The International Monetary Fund (IMF) has projected that non-oil GDP for the country will expand by 2.3 percent, the lowest in more than a decade.

The figure is below the 2.7 percent forecast by the government this year and reflects the severe energy supply challenges and implementation of a tight fiscal stance proffered by the IMF following approval of a three-year budgetary support programme for Ghana.

Already, government has cut its oil revenue expectations by GH¢2.7billion and the emergence of large fiscal and external imbalances, compounded by severe electricity shortages, has put Ghana’s prospects at risk and makes this year one of the toughest for businesses and people engaged in economic activities.

The IMF noted: “The envisaged fiscal consolidation is projected to further dampen non-oil economic growth initially and reduce inflation in 2015, but growth is expected to rebound in the following years.

“Non-oil GDP growth will decelerate further to 2.3 percent in 2015 before picking up in the following years, reaching 5.5 percent by 2017. On the fiscal side, the programme seeks to expand revenue collection and restrain the wage bill and other primary expenditures, while making space for priority spending and for clearing all domestic arrears.

“Despite lower projected oil revenues, the programme aims at turning the primary balance from a deficit of 3.7 percent in 2014 into a surplus of 0.9 percent of GDP in 2015, and 3.2 percent of GDP in 2017.”

The IMF Executive Board last week Friday approved a three-year arrangement under the Extended Credit Facility (ECF) for Ghana in a deal that involves US$918million in support of government’s medium-term economic reform programme.

The programme aims to restore debt sustainability and macroeconomic stability to foster a return to high growth and job-creation, while protecting social spending.

According to the IMF, US$114.8million will immediately be released into government’s Treasury, which Finance Minister Seth Terkper says will be used to shore-up the central bank’s reserves and help cushion the cedi’s recent rapid fall.

Government is confident that involvement of the IMF in implementing its austere economic policy will help encourage donor countries to release held-up funds to the national Treasury, and put the economy back on the path of growth.

The sector that is expected to be hardest-hit by government’s intensified austere agenda backed by the IMF is the construction sector, which is expected to experience a bearish growth for 2015.

Growth of the economy this year, however, is expected to be shouldered by the industrial sector on account of increasing growth in the petroleum industry due to expected gas production from the Jubilee Field; and commencement of crude oil and gas production in the disputed Tweneboa-Enyenra-Ntomme (TEN) Field and the Sankofa-Gye Nyame (SGN) Field in 2016 and 2017.

Government’s expenditure has over the years been a thorny issue in the fiscal struggles that the country faces. This year, government announced that it has cut its initial spending plan by GH¢1.5billion to GH¢39.5billion due to the expected decline in oil and tax revenue.

As a result, spending on capital projects and goods and services will all be reduced in an attempt to bring the budget deficit within a new target of 7.5 percent, up from the initial target of 6.5 percent of GDP.

Also, the budget deficit will now drift away from the initial target of GH¢8.8billion to GH¢10billion in the face of expected shortfall in government’s revenue by GH¢3.1billion.

At the conclusion of the Executive Board's discussion on Friday, Min Zhu, Deputy Managing Director and Acting Chair, stated: “The new ECF-supported programme, anchored on Ghana’s Shared Growth and Development Agenda, aims at strengthening reforms to restore macroeconomic stability and sustain higher growth. The main objectives of the programme are to achieve a sizeable and front-loaded fiscal adjustment while protecting priority spending, strengthen monetary policy by eliminating fiscal dominance, rebuild external buffers, and safeguard financial sector stability.

“Achieving key fiscal objectives will require strict containment of expenditure, in particular of the wage bill and subsidies. The government’s efforts to mobilise additional revenues will also help create more space for social spending and infrastructure investment -- particularly in the energy sector. The government is rightly adjusting expenditures further to mitigate the shortfall in oil revenue and avoid a larger debt build-up. Moreover, a prudent borrowing strategy will be needed to ensure that financing needs are met at the lowest possible cost.

“The government’s structural reform agenda appropriately focuses on strengthening public financial management and enhancing transparency in budget preparation and execution. Strengthening expenditure control will be critical to avoid new accumulation of domestic arrears. Government should continue to clean up the payroll and improve control of hiring in the public sector to address one of the main sources of fiscal imbalances in the recent past. At the same time, enhanced transparency in the public finances will be critical to garner broad support for reforms.

“The authorities are strengthening monetary operations and gradually eliminating monetary financing of the budget to improve the effectiveness and independence of monetary policy and bring inflation down to single-digit territory. Safeguarding financial sector stability will be important for supporting private sector activity.

“Forceful and sustained implementation of the programnme will be essential to address Ghana’s macroeconomic imbalances and enhance investor confidence in view of downside risks. The frontloaded nature of the fiscal consolidation and expected financial support from development partners should help to mitigate programme risks, and foster broad-based, inclusive growth in the medium term.”