Economy on path to recovery - Terkper
The Finance Minister, Mr Seth Terkper, has expressed optimism that the country’s economy is heading for recovery.
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Making a presentation on the state of the economy and its outlook in Accra yesterday, he said the government was committed to addressing the short-term challenges facing the economy in order to safeguard the bright prospects that lay ahead.
The economy, Mr Terkper said, had very bright medium-term prospects, supported by an expanded services sector, the discovery of more oil and gas fields and the coming on stream of the country’s own gas processing plant.
“Growth is expected to pick up over the medium-term to 9.2 per cent in 2017, inflation will be reduced to 8.2 per cent by 2017 and fiscal and current account deficits will be reduced to 3.7 per cent and 4.9 per cent respectively, in 2017.
“This will result in a build-up of reserves to cover 4.2 months of goods and services,” he added.
Home-grown policy
Mr Terkper said the government had, since 2013, been implementing a number of measures, as well as a home-grown policy, to ensure macroeconomic stability and address the causes of fiscal overruns in 2012.
He said in spite of the progress made in addressing the causes of the fiscal slippage in 2012, the progress made in reducing the fiscal deficit had been slow on account of a number of setbacks.
He identified those setbacks as the two-year long shortfall in gas supply and its implications for energy supply and output and commodity price shocks, including the decline in gold and cocoa prices, which affected the government’s revenue performance.
Given the government’s commitment to fiscal consolidation, he said, the 2015 budget outlined additional measures and reforms which formed a significant part of the course of action under the programme with the International Monetary Fund (IMF).
“These measures, in addition to earlier ones being implemented, are expected to result in a significant reduction in the fiscal deficit to ensure debt sustainability and macroeconomic stability,” he added.
Recounting the progress made, he said the wage bill as a ratio of gross domestic product (GDP) reduced from 8.9 per cent in 2012 to 8.7 per cent in 2013, 8.3 per cent in 2014 and was expected to further decline to 7.7 per cent in 2015.
Similarly, he said, the wage bill, including wage arrears cleared as a ratio to tax revenue, had declined from 68.2 per cent in 2012 to 65.1 per cent in 2013, 52.1 per cent in 2014 and was expected to decline further to 46.1 per cent in 2015.
He said subsidies on petroleum prices and utility tariffs had been removed, while corporate income tax from the oil companies had significantly turned positive.
“The shortfall in corporate income receipts in the petroleum sector has been reversed,” he said.
Significant growth
Ghana, he said, had witnessed significant economic growth over the past decade, with real GDP growth rising steadily from 3.7 per cent in 2000 to 11.5 per cent in 2011 before decelerating to 4.0 per cent in 2014, mainly on account of the energy challenges.
“Due to a combination of unfavourable global factors and domestic challenges, the economy has come under severe stress since 2012, leading to double digit fiscal and external current account deficits,” he explained.
The fiscal slippage in 2012, he said, was mainly as a result of the higher wages and wage arrears payments under the implementation of the Single Spine Salary Structure (SSSS) and a shortfall in corporate income taxes from the petroleum sector as a result of the export of lower barrels of crude oil that was projected.
Other factors, Mr Terkper added, were the high interest rate cost burden arising from the steep rise in short-term domestic interest rates, shortfalls in grants from donors, higher subsidies on utilities and petroleum, as well as higher spending on goods and services, in contrast with a lower estimation of capital expenditure.
He, however, observed with satisfaction that Ghana had attained a middle-income status and there was no way it was going to slip out of that rank.
Meanhwile, industry players have questioned the basis for the Finance Minister concluding that the first quarter of the year showed signs of an economy on the path to recovery.
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They said in an economy in which the government was not spending, it was diffuclt to say that the fundermentals were working, arguing that “if the government begins paying contractors, settling statutory obligations in full, paying outstanding arears to public sector workers and honouring its debts to the banks, the recovery will be fragile.”
According to them, revising its growth rate from 4.5 per cent further down to 3.9 per cent was an indication of how difficult it would be for the government to achieve its targets.
They were also of the view that the real test for the government as far as its expenditure controls were concerned would be seen in the last quarter of the year when sitting governments began to spend way beyond limits for electoral gain.
Writer’s email: victor.kwawukume@graphic.com.gh
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