Identifier
Created
Classification
Origin
04ACCRA2305
2004-11-23 16:05:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Accra
Cable title:  

IMF READOUT ON GHANA'S ECONOMY

Tags:  EFIN EINV ENRG GH OPIC 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 ACCRA 002305 

SIPDIS

SENSITIVE

TREASURY FOR ALEX SEVERENS
STATE PASS OPIC FOR CONAL DUFFY

E.O. 12958: N/A
TAGS: EFIN EINV ENRG GH OPIC
SUBJECT: IMF READOUT ON GHANA'S ECONOMY

Summary
-------
UNCLAS SECTION 01 OF 02 ACCRA 002305

SIPDIS

SENSITIVE

TREASURY FOR ALEX SEVERENS
STATE PASS OPIC FOR CONAL DUFFY

E.O. 12958: N/A
TAGS: EFIN EINV ENRG GH OPIC
SUBJECT: IMF READOUT ON GHANA'S ECONOMY

Summary
--------------

1. (SBU) The IMF has raised 2004 growth estimates for Ghana
to 5.5 percent. Inflation should stay at 11-13 percent and
the balance of payments improved in 2004 due to large cocoa
exports, donor aid flows and record remittances. There is
concern on the fiscal side, with wages and fuel subsidies
over target and the discovery of "unidentified" expenditures
of over two percent of GDP. The Bank of Ghana (BoG)
acknowledges Ghana may need a waiver on expenditures. The
IMF still expects petroleum deregulation by February 15,

2005. It did not object to the GoG's plan to borrow from the
Nigerian government and Barclays bank to finance the West
Africa Gas Pipeline, and sent a team to advise the GoG on
accessing capital markets. End Summary

IMF's Positive Readout of Macroeconomy
--------------

2. (SBU) IMF Mission Chief Sam Itam positively assessed
Ghana's economy during an October 29 outbrief for donors on
the October staff review of Ghana's Poverty Reduction and
Growth Facility (PRGF). The IMF revised 2004 real GDP growth
up to 5.5 percent, due mainly to larger than expected cocoa
exports. While inflation will remain between 11 and 13
percent -- missing the single digit target -- Itam was
satisfied with the BoG's monetary policies, which have
succeeded in maintaining price and exchange rate stability.


3. (SBU) The external side is improved, with higher than
expected export revenues ) mainly cocoa and gold ) record
level remittance flows (projected at USD 1.4 billion) and
donor disbursements on time. The main area of concern is the
fiscal side. Although tax revenues were better than
anticipated and most expenditures are within targets,
petroleum subsidies may reach USD 200 million, almost double
the target, and GoG wages will exceed the agreed limit.
Also, the IMF discovered a huge discrepancy in the draft 2004
budget accounts totaling over 2 percent of GDP or about 2.2
trillion cedis (roughly USD 250 million). Itam referred to
the discrepancy as "unidentified expenditures" and said the
GoG would recalculate budget figures.


4. (SBU) The BoG disputes the IMF's figures, blaming errors
in methodology. Dr. Mahamudu Bawumia, BoG Governor Paul

Acquah's top advisor, headed up the GoG review of the budget.
He told EconChief November 12 that the GoG's recalculation
showed no discrepancy. He passed the new data to the IMF and
will travel to Washington in December to resolve the
differences. Nevertheless, Bawumia admitted the GoG will
miss expenditure targets and may need a waiver for the third
review of the PRGF in April/May 2005.

Petroleum Sector Deregulation ) A HUGE CHALLENGE
-------------- ---

5. (SBU) The IMF has not backed off its insistence on
petroleum sector deregulation by February 15, despite signs
that the GoG commitment to the deregulation may be faltering.
Itam assured donor reps that the GoG had reiterated its
commitment to implement a new petroleum pricing regime that
would incorporate market forces and ensure full cost recovery
(and end subsidies). Nevertheless, Finance Minister Osafo
Maafo cautioned Itam that a large adjustment could spark
tensions. (Note: BoG contacts estimate that deregulation
will result in a 50 percent rise in the price of gasoline.
End Note)


6. (SBU) Itam reiterated to Osafo Maafo that he expected
Ghana to stick to the February 15 deadline, but also invited
the GoG to submit concerns and counterproposals in writing.
The Danish representative at the IMF outbrief related that
Osafo Maafo told his Ambassador on October 28 that the IMF
had agreed on a "transition phase." Itam said there had been
no such agreement, but several donors commented that the GoG
seemed to be setting the stage for a delay, which could delay
IMF conclusion of the third review. Donors involved in the
Multi Donor Budget Support group warned that their
disbursements were tied to IMF and World Bank disbursements.
IMF/WB funding delays could provoke a damaging cascade effect
on GoG finances.

Funding for West Africa Gas Pipeline (WAGP)
--------------

7. (SBU) Surprisingly, the IMF did not inquire about the
GoG's plans for funding its 16.3 percent share in the WAGP.
Itam did not appear concerned that Ghana plans to borrow the
necessary USD 80 to 90 million from the Government of Nigeria
(USD 40 million) and Barclay's bank (the remainder). GoG
Energy Minister Paa Kwesi Nduom recently announced that the
Nigerian loan was zero interest payable over 5 years. These
terms would not breach the PRGF ban on non-concessional
lending, but it seems unlikely that Barclay's would loan on
concessional terms. Nduom has stated to the press that the
Barclays loan is a temporary bridge loan and the GoG is
seeking financing from the French Development Agency (AFD),
the World Bank and the European Investment Bank to replace
it.

IMF Technical Assistance on Capital Markets
--------------

8. (SBU) GoG officials' desire to access world capital
markets, now that Ghana has achieved HIPC completion point,
is well known and cause for concern among some donors. Itam
surprised donor reps during the outbrief stating that he had
agreed to the Finance Minister's request for technical
assistance in this area. He reassured that the IMF would not
compromise the debt sustainability attained via HIPC, but
commented that GoG officials have good arguments for
borrowing internationally.


9. (SBU) GoG officials point out that they have insufficient
resources to achieve the millennium development goals. They
also make the "signal and effect" argument that international
borrowing will send the message that Ghana has a viable
economy. Finally, Itam pointed out that the capital markets
are already coming to Ghana with proposals for international
loans. Itam said the IMF would pursue this carefully, and
would only consider supporting essential projects that would
lead to higher growth, employment and improved
infrastructure. He noted also that skeptical donors should
consider it a good sign that the GoG was asking for IMF
guidance rather than pursuing more questionable opportunities
such as the notorious "IFC loan" and "China loan." (Note:
An IMF team arrived around November 21 to hold discussions on
this topic. End Note)

Comment
--------------

10. (SBU) When asked to comment on the IMF's plan to provide
technical assistance, donor reps ) including Econ and USAID
officers -- unanimously panned the idea. Most were concerned
the GoG would misuse the funds and end up back in the Paris
Club. Econ Chief suggested that the IMF might want to
differentiate between country bonds to raise general revenue
and financing that is project specific and collateralized.
The latter, which could include funding for energy, telecom,
water and other infrastructure projects, may make sense to
support.


11. (SBU) Post is not alone in doubting the GoG's ability to
deregulate the energy sector a mere two months after
elections. President Kufuor will likely make cabinet
changes, including to the key Finance and Energy ministries,
making the February deadline even less attainable. It is
unclear how the IMF would respond to another delay, and the
possible negative consequences of funding delays are a real
concern. End Comment
YATES