1. MDBS Underlying Principles MACRO-ECONOMICS 11 May 2010

2. The macro-economy in 2009 Economic growth and the real sector Inflation Fiscal deficit Debt External sector Financial sector Structural measures

3. Economic Growth GDP growth 3.5% (IMF) or 4.7% (APR) below 8% original target and 5.9% revised target above SSA average of 2% Despite global recession and domestic fiscal stabilisation Agriculture and favourable terms of trade; but weaker services and industrial sector

4. Inflation 19.8% in January 2009 to a peak of 20.7% in July Decelerated 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

5. Fiscal Deficit Close to target, on a cash basis, but large stock of arrears accumulated in 2008 –Cash 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 GDP Revenue lower than expected, but expenditure restrained (despite wage bill and domestic interest payments) New arrears accumulated (1.2% of GDP), related to statutory funds

6. Debt Inevitably 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 increasing Arrears blur the picture on debt, as do SOE liabilities

7. External Sector Positive overall BoP, despite reduced capital inflows Current account deficit 5.1% of GDP, better than targeted 13% Exchange rate stabilised Foreign reserves at 3 months of imports

8. Financial Sector Withstood the global financial crisis Slower credit growth and tighter credit conditions Non-performing loans grew sharply, from 7.7% to 16.2% of gross loans by December 2009 –public arrears, currency depreciation and slower economic growth

9. Structural Measures Ghana Revenue Authority progress Statutory earmarked funds: –accumulating debt/arrears –transparency on funding and use of funds Public wage bill not tightly constrained Energy subsidies: electricity and fuel Oil and Gas: regulation, revenue management, economic impact Public investment planning and project assessment

10. Overview Overall, the underlying principle of continuing sound macroeconomic policies and management has been upheld However, compared to the rest of Sub-Saharan Africa, Ghana’s economy exhibits vulnerability: –high inflation –low foreign reserves –large fiscal deficit

11. Looking Forward, 2010 and beyond Competitiveness in an era of oil revenue Single-digit inflation - monetary policy Fiscal 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

12. Structural Measures (again) Statutory earmarked funds: –debt/arrears –transparency on funding and use of funds –integrate with consolidated fund reporting Public wage bill more tightly constrained Energy subsidies: electricity and fuel Oil and Gas: regulation, revenue management, economic impact (investment) Public investment planning and project assessment

13. Other issues going forward Targets –budget –revised budget –APR –BoG GDP rebasing Transparency - fiscal and monetary data; more is available but irregular updating

14. Thank you