The five pillars of IMF’s reforms (2023-2026)

G hana is making progress in its efforts to restore macroeconomic stability. The country has achieved three important milestones. In a relatively short period of time (less than 12 months), it has completed a domestic debt exchange program (DDEP). Second, in June 2024, Ghana reached an agreement with bilateral official creditor committee (OCC) and also with Eurobond holders. The two agreements detail the terms of the agreement and provides significant debt service relief during the three-year IMF program period. They allow financial resources to be directed towards critical areas such as infrastructure, healthcare and education. Finally, under the IMF’s US$3 billion Extended Credit Facility (ECF), Ghana has committed to a plan for economic reforms.

The ECF sets clear objectives and a time line to complete them. First, Ghana must adopt a selective approach to borrowing and spending. At the same time, the authorities have to commit to pursuing a vigorous revenue mobilization strategy. Finally, authorities must improve governance and implement social protection measures during the three years of the ECF.

Selective Borrowing

Ghana lost access to international financial markets after suspending debt payments in 2022. The ministry of finance then, introduced a new medium-term debt strategy (MTDS), which is now a part of the ECF. Henceforth, Ghana will give priority to concessional financing sources. State-owned enterprises in the financial, energy and agricultural sectors will come under scrutiny. The goal is to reduce risks from contingent liabilities and unauthorized collateralized commitments. Other reforms will focus on price discovery in the secondary domestic debt market. Diversifying debt instruments and issuers will reduce risks in the domestic debt market. The government expects these reforms to produce US$10.5 billion of debt service relief by 2026¹ and has promised a full disclosure of liabilities and updates for future borrowing plans.

Smart spending

In March 2022, the government cut public spending by 30 percent. The goal was to reduce expenditure in ministries and government agencies. The ministry of finance instructed state agencies to complete ongoing projects. These measures produced a positive but short term effect on the fiscal deficit. Ghanaian authorities admitted these measures were ‟not enough to address the international market confidence and fiscal pressures”². However, they expect the primary balance (commitment basis) to improve from an 0.5 percent of GDP (2023) to a surplus of 0.5 percent of GDP at the end of 2024.

Spending cuts cannot work without additional transversal reforms. Specifically, harnessing data collection and analysis has been a challenge. Under the ECF, the government plans to modernize and further integrate its budget system. This integration will connect the budgeting system (or Hyperion) and the expenditure accounting and control system (or Ghana Integrated Financing Management System - GIFMIS). State institutions report public spending activities in the GIFMIS. The goal is to curb operational chokeholds, speed up data collection and reconciliation and also to ensure data integrity and timeliness.

Revenue mobilization

The government has a ‟Medium-Term Revenue Strategy” (or MTRS), which covers the period 2024-2027. This plan seeks to raise the tax-to-GDP ratio from the current 13 percent to 18 percent of the GDP. Non-oil domestic revenue mobilization is a central plank of the MTRS. Non-oil revenues as a percentage of the GDP has remained relatively constant since 2019 (13.7 percent of GDP in 2022 and 14.1 percent in 2023)³. This revenue category consists of taxes on income and property, goods and services, and also international trade. This is the segment of revenue mobilization the government wants to grow.

Tax authorities have introduced a raft of extra measures to widen the tax net. They include: the revenue assurance & compliance enforcement (RACE), a paperless portal (Ghana.gov), the National ID (GhanaCard), the Digital Property and Address System (DPAS), and the Ghana cashless system (electronic paymnet for public services). These measures helped the government to uncover an untqapped taxable population of 15.5 million people (out of a population of 33 million)³.

But despite this huge potential, only a small group in the population pays tax in Ghana. In August 2021, an official survey found that only 2,364,348 persons have registered as taxpayers. This represents around 15.25 percent of this uncoverred taxable population⁴.

Improving governance

Ghana is working with multilateral⁵ and bilateral⁶ donors to improve governance. On November 9th, 2023, the IMF concluded Ghana's governance corruption diagnostic assessment⁷. The government plans to use the diagnostic to update the 2014 National Anticorruption Action Plan (NACAP). This will also help Ghana to enact a new ‟Conduct of Public Officers Act” to reinforce transparency in public finance and fight corruption.

The Ghana Revenue Authorities (GRA) contributes but also gains from this anti-corruption drive. Revenues authorities are developing new governance and professional standards in the tax administration. One salient project will digitalize internal audit and risk management processes. The GRA wants to emulate the success of the Anti-Money Laundering (AML) and Combatting Financing of Terrorism (CFT). Progress in AML and CFT helped the country to exit the Financial Action Task Force (FATF) gray list in June 2021.

Social and environmental protection

The IMF endorsed the social protection measures outlined in Ghana’s Post COVID-19 Program for Economic Growth (or PC-PEG). One goal of the PC-PEG is to mitigate the negative consequences of reforms on the vulnerable sections of the population. If implemented, the measures will increment progress on poverty reduction. The share of the population living below the poverty line fell from 52.7 percent in 1991 to 24.2 percent in 2016⁸. GDP per capita increased from US$416.8 (1991) to US$2,363.30 (2021). But, the COVID-19 pandemic exacerbated chronic poverty gaps, widening the wealth divide between the South and the North. A succession of environmental disasters is aggravating poverty in the North and Savannah regions. Food inflation, increases in utility prices (electricity and water) and a hike of VAT rate are depleting the income of poor households.

The government introduced some preventive and remedial measures in the 2023 budget. Authorities called it the ‟Living Empowerment Against Poverty” (or LEAP). The LEAP is a targeted cash transfer program to the poorest, which is indexed on inflation. This program also targets Ghanaians who are active in volatile socio-economic sectors.

In the education sector, the government will maintain the Free Senior High School (SHS) system, which covers the full cost of secondary education for young Ghanaian citizens. Similarly, the government maintains the National Health Insurance Scheme (NHIS), which is already accessible to over 15 million people. However, authorities acknowledge that macroeconomic stability and a return to economic growth are the only sustainable guarantees against new and emerging patterns of poverty.

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