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IMF, EU Express Satisfaction With Economic Management

By Adnan Adams Mohammed
IMF, EU Express Satisfaction With Economic Management
13.10.2015 LISTEN

At a time when, several economist are predicting further shrink of the economy this year, with the Ghana Statistical Service (GSS) estimating decline in Gross Domestic Product to about US$ 36.6 billion from US$ 38.5 billion recorded in 2014.

Aside, bleak outlook pointed by international rating agencies, the International Monetary Fund (IMF), says the Fund is happy with the progress the country has made since last year when it applied for support in its economic management.

Fortnight ago, the European Union (EU) also expressed that, it is confident measures being implemented by government will put the economy on a strong footing in the coming months.

The Deputy Managing Director ofIMF, Mr Min Zhu in an interview at the IMF/World Bank annual meetings in Lima, Peru, last week stated that “there is a window of opportunity to make progress. Things are getting better”.

“What we need to do is move forward. We can’t afford to slip. The Fund would not want to see any slippage on the part of the government. I do not want to see a slip,” he said.

Last year, Ghana was in a really difficult situation. Now things are getting better. The economic situation has been improving. All the indicators and the targets have been met.

The budget deficit dropped from 10.7 per cent to 7.3 per cent and current account deficit also dropped from 9.6 per cent to 8.3 per cent. It was only economic growth that fell from four per cent to 3.5 per cent, and that was expected to give the general global economic performance.

The EU's expression of optimism in reaction to recent assessment of the country’s economic situation by rating agencies and financial institutions, like Moody's and Fitch. Fitch’s latest assessment kept Ghana's credit ratings at ‘B’ but with a negative outlook.

The rating agencies explained in their report that, next year’s general elections is likely to overshoot the country’s spending targets and pile up more debts.

Mr Zhu said the Fund would design a fiscal package in 2016 to ensure that the government maintained strong fiscal discipline during the period.

“We have agreed with the government that we need to maintain the momentum. To maintain the momentum, we will continue with the fiscal reforms capacity building.

“We have both agreed to work out an immediate fiscal package to ensure that we maintain fiscal discipline, irrespective of the political situation or process. We will provide a detailed analysis on how to maintain fiscal sustainability.

“On the fiscal side, we will continue to look at external financing and that is why we consider the latest oversubscription of the bond as good news. We will try to build confidence for the country. We need to do more and we need reforms. We need to enhance the single treasury account to ensure fiscal discipline,” he said.

On the growth side, he said, “We need growth; we need jobs, and so we need energy sector reforms and technical assistance to support growth.”

He said the Fund would support energy sector reforms and provide technical support to ensure the growth that the nation required.

“If we continue to make progress, then Ghana can give confidence to the markets and investors, which is very vital,” he said.

However, head of the EU delegation to Ghana, William Hana, told Accra based radio station that, the EU would not have released previously frozen funds to Ghana if they were not satisfied with measures being implemented by government.

“The course that has been set out by the government is one which we support. It is a course of macroeconomic adjustments. The IMF has given its backing, we have also given our backing and dispensed our assistance and we think it is the right way forward,” William Hana said.

According the GSS recent released of the second quarter gross domestic product (GDP) report, indicated that, excluding oil, the economy is expected to reduce in size from US$35.9 billion last year to US$34.5 billion in 2015. This is due mainly to a weakening currency which has lost more than 20 percent in value to the US dollar this year as well as rising interest rates and inflation.

In cedi terms, the total value of goods and services produced within a year is however expected to increase in size from GH¢113.3 billion in 2014 to GH¢140.0 billion in 2015.

Already, the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana has predicted a bleak future for the economy, as businesses suffer from high taxes and imbalances.

Apparently, despite the EU’s confidence in the economy, the Head of delegation had said, they would be watching key macroeconomic indicators like inflation and budget deficits.

William Hana said generally the EU is hopeful about the economy bouncing back but they remain cautious.

“There are many challenges facing Ghana, facing West Africa, facing Europe at the moment. So the economic situation in the world is not great but given that context we think that the measures that Ghana is taking are the right ones”, he said.

According to provisional estimates from the GSS, per capita income in dollar terms will also shrink from US$1,426 last year to US$1,325 in 2015. However, it was expected to go up from GH¢4,192 to GH¢5,016 in cedi terms.

The economy was also expected to grow by 4.1% this year though job opportunities from this growth are little.

In its State of the Ghanaian Economy Report, 2014, ISSER said Ghana’s continued falling growth appears to be in contrast with that of the global economy which actually improved slightly from 3.0% in 2013 to 3.4 percent in 2014. The implications are that growth of businesses will be slow while fewer jobs will be created, and livelihood of people will also be affected.

According to the GSS estimates, industry will shockingly lead the growth of the economy in 2015, expanding by 9.1 percent followed by the services sector which will grow by 4.7 percent. Agriculture will, however, record no growth in 2015.

As a norm, the services sector will record the highest share of annual GDP of 54.1 percent, followed by industry with a share of 26.9 percent. Agriculture will record the least share of 19.0 percent.

Meanwhile, the Statistical Service says further revisions to these estimates will be carried out in December 2015.

For the second quarter Gross Domestic Product (GDP) estimates, services recorded the highest share of 59.8 percent while industry and agriculture followed with 29.6 and 10.6 percent respectively.

Agriculture, however, grew at -0.1 percent between April and June 2015. The livestock sub-sector, however, recorded the highest year-on-year growth rate of 13.4 percent while the crops and cocoa sub-sector recorded the lowest growth rate of -5.6 percent.

With regard to industry, it grew at an astonishingly 15.3 percent in the second quarter of 2015. The construction sub-sector recorded the highest year-on-year quarterly GDP growth rate of 43.3 percent while the Electricity sub-sector recorded the lowest of -23.5 per cent.

For the second quarter of 2015, the Services sector recorded a year-on-year quarterly growth rate of 5.3 percent. Finance and insurance sub-sector recorded the highest year-on-year quarterly GDP growth rate of 52.7 percent while the transport and storage sub-sector recorded the lowest growth rate of -11.3 percent.

The quarter-on-quarter seasonally adjusted GDP growth rate for the second quarter was 0.9 percent. This means that the value of goods and services produced in the period grew by 0.9 per cent relative to the 1.0 percent growth rate recorded in the first quarter of 2015.

The growth rate for GDP for 2014 was 4.0 percent compared to 7.3 percent in 2013. This is consistent with the growth rate of 4.0 percent for the GDP measured by the Production Approach released earlier in June 2015.

Consumption (households and government expenditure) grew by 5.3 percent in 2014 compared to 7.4 percent in 2013.

Investment (gross fixed capital and changes in stocks) Expenditure grew by 3.3 percent in 2014 compared to 7.3 percent in 2013 and

Net exports of goods and services contracted by 42.3 percent in 2014 compared with an expansion of 21.3 percent in 2013.

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