Economic outlook positive with moratorium on new loans & contracts
The Minister of Finance and Economic Planning, Mr Seth Terkper, has stated that Ghana remains a stable and favourable investment destination, despite the economic challenges.
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Presenting an urgent policy statement on the economy to Parliament yesterday, he said the economy was beginning to adjust to the fiscal and monetary measures, with a positive change in nominal budget and a reduced pace of depreciation of the cedi.
Challenging developments
The Finance Minister said since his appearance before Parliament in November 2013, several developments in the economy, particularly the depreciation of the cedi in the first quarter of 2014, rising interest rates and the adverse global environment on commodity prices, had posed challenges to the achievement of the 2014 economic programme.
However, he said it was the resolve of the government to strengthen the measures outlined in the 2014 budget to enable the country to "confront these essential challenges and meet our development goals".
He gave an assurance that the government would be guided by the several issues raised by business leaders, civil society and social and development partners in the management of the economy.
Moratorium on new loans
Among some of the measures being pursued to strengthen the economy, the Finance Minister says, are a moratorium on the award of new contracts and contracting new loans with a change in focus to pipeline items.
Besides, the government is now focusing on refinancing short-term expensive debts with a view to extending the maturity dates and reducing interest costs.
There would also be provision for matching funds to fast-track disbursement of existing loans and the processing of all government expenditure on the Ghana Integrated Financial Management and Information System and classifying them under a revised Charter of Accounts for all government transactions.
Bank of Ghana measures
Mr Terkper said the Bank of Ghana (BoG) measures, including the two per cent increase in the prime rate from 16 per cent to 18 per cent by the Monetary Policy Committee and the issuance of a set of foreign exchange regulations and a code of conduct to guide operations in the foreign exchange market, were designed to ensure transparency and reduce leakages in the foreign exchange markets.
Besides, the measures would address anti-money laundering issues and promote the use of the cedi as the legal tender.
He said risks relating to continuing commodity price volatility and tightening global financial conditions still remained.
He said the measures introduced by the government sought to regulate business affairs efficiently, adding that it was not the intention of the government to revert to a control regime.
Mr Terkper recapped a consolidated set of measures that the government had been using to manage the economy to correct the imbalances that had occurred in recent years and the foundation for transforming the structure of the economy.
Medium-term fiscal measures
The Finance Minister said in the medium term, the objective of monetary policy would remain price stability.
In that regard, he said, monetary policy would aim at delivering an inflation target of 0.9 per cent within a band of plus or minus two per cent and gross international reserves which would cover not less than four months of imports of goods and services by 2016.
"It is expected that improved non-traditional exports and oil production, as well as a possible decline in the oil import bill with the onset of gas production, should create conditions for the gradual recovery of output and foreign exchange reserves," he said.
He said the expected ramped-up Jubilee crude oil production in 2014 and 2015, the coming on stream of the Tweneboa-Enyenra-Ntomme (TEN), as well as the Sankofa-Gye Nyame, field in the second half of 2016, should boost the medium-term prospects of increasing output and shoring up foreign exchange reserves.
The Finance Minister said the main goal of the medium-term macroeconomic programme was to achieve and sustain macroeconomic stability for the promotion of growth and development.
He said the reduction in fiscal deficit would be driven mainly by expenditure rationalisation and revenue enhancing measures.
Mr Terkper said the strategy for achieving macroeconomic stability included ensuring fiscal discipline that hinged on prudent public expenditure management.
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It also involved enhancing domestic revenue mobilisation, mainly through the ongoing Ghana Revenue Authority (GRA) reforms that included the revision of all direct and indirect tax laws.
He mentioned the right-sizing of the public service, the reclassification of and improvement in public debt management and the encouragement of the private sector to participate in the accelerated growth agenda through public-private partnerships (PPPs) as some of the measures.
Expenditure rationalisation
Mr Terkper said the expenditure rationalisation measures would include shifting focus of expenditure from low-priority public spending for all ministries, departments and agencies (MDAs).
There would also be the rationalisation of the wage bill, pensions, gratuities and social security payments as part of measures to reduce the wage bill to tax revenue ratio to the ECOWAS threshold.
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Besides, he said, the District Assemblies Common Fund and other statutory funds would be restructured to reduce rigidities in the budget and align them to priority programmes.
The Finance Minister said the public sector staff in MDAs would be rationalised and would include reforms such as an option for a voluntary retirement plan, as well as a review of MDAs’ organisational structure.
He said the policy of regular adjustment of utility prices would be pursued to keep expenditure on subsidy within budgetary constraints.
Besides, the government would continue undertaking a more thorough privatisation of the downstream of the electricity distribution systems by using the private sector in the collection of revenue under performance-based contracts and debt management measures.
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Consolidated measures
The minister said given that some of the consolidated measures were promulgated within a multi-year framework, as was the experience in all countries undergoing major adjustment, their full effect would materialise over more than a single year.
"It is important to emphasise that some of the measures that are currently being implemented are structural and they will take time to fully materialise," he said.
Mr Terkper said the government believed that the home-grown fiscal consolidated measures were credible enough to meet short-to-medium-term objectives and stressed that the government would keep in view the need to safeguard positive medium-term prospects.
"We shall continue to assess the full impact of the measures and positive turns in the global and domestic economy which could be positive. As required by law and following tradition, we shall appear before the House with the mid-year review and if necessary a supplementary budget," he added.
Macroeconomic measures
Mr Terkper said the 2014 budget introduced many policy initiatives to strengthen the revenue and expenditure regimes.
He said the revenue measures sought to broaden the tax base and thus spread the burden of national development on all citizens, instead of the few who met their tax obligations.
For instance, he said, the Value Added Tax (VAT) rate had been increased by 2.5 percentage points, while the VAT base had been broadened to cover fee-based financial services and real estate to reflect its essence as a tax on all consumption expenditures.
The Finance Minister said together with ongoing improvement in revenue administration, the tax measures were estimated to yield additional revenue of not less than GH¢700 million or 0.7 of Gross Domestic Product (GDP) in 2014.
He indicated that his ministry had initiated a process to change the upfront exemptions regime to a credit and refund system to minimise abuse, tax evasion and tax avoidance.
In addition, the Ghana Investment Promotion Centre (GIPC) Act would be reviewed to ensure that exemptions granted by the GIPC were consistent with the government exemption policy.
Expenditure rationalisation
Mr Terkper said the 2014 budget contained expenditure rationalisation measures, such as the continuation of the policy on bringing utility and petroleum subsidies within budget estimates and making them more targeted towards social intervention goals.
Besides, there was a framework within the Ho forum on public sector pay sustainability to reduce the wage bill as a share of tax revenue from 57 per cent in 2013 to 35 per cent by 2017.
"This will put us in compliance with the ECOWAS criterion of wage-to-revenue ratio," he said.
In that regard, the minister said there was a proposal of a moratorium on public sector wage increase in 2014 through the public sector wage negotiation process.
He indicated that the government would continue the policy of net freeze on employment into some sectors of the public service.
Payroll management measures, such as payroll audits and electronic system payment voucher (E-SPV), were being enhanced to reduce the incidence of 'ghost' workers on government payroll.