2017 mid-year fiscal policy review in retrospect
In accordance with the Public Financial Management Act of 2016, Act 921, Section 28, the Minister of Finance and Economic Planning, Mr Ken Ofori-Atta, availed himself to the good people of Ghana through Parliament to present the mid-year fiscal policy review of the 2017 Budget Statement and Economic Policy.
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The mid-year fiscal policy review focused on key sectors of the Ghanaian economy with emphasis on essential government projects and initiatives, including planting for food and jobs, livelihood empowerment against poverty (LEAP), free senior high school, one-district, one-factory and construction of roads and other infrastructural facilities such as hospitals across the country.
The minister outlined the macroeconomic indicators of the Ghanaian economy as at the time of presentation. Ghana’s gross domestic product (GDP) growth rate for the first quarter of 2017 was 6.6 per cent; this was 2.2 per cent more than the GDP growth rate recorded over the same period in 2016.
The inflation rate in the Ghanaian economy as of June 30, 2017 was 12.1 per cent; this was an improvement over the 15.4 per cent inflation rate recorded earlier on December 31, 2016. Interest payment on 91-day Treasury bill witnessed a reduction from 16.4 per cent at the end of December 2016 to 12.08 per cent at the end of June 2017.
The government’s fiscal deficit as a percentage of GDP at the end of the second quarter of 2017 was 2.7 per cent; this was an improvement over the 4 per cent fiscal deficit recorded over the same period in 2016.
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Another macroeconomic improvement in the Ghanaian economy was recorded on the Primary Account. For instance, at the end of the second quarter of 2016, Ghana’s primary account showed a deficit of 1.3 per cent; this deficit was turned into a surplus of 0.6 per cent over the same period in 2017.
As of 31st December, 2016, Ghana’s Gross International Reserves amounted to US$4.9 billion, an equivalent to 2.8 months of import cover whereas Ghana’s gross international reserves as at June 30, 2017 were US$5.9 billion, representing about 3.4 months of import cover.
The year-on-year GDP growth rate for the first quarter of 2017 was 6.6 per cent compared with 4.4 per cent recorded over the same period in 2016. A comparative analysis revealed an improvement in the performance of two of the three key sectors of the Ghanaian economy at the end of the first quarter of 2017 relative to the same period in 2016.
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Significant growth rates were recorded in the industrial and agricultural sectors of the Ghanaian economy. Ghana’s policy rate has witnessed 500 basis points reduction from December 2016 to date. Growth in the industrial sector at the end of the first quarter of 2017 was 11.5 per cent.
This was a tremendous improvement over the 1.8 per cent growth rate recorded during the same period in 2016. The agricultural sector witnessed a 5 per cent growth rate at the end of the first quarter of 2016. However, in 2017, the agricultural sector growth rate at the end of the first quarter was 7.6 per cent. The increase in the agricultural sector’s performance can be attributed largely to increase in crops, cocoa and fisheries production.
Significant increase in the industrial sector’s performance can be attributed to improvement in quarrying and mining activities such as petroleum or oil extraction.
The year-on-year performance of the services sector contracted from 6.6 per cent at the end of the first quarter in 2016 to 3.7 per cent over the same period in 2017. Other sub-sectors whose activities negatively impacted on the services sector’s contribution to GDP were insurance, finance, information and communication.
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Strategic reduction in expenditure
In an era of relatively high debt-to-GDP ratio, a remedial measure would be toning down on expenditure, especially when there are no clear-cut sources of inflows to mitigate eventual excessive government expenditure.
The government of Ghana is the highest employer in the economy with over 700,000 employees on her monthly payroll.
The government’s targeted expenditure on wages and salaries at the end of the second quarter of 2017 was GH¢6.8 billion.
However, the second quarter was ended with a favourable economic wages and salaries variance of GH¢0.1 billion. Some critics attribute this positive remuneration variance to government’s failure to settle all outstanding arrears on wages and salaries.
However, it is imperative to note in periods of high outstanding arrears, it may not be out of place for stewards of the Ghanaian economy to decide to spread settlements over a given period of time.
The Finance Minister’s presentation revealed a significant reduction in government’s spending on goods and services during the period under review. Similarly, actual payments for accrued interests were less than the targeted amount while transfers to statutory and other earmarked funds were below expectation.
The latter was attributed to unrealised domestic revenue targets. Government’s total capital expenditure (CAPEX) at the end of the second quarter of 2017 was GH¢2.4 billion against a targeted capital expenditure of GH¢2.9 billion.
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Economic expectations – A mirage or reality?
Findings from a recent quarterly business barometer survey conducted by the Association Ghana Industries (AGI) revealed restoration of confidence of businesses in the Ghanaian economy and stability in exchange rate as one of the major variables that have restored investor confidence in the economy.
The government’s realised revenue is expected to increase in the last quarter of 2017 when economic activities are at their peak; increased economic activities in the last quarter of 2017 are expected to result in higher tax revenue.
Total actual government expenditure at the end of the second quarter of 2017 was GH¢23 billion.
This was GH¢4.6 billion less than the projected expenditure for the period. The reduction in total government expenditure was in tandem with a reduction in total expected revenue at the end of the second quarter of 2017.
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Although a section of Ghanaians has questioned the current government’s resolve to cut spending in the wake of unrealised revenue targets, it is worth stating government’s economic decision was not only strategic, but also a very laudable way of ensuring prudent public spending.
The ratio of foreign-financed capital to domestic-financed capital during the period was high. The variance was attributed largely to improvements in project loan disbursements.
Mr Ofori-Atta affirmed the resolve and commitment of the government to settle all outstanding national arrears by the end of 2019.
Some economic pundits have described that assertion as overly ambitious.
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However, given constant inflows and limited outflows coupled with prudent economic measures and commitment, settlement of all outstanding government debts at the end of 2019 would not be a mirage but an economic reality. — GB
Ebenezer M. Ashley (PhD) is the Lead Consultant/CEO at Eben Consultancy. He is a Fellow Chartered Economist & Council Member, Institute of CharteredEconomists of Ghana (ICEG)
Email: ebenezer.ashley@gmail.com
Website: www.ebenezerashley.com