IMF challenges government economic performance data again
A new dispute over Ghana’s macroeconomic performance for 2020 and its position this year could brew as the International Monetary Fund, in its latest mission report on the country, calculated the government’s budget deficit for last year at 15 , 5% of gross domestic product, which is significantly higher than the 11.8% declared by the government itself. Although both parties agree on the causes of the variance, they are no closer to resolving the divergent positions underlying the causes.
Likewise, the Fund calculated Ghana’s public debt-to-GDP ratio at the end of 2020 to be 78.0%, also significantly higher than the 76.1% reported by the government itself.
The differences in the calculations are the result of differences in how the cost of financial sector reform and the legacy debts of the energy sector have categorized a disagreement that has endured since the government started debt financing the bailout of customer deposits held by various types of financial intermediation firms in 2017.
While the government classifies them for certain purposes as memorandum items rather than regular budget items, the IMF insists on adding them to all macroeconomic performance and fiscal position calculations.
The results of the IMF’s position are echoed in part of the official statement from its latest staff mission which reads: “Government interventions in 2020 also exacerbated pre-existing fiscal rigidities and public debt vulnerabilities. The public deficit, including energy and financial costs, reached 15.5% of GDP, while annual gross financing needs exceeded 20% of GDP. Public debt rose to 78% of GDP in 2020, from 64.4% in 2019, including the HALS of 7.63 billion GHs in 2020. ”
The finance ministry responded to media coverage of the spreads with a press release that effectively acknowledges that the spread is the result of debt inherited from the energy sector.
However, he defends his exclusion of this debt by arguing that his figures are based on his use of the classification of central governments as different from the IMF’s use of the classification of general government which includes the debt of institutions and agencies. non-central debt. In this case, the difference comes from the debt subscribed by ESLA, the ad hoc vehicle being used to cover the energy debt.
The government’s view is that ESLA is a registered corporate institution that repays energy debt outside of the government’s usual finances and therefore the debt should not be part of the government’s balance sheet. But the IMF insists that debt, like ESLA itself, is an extension of government finances and therefore should be included in its financial statements and calculations. Says the statement from the Ministry of Finance:
The budget and debt classifications are based on international classifications known as the central government or general government classification.
All over the world, governments report at least to the central government level – meaning activities in which the central government is involved for all ministries, departments and agencies, but exclude local governments, state enterprises or other government investment interests, except central government guaranteed debts.
When you add local governments and public enterprises to the central government classification, then you are reporting on the general government classification. Ghana as a country reports on central government budgeting, not general government budgeting.
Therefore, Ghana’s stock of public debt is calculated as the total debt incurred by all ministries, departments and agencies and any other debt that the central government guarantees for any local government or public enterprise.
With this definition, the stock of public debt 2020 as a percentage of GDP was 76.1%, against 62.4% recorded in 2019. This corresponds to the same level as those of the IMF. In other words, the stock of 2019 public debt as a percentage of GDP was 62.4% and 64% for the MoF and the IMF, respectively. Likewise, the stock of public debt at the end of 2020 was 76.1% and 78% respectively for the MoF and the IMF.
The IMF explained the above gap by stating categorically in its press release that it included an ESLA debt of GHS 7.63 billion which relates to the debt of public enterprises in the energy sector and is therefore excluded from the central government classification used by the government.
Therefore, the calculations of the IMF and the government are not against the grain. We reiterate once again that the ministry maintains an open door policy and would therefore encourage the media to seek clarification of the issues from us prior to publication.
Admittedly, the government’s position on this issue, while technically questionable, is cautious in the sense that by reducing its debt, it supposedly gives it more fiscal space for new borrowing and same time is supposed to allow him to obtain more favorable conditions. borrowing conditions than would otherwise be the case, which is to Ghana’s advantage.
The catch is that the IMF let the cat out of the bag; the international investment community will follow the IMF’s numbers and the position that supports it rather than those of the government and therefore these advantages will not accrue to it.
In addition, the government’s position consequently underestimates its financing needs, in view of the costs of reforming the financial sector, which it includes in the public debt but not in its budget deficit, even though its loans to pay for the reforms need to be funded. Curiously, he makes no reference to the cost of financial sector reforms and its impact on the public deficit in his statement on the discrepancies between his figures and those of the IMF.
It is important to note that the disagreement between the two does not affect the good relations they have between them and the IMF says it is ready to offer the government another rapid response facility in addition to the billion US dollars provided. last year.
The International Monetary Fund (IMF) mission led by Carlo Sdralevich held Article IV consultations from April 28 to May 12, 2021, through virtual meetings.
Based on its calculations, the staff mission affirmed that “the recent 2021 budget policy pivot towards fiscal consolidation is an important step in the right direction and difficult in the event of a pandemic. Fiscal consolidation needs to be deepened and anchored around debt and debt service reduction in order to create space for social, health and development spending.
“Given the social and equity implications, fiscal consolidation should rely more on progressive revenue and expenditure measures, while ensuring budget support for the most vulnerable and social safety nets.
“Despite the progress made in streamlining power generation, the financial sustainability of the energy sector affects people’s daily lives and will remain a drag on productivity and a driver of public debt if it is not. resolved. Improving efficiency and recoveries remains a priority to achieve substantial savings. “
Despite its warnings, the IMF staff mission report to Ghana was generally optimistic, saying
“Ghana has managed the COVID-19 epidemic in the country very effectively and has thus been successful in protecting lives. Almost 93,000 cases have been confirmed and unfortunately 780 people have died so far. The launch of the massive deployment of the vaccine was a breakthrough, with approximately one million doses being administered by the end of May.
“The impact of the pandemic on the economy has been severe. Real GDP growth slowed to 0.4% in 2020 from 6.5% in 2019, due to lower activity in the extractive industries and a collapse in hospitality and retail services, including the informal sector which particularly employs women. Inflation climbed to double digits amid pressure on food prices, before falling back to 8.5% in April 2021.
“Policy interventions in 2020 were also essential to protect livelihoods and paved the way for a faster rebound in economic activity. Real GDP growth is projected at 4.8% in 2021, driven by a rebound in extractive industries and services. Inflation is expected to remain around the central bank’s 8% target by the end of 2021. The CARES program has the potential to be transformative and inclusive for the Ghanaian economy, reinforced by its focus on SMEs and digitization as well as through the exploitation of the AfCFTA.
However, another problem could loom for the government as it prepares to accede to the IMF’s request for an audit of COVID-19 emergency spending and arrears accumulated in 2020 – in addition to budget reporting practices. routine – which the Fund believes will help account for last year’s extra-budgetary expenditure.
Some public policy analysts are already predicting that the exercise could reveal some extra-budgetary spending motivated by the general election conducted by the government to woo the electorate, under the guise of its emergency spending mandate triggered by COVID 19. However, the The government has little choice in this matter, as its access last year to a billion dollar rapid response mechanism gives the IMF the right to demand fiscal responsibility. Indeed, this can dissuade the government from accessing the new one that becomes available.
The wave of new unpopular taxes and levies imposed in the 2021 budget are explained as largely necessary to cover the cost of COVID 19 improvement spending made last year. But if the spending audit the IMF insists on reveals that a substantial part of this additional public spending was made for election-related reasons, government critics would have new fuel to stoke the embers of the government. political opposition to new tax measures.
According to the official statement from the IMF staff mission, “the team had collaborative and constructive discussions with Vice President Bawumia, Minister of Finance Ofori-Atta, Governor Addison of the Bank of Ghana, others. senior government officials, Parliament’s finance committee, the private sector. representatives and organizations of civil society.