The International Monetary Fund (IMF) warned that the sizable fiscal slippage in 2016 (a budget deficit of 8.7 percent of GDP, more than 3 percent of GDP above target) has further undermined debt sustainability.
According to the fund, repeated fiscal slippages—especially in election years—had been the largest driver of the debt increase, with revenue shortfalls playing a key role in recent years.
A team from the IMF, led by Joël Toujas-Bernaté, who visited Accra recently, as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement noted added that; ” increased Ghana’s reliance on foreign investors to fund its large gross financing needs, with possible pressures on the exchange rate if financing conditions deteriorate”.
The fund was quick to add: “Significant unpaid commitments incurred in 2016 (now being audited) and weaknesses in the financial position of state-owned enterprises (SOEs) in the utility sector could give rise to additional spending needs”.
“And while the financial system is overall adequately capitalized, weaknesses in some banks and microfinance institutions could hamper credit growth and investment and create contingent liabilities for the government”.
Furthermore, the Bretton Woods institution noted that persistent shortcomings in fiscal management in recent years reflect a number of factors:
- Lack of transparency and accountability. Large quasi-fiscal activities and extra budgetary spending have made it difficult to assess the overall fiscal stance; and lack of formal mechanisms to strengthen budget credibility have led to spending overruns, particularly during election years.
- Budget rigidities.Taken together, extensive revenue earmarking for statutory funds, high wage bills and interest payments exceed revenue, severely constraining fiscal space.
- Revenue erosion. Pervasive exemptions and lack of compliance have weakened tax bases and collections.
- Arrears accumulation. Partly related to the above, arrears have been a recurring problem, calling into question the government’s ability to manage its spending plans.
African Eye Report
