Monday, October 11, 2010

Arrears, wages, threaten fiscal plans – IMF

The International Monetary Fund (IMF) has stated that new arrears to contractors and public wage pressures are likely to threaten the government’s fiscal plans for 2010.

Government’s fiscal plans, as outlined in the 2010 budget, envisage a budget deficit of 7.5% which has subsequently been revised to 8%. The level of outstanding arrears, which stood at GH¢1.43 billion in 2009, was also expected to be substantially minimised to broaden the fiscal space as oil revenues come onstream.

Peter Allum, Division Chief of the IMF’s African Department who made this known in Accra at a media briefing, stated: “The fiscal deficit in the first half of 2010 was 5.3% of projected GDP – slightly above the ceiling under the authorities’ IMF-supported programme.

“Updated projections for the second half of 2010 indicate that the gap relative to the programme targets will widen, reflecting new expenditure commitments and shortfalls in some revenue categories.”

These observations were made following the conclusion of a visit by an IMF mission led by Mr. Allum to the country. The visit involved consultations with the Vice President, John Dramani Mahama, and officials of the Finance Ministry and the Bank of Ghana.

“The economy grew by 4.1% in 2009, with a pick-up to the 5-6 percent range projected for 2010, led by a recovery in construction and strong business services activity ahead of the projected start of oil production around end-2010,” he observed.

He also recognised that inflation has fallen to an annual rate of 9.5% in recent months, and is projected to remain close to this level through year-end, underpinned by the strength of the Ghanaian cedi.

“To sustain and build on these favourable trends in activity and inflation, and to maintain progress toward broader macroeconomic stability, continuing efforts are needed to reduce fiscal deficits and associated public borrowing.”

The IMF mission’s head said his team came to an understanding with government on the importance of tackling government arrears to contractors as well as the bank liabilities of a few public enterprises, which have contributed to sharply higher non-performing loans in the banking system.

“To decisively resolve the government arrears problem, it will be important to strengthen public expenditure management systems, ensure sustained cost-recovery pricing of energy and other products, and reinforce overall fiscal performance,” he advised.

While acknowledging progress made to strengthen revenue administration, improve tax policy and modernise public finance management, he said there have been delays in several areas which call for a reformulation of plans to address setbacks.
The mission also encouraged an early publication of the rebased national accounts, which are expected to show a substantial upward revision to the size of the Ghanaian economy and its per capita income.

This will be important to provide a more reliable assessment of recent economic performance, and better gauge Ghana’s fiscal and debt management situation and challenges.

“While the new data will reduce the level of the fiscal deficit and public debt relative to GDP, a substantial further improvement in fiscal performance will continue to be needed to reduce borrowing and deliver a debt outcome that is sustainable over the medium-term,” Mr. Allum concluded.

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