IMF urges Ghana to strengthen fiscal discipline through amendments to Fiscal Responsibility Act
The International Monetary Fund (IMF) has called for amendments to Ghana’s Fiscal Responsibility Act in order to strengthen fiscal discipline and financial management. The Fund has proposed reinforcing the fiscal rule by introducing a debt target to control extra-budgetary spending, in addition to the existing cap on the fiscal deficit as a percentage of Gross Domestic Product (GDP), which currently stands at 5.0%.
The IMF emphasizes the need for a simplified and focused approach to the fiscal rule, aiming to establish a single operational rule. It also suggests detailing escape clauses and correction mechanisms to enhance flexibility and adaptability in case of unforeseen circumstances.
To ensure effective implementation and enforcement of the fiscal rule, the IMF recommends reforms to the existing Fiscal Advisory Council. The Council’s role would be strengthened to enhance the credibility of macro-fiscal projections and monitor adherence to the fiscal rule. The IMF may provide technical assistance to support these reforms.
The IMF highlights the significant fiscal costs imposed by State-Owned Enterprises (SOEs) on the central government, posing a major source of fiscal risks. Weak institutional arrangements and unsustainable sectoral policies contribute to this issue, particularly in the energy and cocoa sectors. In response, the IMF suggests reforming institutional arrangements for managing and monitoring SOEs, aiming to promote competition and efficiency. The timely submission of audited SOE financial statements to the Ministry of Finance is emphasized, and the technical capacity of the State Interests and Governance Authority (SIGA) is being strengthened with the assistance of the IMF.
Transparency and accountability are vital aspects of fiscal management, and the IMF proposes publishing regular Fiscal Risk Statements that evaluate macroeconomic and contingent liability risks and outline mitigation strategies.
The energy sector in Ghana has experienced significant shortfalls due to below-cost-recovery tariffs, high distribution losses, and excess capacity resulting from take-or-pay contracts. These factors have led to substantial transfers by the central government, amounting to 2.0% of GDP annually since 2019. Furthermore, payment arrears to Independent Power Producers (IPPs) and fuel suppliers have accumulated. The IMF stresses the importance of designing and implementing comprehensive energy sector reforms, and the Ghanaian government aims to update its Energy Sector Recovery Plan (ESRP) by the end of June 2023 as part of its program.
The IMF’s recommendations focus on strengthening fiscal discipline through amendments to the Fiscal Responsibility Act, addressing fiscal risks posed by SOEs, improving energy sector efficiency, and enhancing transparency and accountability through regular fiscal risk assessments. The proposed reforms aim to promote sustainable fiscal management and economic stability in Ghana.
