The International Monetary Fund (IMF) has commended the Ghanaian government for its proactive response to the COVID-19 pandemic which mitigated its economic impact but contributed to a record fiscal deficit and increased public debt vulnerabilities.

The IMF executive board also noted that the cedi has remained stable against the US dollar within this period.

In its 2021 Article IV consultation with Ghana on Monday, the IMF said the government response helped contain the pandemic and support the economy, but at the cost of a record fiscal deficit.

"...The economic outlook is improving, even though risks remain, including from the evolution of the pandemic and rising debt vulnerabilities," the statement said.

"The pandemic had a severe impact on economic activity. Growth slowed to 0.4 percent in 2020 from 6.5 percent in 2019, food prices spiked, and poverty increased".

The statement also noted that Ghana’s fiscal deficit dropped to 15.2 per cent of GDP and a further 2.1 per cent of GDP on additional spending with the aid of bulk domestic arrears, including energy and financial sector costs.

"Public debt rose to 79 percent of GDP. The current account deficit widened slightly to 3.1 percent of GDP as the decline in oil exports was partially offset by higher gold prices, resilient remittances, and weaker imports. The Ghanaian Cedi remained stable against the US dollar, partly due to central bank intervention, and gross international reserves remained at 3.2 months of imports. External and domestic financing conditions tightened considerably at the start of the pandemic, but have improved since, and Ghana successfully returned to international capital markets for a US$3 billion Eurobond issuance in March 2021," the statement said.

Recovery underway

Noting that economic recovery was underway, the IMF projected Ghana's growth to rebound to at least 4.7 per cent in 2021, supported by cocoa farming, mining, and service delivery.

It also projected that inflation would remain within the Bank of Ghana’s target.

"The current account deficit is projected to improve to 2.2 per cent of GDP, supported by a pickup in oil prices, and gross international reserves are expected to remain stable," the statement added.

"The 2021 budget envisages a fiscal deficit of 13.9 per cent of GDP in 2021, including energy and financial sector costs, and a gradual medium-term fiscal adjustment which would support a decline in public debt starting in 2024".

Debt repayment

While noting that risks to the country's capacity to repay its debts have increased, the IMF's Executive Directors agreed that they are still manageable and capacity to repay the Fund remains adequate.

"Directors welcomed the fiscal adjustment envisaged in the 2021 budget. They stressed that fiscal consolidation is needed to address debt sustainability and rollover risks, as Ghana continues to be classified at high risk of debt distress. To protect the most vulnerable, considerations could be given to more progressive revenue measures and a faster return to the pre-pandemic level of spending, 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 expenditure arrears," the statement said.