Ghana’s economic outlook improving despite risks from pandemic, rising debt vulnerabilities – IMF says
The International Monetary Fund (IMF) in its July 2021 Article IV Consultation report on Ghana, has said the country’s economic outlook is improving even though risks from the evolution of the Covid-19 pandemic and rising debt vulnerabilities remain.
According to the IMF, growth is expected to rebound to 4.7 percent in 2021 from 0.4 percent in 2020, supported by a strong cocoa season and mining and services activity and inflation which remains within the Bank of Ghana’s band target.
The Covid-19 pandemic last year, had a severe impact on economic activity as growth slowed to 0.4 percent in 2020 from 6.5 percent in 2019, food prices spiked, and poverty increased.
Increased spending to mitigate the impact of the pandemic shot up the fiscal deficit with fiscal deficit including energy and financial sector costs increasing to 15.2 percent of GDP, with a further 2.1 percent of GDP in additional spending financed through the accumulation of domestic arrears.
Public debt rose to 79 percent of GDP with the current account deficit widening slightly to 3.1 percent of GDP as the decline in oil exports was partially offset by higher gold prices, resilient remittances, and weaker imports.
The current account deficit, the IMF notes in its consultation report, is projected to improve to 2.2 percent of GDP supported by a pickup in oil prices with gross international reserves are expected to remain stable.
The Fund, further in its assessment of the economy posits that while there are encouraging signs of an economic recovery, the recovery remains uneven across sectors, stressing the importance of entrenching prudent macroeconomic policies in ensuring debt sustainability and pressing ahead with structural reforms to deliver a sustainable, inclusive, and green economic recovery.
The Fund also stressed the need for fiscal consolidation to address debt sustainability and rollover risks, as Ghana continues to be classified at high risk of debt distress.
“To protect the most vulnerable, considerations could be given to more progressive revenue measures and a faster return to the pre-pandemic level of spending, with a shift towards social, health, and development spending,” said the IMF.
