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IMF: Vital Role Of Ghana's Oil Tax Revenues

by Ulrika Lomas,, Brussels

29 March 2010

The latest mission to Ghana from the International Monetary Fund (IMF) has issued a statement that stresses the importance to that country of the future development in its offshore oil sector, not only for growth in the economy, but also from increased tax revenues.

The mission visited Ghana to conduct discussions for the first and second reviews under the IMF’s Extended Credit Facility. Those discussions focused on recent economic performance, near-term challenges, and the policy framework for 2010 and the medium term.

The IMF has estimated that the economy expanded by up to 4% in 2009, despite the global economic recession, as cocoa and gold exports remained strong. For 2010, a modest upturn in growth to the 4%-5% range is projected, boosted by investments linked to the offshore oil sector, which will come on stream in 2011.

“Fiscal management remains Ghana’s main challenge,” it says. “The budget deficit was reduced to 9.7% of gross domestic product (GDP) in 2009, in line with program targets. For 2010, IMF staff support the government’s revised deficit target of 8% of GDP, and welcomes plans to further reduce the deficit to 3%-5% of GDP in 2011-12, buoyed by oil-related revenues of 5% of GDP, or more.”

Under the IMF’s projections, public debt would rise to 62% of GDP at end-2010, before falling in 2011-12 as the fiscal deficit is reduced. However, it adds, “there is little room for manoeuvre within these budget plans.”

Looking ahead to 2011, the IMF sees Ghana’s main challenges as arising from its move to oil producer status. “The pending oil and gas revenue management bill is expected to ensure that petroleum revenues and related spending are transparently reflected in the budget,” it states. “Managing expectations regarding the likely fiscal space for new programs and projects will also be important. Given the need to repay expenditure arrears while also reducing the fiscal deficit, the initial scope for spending from oil revenues could be relatively modest.”

Finally, the IMF points out that “good progress has been made in the first year of Ghana’s program to strengthen fiscal institutions. A consolidated Ghana Revenue Authority has been established, and a project to improve budget processes and computerize Ghana’s public financial management is underway.”

TAGS: tax | economics | gross domestic product (GDP) | International Monetary Fund (IMF) | oil and gas | Ghana

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