Joint assessment of Ghana’s macro
economic policy and management in
2010
Multi Donor Budget Support Annual
Review, May 2011
•Macroeconomic outcomes (GDP, prices, etc.) result from initial
conditions (e.g. arrears, ongoing investment plans, contracts),
exogenous factors (e.g. rains, terms of trade) and policy
implementation (e.g. budget execution 2010, budget law 2011,
banking supervision) .
• We focus on effectiveness and efficiency of policy implementation,
even if a difficult task (attribution problem and conclusions tainted by
outcomes; multiplicity of actors in Government: MoFEP, Bank of
Ghana, SOEs, etc.)
QUESTIONS
•Was policy conducive to shared economic growth (crowding in
private investment; improved quality of public expenditure)?
• Was policy conducive to improved macroeconomic stability
(reinforced safeguards against shocks)?
• What public finance sustainability (capacity to honor commitments
without major policy reversal) maintained?
•Has fiscal and monetary reporting been effective for stakeholders to
assess the fiscal situation and develop consensus around
management policy?
PROMOTING SHARED GROWTH
•Growth acceleration in 2010: 7.7 %, up from 4.0% in 2009. Following
the strong (but necessary) compression in public demand in 2009
(costing 2.7 percentage points of GDP growth, source: WB), fiscal
expansion in 2010, compounded with growing private demand (FDI,
private sector credit resumption, high export receipts; private
transfers) and supply side factors (rains for agriculture,
thermoelectricity, mining, banking, ICT).
• Government contribution to accelerated demand: higher public
investment and consumption (+18% and +17 % in real terms); Oil
exploitation secured, fostering anticipations of higher growth
(investment, stocks). Utilities operational capacity improved.
Exchange rate stability and inflation maintained – favorable to
investment (oil, construction). But continued high public deficits affect
long term outlook (LT investments in tradable). Projects
disbursements low (opportunity cost).
PROMOTING SHARED GROWTH
•Crowding out private sector investment: cash deficit/financing needs
higher; arrears higher (GHc2.9 billion in 2009 to GHc3.8 in 2010
(combination of new and discoveries) – down to GHc1.7 billion in
April 2011, including SOEs) – contributing to NPL increase, firms
viability and operational capacity, and possibly affecting the quality of
public expenditure (value for money, off-budget appropriation);
inability to secure important budget supports (crowding out)
•Pro poor expenditure maintained (29% of Gov expenditures; utilities
tariffs raised (pro-poor; improved operations); arrears/debt cleared
(improved operations). Petroleum prices also raised (reducing implicit
subsidies to non poor)
• Link with GSGDA to be improved: GSGDA late in 2010; budget
deviations affect MTEF execution; huge gap between costed program
and available resource. Program prioritization/coordination across
MDA to be improved.
•Inflation (tax on poor) reduced(below 10 %).
SAFEGUARDING AGAINST SHOCKS and PROTECTING PUBLIC FINANCE
SUSTAINABILITY
•Price stability. Inflation rate reduced to below 10%. Lagged impact of
monetary and fiscal tightening, exchange rate stability and supply
side effects.
•Foreign reserves higher (US$4.7 billion, up from 3.2 in 2009).
Improved capacity to absorb external shocks, sustain policy stances.
•Debt Sustainability better than previously thought because of
rebased higher GDP. But public (36 to 39 % of GDP) and external debt
(19 to 20% of GDP) rose in 2010, the result of higher borrowing needs
(6.8 % of GDP, up from 5.8 % in 2009). Debt composition (interest
rate, maturity) suffered from lower than expected concessional
budget support and need to clear SOEs arrears; but non concessional
external borrowing limited in 2010 (US$216 million, down from
US$448 million in 2009). Debt management strategy adopted.
SAFEGUARDING AGAINST SHOCKS and PROTECTING PUBLIC FINANCE
SUSTAINABILITY
•Slight deterioration in basic primary balance from 0.2 to -0.7 % of
GDP: +1.6% of GDP in revenue (tax in particular); +2.5% of GDP in
public expenditure (wages, transfers, domestically financed
investment). But higher cash deficit as a result of low grants/high
foreign financed capital expenditures, growing domestic debt service
and arrears liquidation (1.5 %of GDP).
•Lack of contingency fund in budget to absorb shocks.
• Earmarking arrangements entail rigidity. Statutory Funds new
mandate to finance commitments previously financed by the
consolidated fund increases Government ability to absorb shocks
through more flexible resource allocation.
•Financial stability. Banks balance sheets expanding; NPL go down
(from 20 to 16 % of gross loans). Capital requirements fulfilled. But
public expenditure arrears play a role in NPL. Private sector credit
resumed (but NPL provision down).
SAFEGUARDING AGAINST SHOCKS and PROTECTING PUBLIC FINANCE
SUSTAINABILITY
•Arrears liquidation (TOR/GCB) reduced stability risks. FINSP II
adopted. Supervision strengthened (regional cooperation, risks
management).
•Arrears reflect Government difficulty to honor its financial
commitments: affect financial stability, firms viability, and agents
ability to forecast.
•With oil, increased risks of real exchange appreciation, inflation,
boom and bust cycles. This risk is compounded with observed
electoral cycles, whereby fiscal deficits are significantly higher during
election years.
• Oil revenue management law adoption to mitigate risks when
implemented. Implemented automatic tariff adjustment mechanisms
to reduce oil price – related budget volatility.
• Macroeconomic stability will ultimately depends on successful fiscal
consolidation. Figures up to end March 2011 are consistent with fullyear plans.
FISCAL AND MONETARY POLICY REPORTING
•Monetary Policy Committee conclusions are regularly posted, along
with detailed and timely reports on financial sector and balance of
payments developments and prospects.
• The rebasing and revision in methodology for of national accounts
and their quarterly publication provides a better understanding of
real sector developments.
•Government communication on structural reforms, plans is
improving (GSGDA); progress made on transparency (EITI compliant;
oil and gas inclusion) in natural resource management.
• Unavailability of timely / regular reports on fiscal outcomes affect
economic monitoring, quality of expectations, policy dialogue with
citizens and external observers, and the identification of possible
solutions. Surprises can exacerbate shocks (2008). Stocktaking of
arrears improves the information base, but there is a need to improve
communication on fiscal developments.
CONCLUSION
•Principle of sound macroeconomic management upheld.
•Positive contribution to growth and poverty reduction.
• Safeguards against shocks strengthened
• Reporting improved in some domains.
• Fiscal sustainability recognized as the biggest challenge: deficit to be
brought down (resource mobilization, PPP), clearing arrears and
preventing their re-occurrence, quality of expenditure to be improved
(public sector reform).
• Proposed formalization of a macro SWG to foster dialogue.