Ghana risks spending higher than projected revenue - IMF report

Ghana and some other African countries could end this year spending far higher than what they are hoping to collect as revenue.

That’s according to the World Economic and Financial Survey Report released in Accra today by IMF on Sub- Saharan Africa countries.

The report said the expenditure overruns will be influenced by the cost government has to incur in servicing foreign denominated bonds.

This will lead to public investments and projects suffer, whiles commercial banks that are exposed to government, might have to reduce its lending to private businesses.

Director at the African Department at the IMF, Antoinette Sayeh says there are other things government can still do to mitigate the impact of this development on the country.

Speaking at the same program, Finance Minister, Seth Tekper, says government is working hard to ensure that it minimizes the shocks that come along with international borrowings through issuance of EUROBOND.

Meanwhile, speaking at the launch of the report, economist Dr. Joe Abbey maintained that government’s revenue will suffer greatly, because of declining oil prices.

The report adds that the Sub-Saharan Africa’s economy is set to register another year of solid economic performance, expanding at 4½ percent in 2015. This said, the expansion will be at the lower end of the range registered in recent years, mainly reflecting the adverse impact of the sharp decline in oil and other commodity prices. The effect of this shock will be quite heterogeneous across the region.

The region’s eight oil exporters will be hit hard and, with limited buffers, are expected to effect significant fiscal adjustment, with adverse implications for growth. For much of the rest of the region, near-term prospects remain quite favorable, with many countries benefiting from lower oil prices—although, for a number of them, this positive effect will be partly offset by the decline in the prices of other exported commodities.

Notable exceptions are South Africa, where growth is expected to remain lackluster, held back by continuing problems in the electricity sector, and Guinea, Liberia, and Sierra Leone, where the Ebola outbreak continues to exact a heavy economic and social toll.

This outlook for solid growth in the face of significant headwinds is, however, subject to a number of risks.

• Large fiscal deficits in some countries amid tighter global financial conditions. External financing conditions have tightened, and could tighten further still in the period ahead, especially as monetary policy normalization proceeds in the United States. In that context, the large fiscal and current account deficits that prevail in some countries, especially among frontier market economies, leave them vulnerable to a potential reduction in external financing. Implementation of tighter-than-planned fiscal policies under these circumstances, with cuts to capital spending, would have a negative impact on near- and medium- term growth. But postponing policy adjustments would give rise to macroeconomic imbalances and policy uncertainty, and exacerbate the risk of disorderly capital flows.

• Uneven global recovery. Growth could further disappoint, notably in Europe and China, which are among sub-Saharan Africa’s main trade partners. Meanwhile, further dollar appreciation, reflecting variations in growth rates and expected monetary policies across major economies, would make imports more expen- sive in the region, lower investment and growth, and fuel inflationary pressures. It would also increase the debt service burden and could adversely impact balance sheets of banks and private entities.

• Domestic security-related risks. Security risks have recently come to the forefront in a number of coun- tries, especially in the Sahel. Should these conflicts escalate, it would not only pose serious fiscal and near- term growth-related risks, but also, to the extent that they cloud the political and business climate, deter domestic and foreign investors. Elections in 2015 in a number of countries could also complicate the implementation of politically difficult policies. Beyond the current shock, sustaining strong, diversified, and durable growth remains the key policy priority. In the short term, faced with a massive shock and limited buffers, oil exporters will have no choice but to undertake fiscal adjustment. Where feasible, exchange rate flexibility will be important to help preserve scarce external reserves. The current shock is also a unique opportunity for countries to introduce politically difficult energy subsidy reforms, and a reminder of the need to make more rapid progress toward diversification- tion. To that end, addressing the infrastructure gap remains critical to allow new higher-productivity sectors to develop, generate jobs for the rapidly growing young population, and foster integration into global value chains. In scaling up investment to address infrastructure bottlenecks, though, countries will have to remain mindful of the need to preserve debt sustainability.