MDBS Underlying PrinciplesMACRO-ECONOMICS11 May 2010

The macro-economy in 2009Economic growth and the real sectorInflationFiscal deficitDebtExternal sectorFinancial sectorStructural measures

Economic GrowthGDP growth 3.5% (IMF) or 4.7% (APR)below 8% original target and 5.9% revised targetabove SSA average of 2%Despite global recession and domestic fiscal stabilisationAgriculture and favourable terms of trade; but weaker services and industrial sector

Inflation19.8% in January 2009 to a peak of 20.7% in JulyDecelerated to 15.9% in December 2009 (and to 13.2% in March 2010) [charts in APR, page 14]Missed initial target of 12.5%, but good progress Stabilised exchange rate, good harvests, and tighter macroeconomic policies contained growth in aggregate demand

Fiscal DeficitClose to target, on a cash basis, but large stock of arrears accumulated in 2008Cash basis: 14.5% of GDP in 2008 down to 9.7% in 2009 (target of 9.4%)Commitment basis, including arrears: 20.1% down to 11.0 % of GDPRevenue lower than expected, but expenditure restrained (despite wage bill and domestic interest payments)New arrears accumulated (1.2% of GDP), related to statutory funds

DebtInevitably rising with a high fiscal deficit, but came in just on target (60% of GDP)Debt sustainability remains moderate but risk of debt-distress is increasingArrears blur the picture on debt, as do SOE liabilities

External SectorPositive overall BoP, despite reduced capital inflowsCurrent account deficit 5.1% of GDP, better than targeted 13%Exchange rate stabilisedForeign reserves at 3 months of imports

Financial SectorWithstood the global financial crisisSlower credit growth and tighter credit conditions Non-performing loans grew sharply, from 7.7% to 16.2% of gross loans by December 2009public arrears, currency depreciation and slower economic growth

Structural MeasuresGhana Revenue Authority progressStatutory earmarked funds:accumulating debt/arrearstransparency on funding and use of fundsPublic wage bill not tightly constrainedEnergy subsidies: electricity and fuelOil and Gas: regulation, revenue management, economic impactPublic investment planning and project assessment

OverviewOverall, the underlying principle of continuing sound macroeconomic policies and managementhas been upheld

However, compared to the rest of Sub-SaharanAfrica, Ghanas economy exhibits vulnerability:high inflationlow foreign reserveslarge fiscal deficit

Looking Forward, 2010 and beyond Competitiveness in an era of oil revenueSingle-digit inflation - monetary policyFiscal deficit: commitment control, revenues, investment, debt management and project analysis, structural issues, budget contingency, contingent liabilities Crowding out of private sector credit (arrears and domestic borrowing)Structural issues... Single-digit inflation

Structural Measures (again)Statutory earmarked funds:debt/arrearstransparency on funding and use of fundsintegrate with consolidated fund reportingPublic wage bill more tightly constrainedEnergy subsidies: electricity and fuelOil and Gas: regulation, revenue management, economic impact (investment)Public investment planning and project assessment

Other issues going forwardTargetsbudgetrevised budgetAPRBoGGDP rebasingTransparency - fiscal and monetary data; more is available but irregular updating

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