Govt to focus more on other sectors to reduce dominance of services
The government intends to pay closer attention to some other sectors of the economy apart from services as it struggles to revive them to contribute more effectively to the growth of the economy.
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The sectors will include crops, mining and quarrying (especially, gold), as well as the manufacturing and electricity subsectors of the economy.
The Minister of Finance, Mr Seth Terkper, announced this when he presented the mid-year review and supplementary budget for this year to Parliament in Accra yesterday.
The pledge comes in the wake of a trend where the services sector continues to dominate as the leading contributor to GDP.
For instance, the services sector increased its share of GDP from 51.9 per cent in 2014 to 54.1 per cent in 2015. This was at the expense of both industry and agriculture, the Finance Minister observed.
“Over the period, the share of industry declined from 26.6 per cent to 25.3 per cent, while that of agriculture declined from 21.5 per cent to 20.3 per cent,” he said, and added that “Inasmuch as the services sector is expanding by way of growth, its sustained share capture has also been as a result of slower growth in the agriculture and, recently, industry sectors.”
Agriculture
The dwindling fortunes of the once vibrant agriculture sector has continued to be a bother to many because of its potential to create more jobs for the youth, contribute to internal food security and help raise foreign currency through exports.
But in his review of the budget, Mr Terkper said, “In the agriculture sector, all the main subsectors recorded positive growth rates, with the livestock subsector recording the highest growth of 5.3 per cent.”
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However, overall, agriculture registered a growth of 2.4 per cent, compared with the 2014 growth of 4.6 per cent.
According to Mr Terkper, “Declining growth trends in agriculture have often coincided with declining growth rates in the crops subsector due to the weight of the subsector.” Subsequently, he said, efforts continued to be made to address the challenges in the sector, including ensuring that fertilisers were released to farmers on time.
Industry
On the industrial front, the Finance Minister said, “The best growth performers in the industry sector in 2015 were the water and sewerage and construction subsectors. These subsectors recorded growth rates of 21.5 per cent and 3.3 per cent, respectively.”
This is an improvement over their performances in 2014 when water and sewerage contracted and construction stagnated. Manufacturing registered a growth rate of 2.2 per cent, an improvement over the contraction recorded in 2014.
Mining and Quarrying, however, recorded a negative growth of 2.9 per cent, mainly on account of reduced gold production and subdued growth in the upstream petroleum industry.
Petroleum, which is a component of mining and quarrying, grew by a marginal 0.9 per cent, compared with the 4.5 per cent growth recorded in 2014.
That, Mr Terkper said, was primarily on account of the challenges with the gas compressor on the FPSO in July 2015.
He said the electricity subsector declined by 10.2 per cent on account of generation challenges related to low dependable capacity and fuel supply bottlenecks for a greater part of the year.
Banks’ Outstanding Credit
The finance minister also gave some updates on bank and credit and said annual growth in banks’ outstanding credit to the public and private institutions increased during the year.
“In nominal terms, banks’ outstanding credit recorded a year-on-year growth of 24.5 per cent as at the end of December 2015, ending the year at GH¢30,099.1 million compared with GH¢24,101.8 million in 2014,” he said and explained that “in real terms, credit to the public and private sectors recorded a modest annual growth of 5.8 per cent in 2015, compared to 21.9 per cent in 2014.”
Interest rate developments
In response to rising inflation and heightening inflation expectations, the Monetary Policy Committee of the Bank of Ghana increased the Monetary Policy Rate by 500 basis points (bps) to 26 per cent in 2015, from 21 per cent in 2014.
In reaction, trends in interest rates at which banks and other financial institutions borrowed on the money market showed a mixed outturn.
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The rates on the government treasury instruments such as the 91-day and 182-day bills decreased by 267 bps and 199 bps year-on-year to 23.12 per cent and 24.40 per cent respectively at the end of December 2015.
However, Mr Terkper noted that the rates on the 1-year note and 2-year note increased by 25 bps and 30 bps year-on-year to 22.75 per cent and 23.0 per cent respectively, while the rate on the 3-year bond declined by 191 bps to 23.49 per cent at the end of December 2015.
“Over the same period, the rate on the 5-year bonds increased by 496 bps to 24.00 per cent, while the rate on the 7-year bond remained unchanged at 18 per cent,” he said.
Exchange Rate Developments
The cedi generally depreciated against the major international currencies in both the interbank and forex bureau markets in 2015.
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The domestic currency weakened during the first half of the year due to seasonal demand pressures and reduced inflows to the foreign exchange market.
However, Mr Terkper said in the second half, the cedi was relatively stable as a result of tight monetary policy, improved inflows from development partners, Eurobond proceeds and the cocoa syndicated loan.
For instance, he said “In the interbank market, the cedi depreciated by 16.1 per cent against the US dollar in 2015 compared with the 31.2 per cent depreciation recorded in 2014. The local currency also depreciated by 11.5 per cent against the Pound sterling and 6.2 per cent against the Euro”.