Tuesday, December 10, 2019
Home BUSINESS 5 threats to Ghana’s economy after exiting the IMF programme

5 threats to Ghana’s economy after exiting the IMF programme

108
0

This according to the organization could significantly slow the accelerating growth rate of the country.

The report christened Ghana Risk Assessment Matrix identifies the nature and sources of the risks, assesses the relative likelihood of happenings and the expected impact if realized, and then recommends policies to mitigate the risks.

The IMF said some risks identified are in fact already occurring.

Since Ghana’s Extended Credit Facility programme with the IMF expired at the beginning of April, the government is not under any obligation to implement the recommendations but it is instructive that the government considers them, at least where they do not overly emphasise demand management over the supply side expansionary economic policies.

Here are the five threats according to the IMF that Ghana’s economy is likely to face

The biggest danger for Ghana’s economic recovery, according to the IMF is that of a sharp tightening of global financial conditions, which the organization warns would cause higher debt service and refinancing risks, as well as stress on vulnerable sovereign bond issuances and those with unhedged dollar exposures.

The IMF rates the likelihood of this as high (meaning a probability of between 30 and 50 percent) because the government’s financing needs remain sizable (though declining), and reliance on non-resident investors is high.

To mitigate this risk, the IMG recommends the implementation of a credible medium-term fiscal adjustment strategy to bolster investors’ confidence, the building of forex buffers to enhance resilience (also being done); and the formulation and adoption of contingency measures in case financing conditions tighten further and more adjustment is needed.

The other threat whose likelihood of occurrence and expected impact are both rated high is the fiscal loosening in the run-up to the 2020 elections.

The report said, “Political pressures to spend more and tax less are evident and Ghana has de facto entered pre-election campaign.”

This threat could result in further payment arrears accumulation and thus increasing non-performing loans as well as strained public service provision. The resultant lack of confidence in the government could trigger pressures on the exchange rate, affecting inflation, balance sheets and debt sustainability.

The IMF, therefore, recommends medium-term fiscal adjustment balancing measures that cut spending and increase revenues.

Again, the IMF said the threat with high potential of actually happening would only have a medium impact.

This is the continued and intensifying weaknesses of the state-owned utility providers, which continue to make significant losses and thus could add to the government’s risk of debt distress and constrain growth.

The organization, therefore, calls for a credible strategy to tackle energy sector inefficiencies, while monitoring and oversight of SOEs are strengthened.

The other two identified major threats are assessed to have only medium likelihood of actually occurring meaning a possibility of between 10 and 30 percent.

One is a significant drop in oil prices if global growth slows or supply exceeds expectations. The expected impact would be high, resulting in a sharp contraction in exports and falling international reserves, these creating pressures on the exchange rate and inflation.

The other is financial stability problems arising from liquidity problems, the large stock of non-performing loans and capital shortfalls in some parts of the financial sector. The IMF rates the expected consequences of this as medium too, by limiting lending to the private sector and thus lowering investment and growth.

To prevent this, the IMF recommends the addressing of banking sector weaknesses, including resolution of distressed firms and tackling Non-performing loans (NPLs).