The International Monetary Fund (IMF) has issued a stern warning to the government over the short term risks it faces on the back of sizeable fiscal and external imbalances.

An IMF team which concluded a visit to Ghana last week said that although the country’s medium-term prospects remain strong, the country’s external sector imbalances pose increasing risks.

“The main risks to the economy arise from a large current account deficit projected to increase to above 13% of GDP in response to much weaker gold and cocoa prices and ongoing fiscal pressures,” warned Christina Daseking, the leader of the IMF team.

“With projected reserves of less than three months of imports, the economy is exposed to risks from a potentially deteriorating external environment and global financial market pressures.”

The John Mahama government performed rather remarkably in putting a tight lid on its expenditure during the first half of the year, to match its revenue shortfalls.

But buoyed by its successful US$ 1 billion Eurobond issue, government stepped up its spending in July.

By the end of the month, with revenues continuing to fall short of target, the fiscal deficit had risen to 6.3% of Gross Domestic Product (GDP), significantly higher than the 5.6% deficit targeted for that time of the year.

The IMF delegation therefore expressed doubts that government can achieve its target of a 9.0% fiscal deficit for 2013.

“It will be difficult for the government to keep the deficit below 10% of GDP,” Ms Daseking said.

Indeed, because of the ongoing slump in the gold price to barely US$ 1,300 per ounce - down from over USS 1,600 until earlier this year - Ghana’s earnings from gold exports during the first eight months of 2013 fell to US$3.4 billion, down 12.6% from the level during the corresponding period of 2012.

Similarly, a combination of lower production and lower international market prices pushed Ghana’s export earnings from cocoa down by 21.4% to US$1 billion.

But crude oil, which is now the country’s second biggest export earner, came to the rescue, generating US$2.8 billion during the first eight months of the year.

The downside of this seemingly good news is that it still leaves the country exposed to a downturn in global commodity prices, a real possibility if economic growth slows in Asia, particularly in China.

The other risk identified by the IMF team relates to Ghana’s increasing reliance on foreign debt capital to finance public spending.

Less than eight years after Ghana first opened part-of its domestic debt to foreign investors, by allowing them invest in treasury notes and bonds of at least three years tenor, they already hold about 30% of the country’s cedi- denominated public debt.

The domestic debt itself grew by 62% over the 12 months up to August this year. Meanwhile, foreign debt has, in recent times, risen sharply too, climbing by 15.9% in the first eight months of this year alone.

On the upside, the IMF team expressed its support for “the emergent consensus that is now emerging to reduce the excessive share of wages in government spending.”

The mission supported government’s decision to reduce subsidies on fuel and electricity, saying this will “reduce fiscal risks and provide the needed space for higher social spending and critical infrastructure”.

While in Ghana, the IMF team met with Vice-President Kwesi Amissah-Arthur, Finance Minister, Seth Terkper, Bank of Ghana Governor, Dr Kofi Wampah, and other senior government officials, as well as representatives from think-tanks and the private sector.

Another IMF delegation is expected to visit to Ghana in early 2014.