The government is trying
to Position Ghana as economic and commercial hub in the
West Africa sub-region. In your point of view is also
possible to position Ghana as a financial hub?
Certainly. The government is changing the paradigm
of the way things are done in the country. The private
sector is seen as the machine that will pull the rest
of the economy along. It is not just a slogan. The authorities
are taking institutional and policy initiatives that
will effectively position the private sector as the
leader in the economy.
The government has created several institutions to
support the leading role of the private sector, such
the Ministry for Private Sector Development. Also the
government -- in the person of the president himself
-- is very much committed to the Ghana Investors Advisory
Council. The task for the government is certainly a
big one and it will take time to implement, but the
authorities are certainly acting to improve the outlook
for doing business in Ghana. In the particular case
of the financial sector, the authorities have already
passed the new law for the Bank of Ghana and a new banking
law is coming; also, there are new laws in the making
on many aspects of the financial sector, including anti-money
laundering. In addition, the government understands
the need for reform of the judicial sector and that
private investment is not going to increase if the judicial
system is not efficient and supportive; in this regard,
for example, the authorities have organized the 'fast
track courts'.
So, all these policy initiatives are creating an environment
that is better for investment in general. Certainly,
there are still important problems to deal with, and
no one is covering the eyes in this regard; but the
most important issue is the willingness of the government
to work, together with the private sector, in finding
the necessary solutions.
The relation between the International Monetary
Fund and Ghana goes back a long time. Could you indicate
how this has developed to what it is today and tomorrow?
And what does the IMF see as of particular importance
to the further development of Ghana?
The history between the Fund and Ghana is a long one.
We currently have in place a "Poverty Reduction
and Growth Facility" (PRGF), which supports the
authorities in their quest for low inflation, continued
economic growth, and sustainable balance of payments
situation. The IMF will lend, at very low cost, a total
of about US$260 million to Ghana over 2003-05 under
this facility.
Regarding growth, it is important to emphasize that
Ghana is one of the few countries in sub-Saharan African
that for the last 10 years has managed to grow systematically,
at about 4 or 5 percent per year on average. Some people
might consider that such a rate of economic growth is
low, compared with the rate necessary to lift Ghana
out of poverty quickly, but sustained growth has been
rare in sub-Saharan Africa and Ghana must be commended
for it. The economic programme supported by the Fund
aims to move the economy further along a sustainable
growth path, while seeking to maintain low inflation
and a better external situation. In Ghana, the external
situation is important, because it is a small economy
that deals with few products. It exports two major products
(cocoa and gold) while at the same time oil is by far
the main imported commodity. Changes in the price of
any of these three commodities have a significant influence
on the economy. The country needs to be prepared for
such eventualities and therefore an improved balance
of payments position is particularly important.
In the community of international organisations, there
is a clear division of labour to enhance efficiency
and avoid duplication. The IMF supports the development
of the private sector by helping the authorities to
ensure that a sustainable and stable macroeconomic policy
framework is in place. The World Bank is more involved
in sectoral issues, including the microeconomics of
private sector development. We in the IMF certainly
have an interest in a more modern and more efficient
private sector-led economy and support the work that
our colleagues at the World Bank do to push the sector
agenda together with the Ghanaian authorities.
The government is seeking to bring inflation down
to single digits. Do you feel that there is already
an environment in Ghana that will make single digit
inflation sustainable into the future?
The government is trying very hard to bring inflation
down to single digits. In support of their efforts,
as I mentioned before, the IMF Executive Board approved
(on May 9th, 2003) a new PRGF covering the period 2003-05.
This facility fully supports the current macro-economic
policy framework developed by the authorities, as articulated
in their Ghana Poverty Reduction Strategy document (GPRS).
If implemented properly, and all signs so far point
in that direction, single digit inflation should be
achieved in 2004 in Ghana.
Single-digit inflation will not be achieved this year,
because there was a particular problem in February when
inflation jumped significantly, reflecting important
and necessary adjustments in petroleum product prices.
The authorities announced an unavoidable increase of
over 90% in these prices, which caused inflation to
rise by 12.9% in the month of February 2003 (the authorities
also announced that prices would from then on be adjusted
automatically to reflect market conditions). Monthly
inflation subsequently has declined every month to low
levels. As long as the right policies continue to be
implemented, single digit inflation will achieved, and,
backed by the right policies, will be sustainable.
The Ghanaian government has indicated that raising
petrol prices and VAT are important to deal with. Are
these the core issues or would you say they are more
instrumental in reaching higher objectives?
They are indeed instruments. The main core issue is
the need to consolidate the fiscal accounts of the nation.
The government still remains a big user of financial
resources in the economy; this keeps domestic interest
rates high and crowds out the private sector. One of
the main objectives of the macroeconomic programme for
this year is to avoid increasing the level of domestic
financing of the government in 2003. A tight monetary
policy is also in place, in support of the efforts to
keep fiscal discipline.
|
The authorities are taking important measures to promote
fiscal consolidation First of all, they have adjusted
the prices of public sector utilities, most recently
petroleum products as mentioned before, but also of
electricity and water, with the aim of avoiding losses
in the public enterprises. The authorities have adopted
pricing policies based on full cost recovery for water,
electricity and petroleum products. At the same time,
they are aware of the need to fully control expenditures,
and significant efforts were taken at the beginning
of 2003 in this regard. Policies to enhance revenue
collection, of course, are also important. In sum, the
government of Ghana is implementing the right policies,
which were reflected in the 2003 budget that was approved
by parliament earlier this year.
The overall policy framework adopted in Ghana is discussed
in detail in the GPRS, which we mentioned before. The
strategy contained in this document is endorsed as the
basis for the support of the IMF, the World Bank and
other bilateral and multilateral donors. The macro-economic
policy framework that the IMF is supporting comes from
the GPRS and hence is consistent with the governments'
medium term plans for growth and poverty reduction.
Economic growth does not always stand for a reduction
in poverty, but certainly Ghana is seeking a reduction
of poverty. How does the IMF deal with this issue?
The answer to this question depends on the time framework
considered. If you look at these things from a long-term
perspective, the debate of whether to grow or reduce
poverty is a non-debate. From a longer-term perspective,
economic growth and the reduction of poverty certainly
can be promoted at the same time, something on which
there is broad agreement.
The difficult question is what happens in the short
term. In the short term, many trade-offs do appear:
the policies needed to stabilise the economy may not
always be the same that are needed to reduce poverty.
Although we agree that in the long term poverty and
growth can move together, in the short term they may
not. In the IMF, we approach this very carefully and
there are different ways in which we try to look at
this.
First of all, we are constantly learning from our own
experiences and the experiences of others, and our lending
instruments have been modified accordingly. Gone are
the days where the only thing available was the good
old stand-by arrangements (SBAs), which provide a country
with quick money at market-related interest rates. A
country like Ghana would never apply for a SBA nowadays.
Ghana accesses an IMF facility - the PRGF - that carries
a rate of interest of only ½ percent per year.
We are trying to reduce the burden on the borrowing
country.
Secondly, not only are the financial characteristics
of our lending instruments changing, but also the policy
objectives that they seek to support. Again, the SBAs
were meant to quickly turn around the situation of the
balance of payments, irrespective other considerations
such as the situation of lower-income groups in the
country concerned. In putting together the PRGF, issues
of poverty are specifically looked at when assessing
the policies necessary to re-establish external and
financial stability in the economy. So, we look at different
possibilities in terms of how the fiscal accounts can
be consolidated and the pace at which this can be done,
while at the same time we work together with the World
Bank and other official bilateral and multilateral development
organisations. We try to integrate their ideas as much
as possible into our own work.
Finally, together with our partners in the international
community, the IMF actively participates in the enhanced
Highly Indebted Poor Countries (HIPC) initiative. It
is an important instrument, which seeks to reduce the
weight of the external debt of a country to sustainable
levels, while at the same time making sure that the
resources the countries are saving are used to fight
poverty.
I started working with the IMF almost 15 years ago,
and I remember that back then we tried not to get involved
in decisions regarding the composition of government
expenditure. We agreed with the country as to what the
overall finances of the country would have to be and
we did not discuss which expenditures had to be cut.
Now, however, we do work with the government in discussing
precisely such issues We do not tell them what to do,
but we do advise them on the need to reduce military
expenditure and protect or actually increase expenditures
that help reduce poverty, such as those in health and
education. This is good.
Efforts have been taken for the introduction of
a West African Monetary Union. How feasible is this
idea and is it applauded by the IMF?
Anything that tends to improve welfare through better
economic policies and improved international cooperation
is supported by the IMF. Certainly, the efforts to establish
the West African Monetary Zone (WAMZ) is something that
will help move Ghana in that direction.
The important thing is where are the countries in the
region moving to and how are they approaching the required
policy changes. The effort of the WAMZ to help put these
countries on a converging path towards the minimum requirements
needed to issue a single regional currency is valuable
in itself. Whether the convergence criteria would be
achieved in 2003, as was first said, or later is not
so important. The fact is that there is a home-grown
regional institution with regional home-grown objectives
that helps Ghana and the other countries move in the
right direction.
The challenges for WAMZ are significant not only because
the member countries still have to achieve the convergence
criteria, but also because there are very different
economies within this group. This problem also existed
in Europe, where there are smaller economies with an
economic structure very different from the larger ones.
What is good for Germany is not necessarily good for
Portugal and vice versa. Some of that you can also have
in this smaller group of African countries.
In conclusion, what is your final message to anyone
considering their options in Ghana?
The message is one of encouraging them to come and
support the authorities' efforts to create what President
Kufuor calls "the Golden Age of Business."
I think that the government is fully committed to moving
Ghana on to a path of rapid economic growth, stable
prices, a private sector-led business environment, and
the full rule of the law. The development partners,
which include the IMF, the World Bank, and the other
official multilateral and bilateral development organizations
are all providing strong support to Ghana. The road
is long and there are many things that still need to
be done, but there is room for good business here. And,
the more business that comes, the easier it will be
for the authorities to achieve their objectives. It
is a virtuous circle.
|
Mr. Enrique
de la Piedra