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The International Monetary Fund warns that the Ghanaian economy still faces significant uncertainty in the coming months despite the bright economic outlook.
This follows a gradual recovery from COVID-19 shocks that severely affected the economy last year.
“Ghana has been hit hard by the COVID-19 pandemic. The government’s response has helped contain the pandemic and support the economy, but at the cost of a record budget deficit. The economic outlook is improving, although risks remain, notably due to the evolution of the pandemic and the increasing vulnerability of the debt, ”the IMF Executive Board consultation under Article IV said. with Ghana.
According to the fund, its assessment is based on the new wave of COVID-19, the increase in outstanding debt and the government’s significant financing needs.
“An economic recovery is underway. Growth is expected to rebound to 4.7% in 2021, supported by a strong cocoa season and mining and services activity, and inflation remaining within the Bank of Ghana’s target. The current account deficit is expected to improve to 2.2% of gross domestic product, supported by a recovery in oil prices, and gross international reserves are expected to remain stable, ”he said.
“The 2021 budget projects a budget deficit of 13.9% of GDP in 2021, including energy and financial sector costs, and a gradual medium-term budget adjustment that would support a decline in public debt from 2024. However, , this prospect is subject to significant uncertainty, in particular due to the new pandemic waves and the risks associated with significant financing needs and growing public debt, ”he stressed.
Debt repayment risks increase
The IMF noted in its report that while the risks to the country’s ability to repay its debt have increased, it believes they are still manageable.
While noting that the risks to Ghana’s repayment capacity have increased, IMF directors agreed that they are still manageable and that Ghana’s capacity to repay the IMF remains adequate.
“Directors welcomed the fiscal adjustment envisioned in the 2021 budget. They stressed that fiscal consolidation is needed to address debt sustainability and refinancing risks, as Ghana continues to be rated high risk. of over-indebtedness. “
“To protect the most vulnerable, measures could be considered for more progressive income measures and a faster return to pre-pandemic spending levels, with a shift towards social, health and development spending. Directors also encouraged the timely completion of the planned audit of COVID-19 emergency spending and new spending arrears, ”he noted.
The stance of monetary policy remains appropriate
Directors agreed that the stance of monetary policy remains broadly appropriate, while noting that tighter policy would be needed if inflationary pressures materialize. Although gross international reserves are relatively high, Directors stressed the need to guard against the erosion of external reserves and to remain committed to a flexible exchange rate regime. They also encouraged the authorities to limit monetary financing of the deficit.
“Directors noted that cleaning up the financial sector has made the sector more resilient, but noted that banks’ growing holdings of sovereign debt are creating risk and crowding out private sector credit. In this regard, they noted with satisfaction the ongoing prudential and regulatory reforms, which are important steps to protect financial stability. Directors also welcomed the improvements made to the AML / CFT framework which allowed Ghana to move off the “gray list” of the FATF.
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