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 
------- 
¶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