In the news: Continued strong growth in Ghana calls for prudent fiscal and debt management

In 2004, Ghana’s economy, driven by the agriculture, services, and construction sectors, grew by 5.8 percent—its fastest pace in more than a decade, the IMF said in its annual economic review. Inflation declined by half to 12.6 percent, the overall budget deficit narrowed, improvements in the external sector allowed for a buildup of international reserves, progress with reforms helped strengthen the financial sector, and debt-service indicators improved markedly. The country’s strong growth has helped reduce the poverty rate, now estimated at about 35 percent of the population.

Abstract

In 2004, Ghana’s economy, driven by the agriculture, services, and construction sectors, grew by 5.8 percent—its fastest pace in more than a decade, the IMF said in its annual economic review. Inflation declined by half to 12.6 percent, the overall budget deficit narrowed, improvements in the external sector allowed for a buildup of international reserves, progress with reforms helped strengthen the financial sector, and debt-service indicators improved markedly. The country’s strong growth has helped reduce the poverty rate, now estimated at about 35 percent of the population.

In 2004, Ghana’s economy, driven by the agriculture, services, and construction sectors, grew by 5.8 percent—its fastest pace in more than a decade, the IMF said in its annual economic review. Inflation declined by half to 12.6 percent, the overall budget deficit narrowed, improvements in the external sector allowed for a buildup of international reserves, progress with reforms helped strengthen the financial sector, and debt-service indicators improved markedly. The country’s strong growth has helped reduce the poverty rate, now estimated at about 35 percent of the population.

Medium-term prospects appear promising, provided that further progress is made toward macroeconomic stability and fiscal sustainability, inflation declines further, and the government perseveres with structural reform. Continued strong private- and public-sector investment in vital infrastructure should provide a solid basis for growth. A further increase in world oil prices is the main risk to the positive outlook.

Looking ahead, the IMF’s Executive Board identified prudent fiscal and debt management policies, coupled with intensified structural reforms, as key to private sector-driven growth, diversification of the production base, and further poverty reduction. While the overall fiscal deficit narrowed in 2004, the outturn was higher than envisaged. The Board urged the authorities to avoid further fiscal slippages, emphasizing, in particular, the need to control wages and salaries in the public sector. It also underscored the importance of increasing the fiscal space to allow room for growth-enhancing and poverty-reducing expenditures aimed at achieving the Millennium Development Goals. In this context, the Board welcomed the adoption of a new pricing mechanism for petroleum products as an important reform that will reduce the budget’s vulnerability to world oil prices. At the same time, it encouraged the authorities to further reduce the ratio of domestic debt to GDP. However, noting that Ghana’s debt sustainability remains vulnerable to external shocks, the Board emphasized the importance of Ghana’s relying on concessional financing.

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Excluding grants; before domestic arrears clearance.

Data: Ghanaian authorities and IMF estimates and projections.