A recent report by Africa Economics LLC, an international research organization, says Ghana faces stark choices with the new International Monetary Fund (IMF) programme since government’s political will, commodity price fluctuations and power supply challenges will affect its ability to attain some of the major fiscal targets in 2015 and 2016.

The report, co-authored by Theo Acheampong and Alex Barkers-Okwan, said broad short-to-medium term options available to the government ultimately will come with political consequences.

“For example, making drastic cut backs in public sector expenditure, especially public sector wages, will be difficult for the government, as the 2016 elections draw near, making it more than likely that these cuts will delay until after the elections. Furthermore, it is more likely that the government, will at best, maintain current spending levels envisaged within the 2015 budget.”

The report also indicated that moves to increase revenues by widening the tax base and improving efficiency in collection are unlikely to yield any significant short-term impacts due to weak structures such as inefficient public and business address systems.

However, it said the government could bolster its finances through prudent fiscal housekeeping and accountability in public expenditure.

Fiscal consolidation will drastically dampen non-oil economic growth initially from 2015-16 but this is forecast to rebound in subsequent years, it said.

The IMF estimates non-oil GDP growth to decelerate further to 2.3% of GDP in 2015 before picking up in the following years to reach 5.5% of GDP by 2017.

Commodity prices

Since the Ghanaian economy is heavily dependent on cocoa, gold and oil, accounting for 75% of its exports, the report said the prices of all three key exports have recently declined on the world market compared to 2013 price levels.

“This state of affairs could easily worsen the country’s trade balance for 2015. Consequentially, government is very likely to struggle with persistent current account deficits and balance of payment challenges for the remainder of 2015.

“Ghana’s forex reserves have also been heavily depleted due to a fall in commodity exports, falling from US$5.89bn in November 2014 to US$5.46 billion in December 2014, representing a 7.9% decline.”

Govt’s expectations

It revealed that the first tranche of the long awaited credit facility of $114m aimed at shoring up the BoG forex reserves was unlikely to do much to stabilize the cedi.

“The Mahama administration is hoping that the new IMF loan and three-year debt sustainability programme will trigger a ripple effect that will cause other development partners to release donor funds to the tune of $500m for budgetary support. These donor funds were frozen as the perception that payroll fraud, corruption and excessive government spending had led to the evident mismanagement of the public sector purse. Whether these donor funds will actually be released or disbursed remains to be seen during the course of 2015.”

Challenges

Against the backdrop of the foregoing developments, the report said it was becoming increasingly unlikely that the government will have the requisite political will and fiscal discipline to meet the conditions of the IMF loan facility with an election year just around the corner in 2016.

“A key challenge faced by government is how it proposes to cut down the wage bill from its current expenditure. Government currently presides over a bloated and inefficient public workforce that is severely draining the government purse, depriving it of the much-needed finance for important capital expenditure projects such as major roads linking economic zones in the different regions.”