barriers to growth, has identified access to affordable credit and reliable electricity provision as principal constraints to growth (U.S. Government and Government of Ghana, 2011). These constraints present a particularly heavy burden for small and medium-sized enterprises and labor-intensive sectors, areas where growth is most inclusive. This section analyzes these constraints and the challenge of promoting growth in employment-producing sectors, and suggests policies which can ensure that growth in Ghana continues to be broad-based and robust.

A. Improving Access to Credit

5. Access to affordable credit in Ghana is significantly constrained in spite of good governance indicators. The lending-deposit spread in Ghana is large relative to comparator countries and persistent over time. On one hand, the real return to savings is negative, leaving domestic savings well below that of countries with less developed financial markets. On the other hand, high real borrowing rates suppresses private sector credit which is also underdeveloped relative to similar and even less developed markets.

6. The banking system is relatively well developed, as measured by financial access. Ghana’s banking system had more bank accounts and branches per capita than the regional average in 2010, and more than its income level and other structural indicators would suggest according to the World Bank’s FINSTATS data. Nevertheless, it has fallen behind Kenya by these measures since 2005 and trails Nigeria by a significant margin. While Rural and Community Banks have become a key channel for financial inclusion in Ghana, only about 30 percent of adults have an account at a formal institution. A sizeable part of the population relies instead on the services of about 600 microfinance companies, as well as 3,000’5,000 individual susu collectors that serve over half a million customers.5 Country comparisons of firms’ access to financial services provide a similarly mixed picture; Ghana has slightly more firms with access to credit than the benchmark predicts, but fewer small firms.

7. A strong institutional ranking and increased competition have not delivered cheaper financial intermediation or reduced bank profitability. Ghana is ranked 23rd in the world and 4th in Sub-Saharan Africa in the World Bank’s Access to Credit ranking in its Doing Business Indicators. The high ranking is due importantly to its establishment of a credit rating agency covering 5.7 percent of adults. According to the most recent FSAP the use of this information by lenders is in its infancy, though the reform is likely to bear

uA01fig17

Lending-Deposit Spread

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: World Bank, FINSTATS Database, 2013; IMF staff calculations.
uA01fig18

Lending-Deposit Spread

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Source: Bank of Ghana.

8. Competition is on the rise but has also failed to deliver. There are 26 banks operating in Ghana compared to 17 in 2003, and the top three banks by size comprise less than half of banking system assets—a highly diversified sector relative to comparator countries. This competition should have already contributed to reducing the persistent lending-deposit spread and excessive bank profitability. Discussions with stakeholders suggested that the rapid growth of the financial sector has had the opposite effect—bidding up bankers’ wages and increasing the cost of intermediation. These discussions suggested that the lending-deposit spread genuinely reflects operating costs in excess of banking sectors in comparator countries.

uA01fig19

Private Credit to GDP, 2002–2011

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: World Bank, FINSTATS Database, 2013, and IMF staff estimates.

9. Increases in domestic borrowing by the government are likely to further crowd out private sector credit. A recent spike in domestic borrowing of the government has increased T-Bill rates and interbank market rates. In the past, similar increases have eventually led to rises in the average lending rates of banks. There is significant risk that short-term interest rate pressure will crowd-out credit to the private sector, particularly new lending relationships to small and medium-sized enterprises. This risks delaying recent progress in credit information coverage. Super-normal returns to government paper have led to super-normal profitability and may be preventing a rationalization of the sector.

uA01fig20

Government Financing and Interest Rates

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

10. Fiscal consolidation will help alleviate difficulties in access to affordable credit. If the pattern of the spike in T-Bill rates in 2008 is repeated, a concerted fiscal consolidation will bring lending rates to lower levels over the medium term. The current above-average profitability of the banking sector should also decline as these returns to government debt normalize, likely spurring a rationalization of the crowded market for banking services. A reduction in the number of banks, concentrating assets in the hands of the more efficient banks and cooling off the labor market for seasoned bankers, should lower intermediation costs and reduce persistent lending-deposit spreads over the medium term. It will be critical that predictable and efficient bank resolution procedures are in place to respond if lower bank profitability materializes.

B. Improving the Quantity and Quality of Energy Supply

11. Ghana’s infrastructure deficit, and in particular the quantity and reliability of energy supply, has been identified as another major constraint on growth. Entrepreneurs report that unreliable energy supply, the high cost of private generators, and the uncertain future of energy providers is a major concern in investment decisions. These concerns are most acute in sectors which contribute heavily to job growth—manufacturing and downstream agricultural transformation. The government faces significant operational challenges to meet its goal of generating 5,000 Mw by 2016.

12. The financial situation of energy providers is preventing necessary maintenance and additional investment. Reluctance to raise electricity prices to cost-recovery levels, along with relatively high commercial and technical losses in the distribution network, have led the state energy companies to record regular operational losses. The energy production sector is under further temporary strain from the disruption in delivery of natural gas from Nigeria through the West African Gas Pipeline, increasing the share of petroleum-based production at double the marginal cost. The pipeline is expected to resume delivery shortly, but additional energy production slated to come online is facing delays and may not be sufficient to meet growing demand. While raising electricity prices is difficult in an environment of deteriorating delivery, the sector is currently unable to maintain current infrastructure, much less ramp up investment to expand production. Shoring up the financial situation of the ECG and VRA (the state-owned distributor and producer of power, respectively) is a prerequisite to improving the operational efficiency of these bodies.

13. Further investments in new energy production will be necessary to keep pace with demand. Ghana’s dynamic economy is expanding rapidly, and energy output will need to grow by an estimated 200–250 MW/year to match production growth, with more needed to improve reliability. As domestic natural gas production comes on-stream it is important that a financially viable energy sector with reduced policy uncertainty is in place to see this resource converted to electricity.

C. Growing Where the Jobs Are

14. Ghana’s economy will need to add 6-7 million jobs by 2030, according to population and economic activity rate projections. Currently more than 80 percent of Ghana’s jobs are in the informal sector (GSS 2012), and it is unlikely that the formal economy will be able to generate enough stable salary work to absorb the influx of new workers. More than 40 percent of workers are in the agricultural sector which remains poorly paid and largely informal. Among the middle-income SSA countries compared in the Fall 2012 REO, the agriculture share of GDP in Ghana was more than twice as high as in any other country and was declining at the second slowest rate. As discussed below, the sector has registered below-average growth over the past 5 years. While Ghana likely enjoys a natural comparative advantage in agriculture and should not pursue a manufacturing-led growth strategy at all costs, diversifying unskilled labor away from basic agriculture, while increasing agricultural productivity, would likely lead to higher growth—benefitting the most vulnerable within and outside the agricultural sector.

uA01fig21

Sectoral Employment and Output Shares

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Sources: Ghanaian authorities; IMF staff estimates.
uA01fig22

Labor Intensity and Growth

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

Bubble Size indicates Employment ShareSources: Ghana Statistical Service and IMF staff estimates.

15. The recent increase in growth has been concentrated in capital-intensive sectors, limiting the positive effect on employment and inclusiveness. While labor-intensive sectors like manufacturing and agriculture underperform relative to overall growth (both under 5 percent), extractive industries, financial services, and communication have outperformed. With primary and secondary school enrollment marking significant gains over the past decade, further progress on tertiary education will be important to moving workers into these high-growth sectors. Otherwise a continuation of capital-intensive growth risks undermining Ghana’s history of inclusive growth in which all benefit from greater output.

16. The extractive sector will continue to grow over the next 10 years as petroleum production peaks and new natural gas fields are brought on stream. These developments promise strong growth rates but threaten to exacerbate the capital-intensive growth of the past 5 years. Prudent use of natural resource revenues for infrastructure and human capital investments will determine whether these developments contribute positively to the welfare of the average Ghanaian worker.

17. To turn this growth dividend into jobs and raise the living standard of all Ghanaians, the government will need to leverage its high quality governance and business environment to diversify growth towards manufacturing and advanced agricultural production. While a recent AfDB analysis found that labor market regulations are a serious constraint to growth in the manufacturing sector, the evidence is mixed. Labor costs are relatively high, but those enterprises which have thrived in the current environment rate labor costs below the macroeconomic and political environment, market size, and resources as a constraint on growth. Better infrastructure, improved access to credit, further investments in health and education, and sustained macroeconomic stability will be central to ensure that the next two decades of robust growth in Ghana are as inclusive as the last two.

Table A.1.

Ghana: Selected Indicators on the Millennium Development Goals

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Source: World Development Indicators database, 2013.

Appendix III: Public Investment, Growth, and Debt Sustainability6

1. The Ghanaian authorities have emphasized the need to address large infrastructure gaps to secure Ghana’s long-term growth. They intend to focus investments on productivity-enhancing infrastructure, including roads, energy infrastructure, storage facilities, and irrigation systems that would crowd in private investment.

2. While addressing infrastructure gaps is essential, the scope for debt-financed infrastructure investment is contingent on maintaining debt sustainability. Two separate tools are applied to inform the assessment of debt sustainability and the associated policy choices: the standard debt sustainability analysis (DSA) and a model-based approach. The standard DSA confirms previous results, suggesting that Ghana is able to scale up investment from around 6 to 9 percent of GDP, while maintaining a moderate risk of distress.7 This conclusion holds even under conservative assumptions on growth dividends, but is contingent on successful fiscal consolidation. The second tool—and focus of this appendix—is a dynamic stochastic general equilibrium (DSGE) model that is tailored to resource-rich developing countries and explicitly captures the interaction between public investment, growth, and debt sustainability.

A. The Model

3. The DSGE model, based on Buffie et al (2012), is designed to capture many of the economic features prevalent in developing countries.9 The model suggests that a comparison of an investment’s rate of return and the cost of funding is not sufficient to assess the viability of a project. Investment efficiency and absorptive capacity play an important role in determining debt sustainability. Public investment may be inefficient, that is a dollar spent on public investment does not necessarily lead to an equivalent increase in public capital, whereas absorptive capacity problems may result in implementation delays and cost overruns.

4. An additional advantage of the DSGE approach is that it specifically models the relationship between investment and growth. Not surprisingly the model predicts a positive direct relationship between public investment and growth: infrastructure investment increases the productivity of existing capital, both private and public, and spurs further investment (crowding in). At the same time, the model also captures the potentially negative effects of debt-financed public investment, whereby higher real interest rates crowd out private investment.

B. Application to Ghana

5. Calibrated to the Ghanaian economy, the model can match the long-run debt-to-GDP ratio projected in the standard DSA, but there are also significant differences (Table 1). First, the model suggests that projections in the DSA may underestimate the positive effect of investment on growth. Trend per capita GDP growth is assumed to be the same at around 3 percent, but the model captures the transitional effects of higher investment on economic growth. Despite higher transitional growth, the average primary balance required to achieve a similar longterm debt ratio is stronger in the model, beyond the initial scaling-up period. The reason is that higher growth in the scalingup phase is not sufficient to generate the additional revenues needed during the repayment phase to return to the same debt ratio. These additional resource needs are met by a combination of lower current primary expenditures and higher VAT rates. The latter, in turn increases the real interest rate (via lower private savings), dampening private investment during the repayment phase.8

Table 1.

Key Macroeconomic Variables

(In percent of non-oil GDP)

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Source: IMF staff estimates.

6. The model results suggest that scaling up investment can be beneficial, but maintaining debt sustainability requires considerable effort on various fronts. Table 2 and Figure 1A present key results for various scenarios, suggesting the following conclusions:

  • Baseline: An increase in public investment to about 9 percent of GDP over the medium term, as projected by the authorities in the 2013 budget, can create noticeable growth dividends; real per capita income would be about 15 percent higher in 2032 than without the scaling up (growth dividend). However, the model predicts that despite the projected fiscal adjustment, the debt ratio would follow an inverted U-shape, peaking at around 70 percent of GDP in 2020, and declining to its current level (around 50 percent of GDP) by 2032. The additional investment would raise the public and private capital stocks by about 30 and 10 percent of GDP, respectively.

  • A front-loaded fiscal adjustment of an additional 3 percent of GDP by 2015 (analogous to the active scenario in the DSA), would generate a slightly lower growth dividend but result in a significant decrease in the public debt ratio to less than 40 percent of GDP.

  • A more ambitious scaling up of investment can significantly boost the growth dividend, provided there is no correlation between the size of the surge and capacity constraints. More ambitious plans, however, may jeopardize debt sustainability. The model suggests that additional investment scaling up to an average of 12 percent of GDP over the medium term would result in a debt ratio of nearly 70 percent of GDP by 2032.

  • Additional reforms to improve investment efficiency (gradually increasing the share of public investment spending that is transformed into productive capital) coupled with an increase in user fees, would raise the growth dividend significantly, while simultaneously strengthening debt sustainability. A scenario assuming a gradual improvement of investment efficiency and user fees of a magnitude attainable over the medium term shows that the debt ratios of the baseline and ambitious investment scenarios could be reduced to about 40 and 50 percent of GDP, respectively.

Table 2.

Impact of Different Scenarios

(In percent of non-oil GDP)

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Difference in real per capita GDP in 2032 relative to trend (without scaling up). Source: IMF staff estimates.

Figure 1A.
Figure 1A.

Key Macroeconomic Scenarios

Citation: IMF Staff Country Reports 2013, 187; 10.5089/9781484377673.002.A001

1/ Fiscal effort is defined as the change in the current primary deficit (i.e., excluding investment spending), net of non-tax and oil revenues) relative to its value in 2012. Source: IMF staff estimates.

7. The different investment and reform scenarios have varied implications also for the path of the external current account adjustment. The model suggests that under the baseline scenario the assumed fiscal adjustment would lead to an improvement in the current account of almost 6 percent of GDP by 2032. More ambitious investment plans are associated with an initially smaller current account adjustment—because of the additional investment spending—but this is reversed subsequently as the investment profile adjusts to the baseline and higher tax rates are required during the repayment phase, reducing private consumption. A front-loaded fiscal consolidation would entail a significantly lower current account deficit throughout the projection period.

C. Conclusions

8. The model illustrates that a successful scaling up of public investment in Ghana will require complementary efforts to create fiscal space and improve investment efficiency. Even if the rate of return on projects is high, weak efficiency of public investment can greatly reduce the growth dividends from scaling up and increase the risk of debt distress. In addition, fiscal consolidation (significantly lower primary current spending and higher tax revenue) remains a key ingredient to debt sustainability, even with high investment efficiency; in the absence of reforms to improve the efficiency of public investment, and higher user fees, the fiscal effort required to keep the debt ratio at manageable levels would have to be larger.

Appendix IV: Implementation of the 2011 FSAP Update—Key Policy Recommendations

The FSAP update made wide-ranging recommendations. This appendix presents a summary assessment of progress in key areas.

Banking system stability

  • Most of GCB’s exposure to Tema Oil Refinery was restructured. However, fiscal developments, including the re-emergence of arrears, create new concerns over government-related NPLs.

  • The authorities chose not to commission an audit of problem banks, instead seeking to raise audit standards through auditor rotation and supervisory meetings with banks and auditors.

  • The authorities did not establish a steering committee for bank resolution and no banks have been resolved. While there are now fewer weak public banks, there remain two.

  • A Financial Stability Department has been established, training delivered (IMF TA). There are plans for a first publication soon. There has been limited progress with identifying data gaps.

  • The authorities have not developed a comprehensive framework for crisis management. Powers to facilitate resolution have not been strengthened with new legislation.

  • State ownership or control of the banking sector has not been reduced.

Systemic liquidity management

  • Initiatives have been taken to improve the foreign exchange market (screen-based systems, BoG intervention at interbank rates, Code of Conduct), and activity has increased.

  • Severe weaknesses remain in liquidity forecasting and there is a need to reform and develop the liquidity management framework and use of monetary policy instruments.

Financial sector regulation and supervision

  • BoG’s holdings in banks have not been reduced. For ADB, legislation is planned to change the bank’s status from specialist to commercial bank, facilitating disposal of the BoG’s stake.

  • Forbearance remains a feature of the BoG’s supervision, evidenced by its approach to weak banks and readiness to grant waivers from the large exposure (single obligor) limits.

  • Plans to amend the Banking Act to strengthen the BoG’s powers have not been progressed.

  • Regulations have been drafted to strengthen the licensing framework, but they have not been issued, nor have guidelines to enhance industry risk management.

References

  • Commission on Growth and Development, 2008, Growth Report: Strategies for Sustained Growth and Inclusive Development, the World Bank (Washington).

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    • Export Citation

  • Ghana Statistical Service, 2005, “Population Data Analysis Reports” vol.s 1-2, Government of Ghana (Accra).

  • Ghana Statistical Service, 2008, “Ghana Living Standards Survey: Report of The Fifth Round (GLSS 5)” Government of Ghana (Accra).

  • Ghana Statistical Service, 2012, “2010 Population and Housing Census: Summary Report of Final Results” Government of Ghana (Accra).

  • International Monetary Fund, 2011, “How Inclusive Has Africa’s Recent High-Growth Episode Been?” Regional Economic Outlook: Sub-Saharan Africa, October (Washington).

    • Search Google Scholar
    • Export Citation

  • International Monetary Fund, 2012, “Structural Transformation in Sub-Saharan Africa” Regional Economic Outlook: Sub-Saharan Africa, October (Washington).

    • Search Google Scholar
    • Export Citation

  • Lejárraga, Iza, 2010, “Roaring Tiger or Purring Pussycat? A Growth Diagnostic Study of Ghana” African Development Bank, American Economic Association Conference Paper.

    • Search Google Scholar
    • Export Citation

  • U.S. Government and Government of Ghana, 2011, “Ghana Constraints Analysis” U.S. Department of State (Washington).

1

See Supplement on Update of Joint IMF and World Bank Debt Sustainability Analysis.

2

See Appendix IV on the status of implementation of key FSAP recommendations.

3

The RAM shows relatively low probability events that could materially alter the baseline discussed in this report. The relative likelihood of risks listed is the staff’s subjective assessment of risks surrounding this baseline.

4

Prepared by Kevin Wiseman.

5

See Supplement on Enhancing Financial Sector Surveillance for a discussion of the different institutions, their purposes, and associated challenges.

6

Prepared by Genevieve Verdier and Javier Arze del Granado, based on Niangoran, A., G. Verdier and F. Zanna (2013). “Public Investment, Growth and Debt Sustainability in Ghana”, mimeo.

7

See supplement on Update of Joint IMF and World Bank Debt Sustainability Analysis.

8

Buffie, E., A. Berg, C. Patillo, R. Portillo and F. Zanna, (2012). “Public, Investment, Growth, and Debt Sustainability: Putting together the Pieces”. IMF Working Paper WP/12/144.

9

Note that a rising debt-servicing burden is also a feature of the standard DSA, where the debt service-to-revenue ratio approaches the established DSA threshold.

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Cover IMF Staff Country Reports
Ghana: 2013 Article IV Consultation
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2013: Issue 187
Publisher:
International Monetary Fund
ISBN:
9781484377673
ISSN:
1934-7685
Pages:
113
DOI:
https://doi.org/10.5089/9781484377673.002
Figure 1.

Ghana: Real Sector Indicators
Figure 2.

Ghana: External Indicators
Figure 3.

Ghana: Fiscal Indicators

PV of Debt-to-GDP ratio, 2013-2033

Ghana has been outperformed by its peers in terms of reserves per months of imports…

…and its gross reserve holdings as a share of monetary aggregates have been declining.

Ghana: Optimal Reserve Holdings in Months of Imports (2012)

Current Account: All approaches suggest that the current account deficit has to decline in the medium term.
Figure 4.

Ghana: Monetary and Financial Indicators

Ghana: Bank Liquidity and Interest Rates July 2007 - February 2013
Figure 6.

Ghana Output Gap and Factors

Explaining Utilization of Economic Resources (in percent)
Figure 1.

Inflation in Ghana (2007Q1-2013Q1)

(in percent)
Figure 2.

Stylized facts on monetary policy transmission (2004–12)
Figure 3.

Actual Interbank Rate vs Modal-based “Fundamental” Rate

(in percent}
Figure 4.

Factors Explaining Interest Rate Changes

(in percent)
Figure 5.

Factors Explaining Core Inflation

(in percent)

Private Credit to GDP, 2002–2011

(Percent of GDP)

Per Capita Growth

Per Capita GDP

Poverty Ratio

Evolution of Gini Coefficient, Ghana and Selected Comparators

Other Social Indicators

Ease of Doing Business

(Percentile rank; 100= better)

Governancer Indicators

Lending-Deposit Spread

Lending-Deposit Spread

Private Credit to GDP, 2002–2011

(Percent of GDP)

Government Financing and Interest Rates

Sectoral Employment and Output Shares

Labor Intensity and Growth
Figure 1A.

Key Macroeconomic Scenarios