Economy stable, on right track despite downward review of expenditure

The Minister of Finance, Mr Ken Ofori-Atta, has painted a bright future for the country's economy, indicating that the economy is stable and on the path of recovery.

Presenting the mid-year fiscal policy review of the 2017 Budget Statement and Economic Policy to Parliament on Monday,  he said the government’s policies and programmes were yielding the expected results and, in some cases, exceeding expectations for the first half of the year.

He said because of the prudent economic policies, improved fiscal discipline and competent management of the economy, "the macro-indicators for the first half of the year are pointing in the right direction".

"Typical of the strengthening performance is the fact that for the first six months of the new Akufo-Addo government, both the fiscal deficit and primary balance outperformed their targets.

"The exchange rate is stabilising, inflationary pressures have eased and interest rates are trending downwards. Progressively, confidence is being restored in the economy and we are confident that this positive trend will be sustained in the months and years ahead," he said.

Mr Ofori-Atta said although the revenue target for the period had been missed, expenditures were also realigned to ensure that the government did not spend beyond its means.

He said the government had, therefore, revised the fiscal deficit from 6.5 per cent to 6.3 per cent.

The presentation of the mid-year budget was in accordance with Section 28 of the Public Financial Management Act, 2016 (Act 921). It is the first under the Public Financial Management Act.

The presentation of the mid-year budget came by way of information to Parliament and so it did not require any parliamentary approval.

It was also so allowed because the minister did not come with any supplementary budget, as government was spending within its approved budget.

Flagship projects

Mr Ofori-Atta said despite the downward revision of its expenditure for 2017 from GH¢58.1 billion to GH¢55.9 billion, the government maintained that expenditure for its flagship initiatives would be protected and not be affected by the cuts.

He said the foundation had been laid for the successful implementation of the flagship programmes and actual implementation was expected to commence in the second half of the year.

He said the government would still fund flagship programmes, such as the free senior high school and the one-district, one-factory policies and the Planting for Food and Jobs programme.

He said the government would also increase support to social intervention programmes, such as the Livelihood Empowerment Against Poverty (LEAP) and the Ghana School Feeding Programme.

Macroeconomic indicators

Mr Ofori-Atta said the Gross Domestic Product (GDP) for the first quarter of 2017 grew by 6.6 per cent, against 4.4 per cent for the same period in 2016; inflation reduced to 12.1 per cent at the end of June 2017, from 15.4 per cent at end of December 2016, while interest rates were on the decline.

For instance, he said, the 91-day treasury bill rate had reduced from 16.4 per cent at the end 2016 to 12.08 per cent at the end of June 2017.

He said the fiscal deficit as a percentage of GDP for the period January-June 2017 was 2.7 per cent, compared with a deficit of 4.0 per cent over the same period in 2016; the primary surplus for January-June 2017 was 0.6 per cent of GDP, compared to a deficit of 1.3 per cent over the same period in 2016, while the Gross International Reserves at the end of June 2017 was US$5.9 billion, the equivalent of 3.4 months of import cover, up from US$4.9 billion at the end of December 2016 (equivalent to 2.8 months of import cover).

“These indicators clearly show that the economy is on the path of recovery and investor confidence has been restored. Additionally, the business and consumer confidence survey by the Bank of Ghana conducted in June 2017 broadly reflects positive sentiments in the direction of the economy, as noted in the July edition of the Bank of Ghana’s MPC press release,” he said.

The Finance Minister said based on the significant progress that had been made in macroeconomic stability and improvement in real GDP growth, the Fitch rating agency, on May 12, 2017, revised its outlook on Ghana’s long-term foreign and local currency Issuer Default Ratings (IDR) from Negative to Stable and affirmed the country’s IDR at B.

“We are optimistic that we will sustain the gains made in macroeconomic stability and instil more confidence in the economy for both domestic and international investors,” he said.

GDP growth

Mr Ofori-Atta said provisional data from the Ghana Statistical Service (GSS) showed that the overall real GDP growth (year-on-year) for the first quarter of 2017 was 6.6 per cent, an increase from 4.4 per cent registered for the same quarter of 2016.

He said the industrial sector recorded the highest and most impressive growth of 11.5 per cent, up from 1.8 per cent in the same quarter of 2016.

He said the agricultural sector recorded growth of 7.6 per cent, compared with 5.0 per cent recorded over the same period in 2016, while the services sector recorded a modest growth of 3.7 per cent, compared with 6.6 per cent in the same period of 2016.

He said the performance in the industrial sector was largely driven by the mining and quarrying (which includes petroleum) sub-sector, which had contracted over the corresponding period in 2016.

“Underpinning the year-on-year improvement in agriculture was a strong growth performance in crops and coco, and a substantially improved performance in the fisheries sub-sector. The year-on-year slowdown in growth of the services sector reflects a corresponding slowdown in growth of the key sub-sectors of information and communication and finance and insurance,” he said.

Mr Ofori-Atta said in nominal terms, in the first quarter of 2017 GDP at current prices was GH¢44.7 billion, compared with GH¢36.5 billion for the corresponding period in 2016.

He said in real terms, they translated into GH¢8.6 billion and GH¢8.0 billion for the first quarters of  2017 and 2016, respectively.

Revenue performance

The Finance Minister said total revenue and grants for the period amounted to GH¢17.5 billion (8.6 per cent of GDP), against a target of GH¢20.5 billion (10.1 per cent of GDP).

 In nominal terms, the provisional outturn was 6.5 per cent higher than the outturn during the same period in 2016.

He said total domestic revenue, comprising all categories of tax and non-tax revenue, amounted to GH¢16.9 billion.

Of that amount, he said, total tax revenue (including upstream petroleum receipts) was GH¢13.7 billion, against a target of GH¢15.7 billion. The provisional outturn was 13.1 per cent lower than the target of GH¢15.7 billion.

Upstream petroleum receipts amounted to GH¢342.9 million, against a target of GH¢319.3 million, of which GH¢115.65 million was from corporate income taxes.

He said revenue performance after the passage of the budget at the end of March 2017 had seen much improvement, compared to the first quarter.

He said tax revenue performance was expected to improve in the coming months, as economic agents assimilated the new tax policy measures and the tax compliance measures to stop leakages and yield results.

Expenditure and arrears clearance  

Mr Ofori-Atta said total expenditure, including payments for the clearance of arrears, amounted to GH¢23.0 billion (11.3 per cent of GDP), against a target of GH¢27.6 billion (13.6 per cent of GDP). 

He said budget allotments for the period were reviewed to match the revenue inflows to ensure that government’s fiscal objectives and targets were not derailed.

He said wages and salaries for the period amounted to GH¢6.8 billion (3.4 per cent of GDP), which was within the target of GH¢6.9 billion.

The Finance Minister said expenditure on the use of goods and services amounted to GH¢854.6 million (0.4 per cent of GDP), against the target of GH¢1.4 billion (0.7 per cent of GDP), which represented 61.4 per cent of programmed target for the period.

He said interest payments amounted to GH¢6.7 billion (3.3 per cent of GDP), against a target of GH¢7.1 billion (3.5 per cent of GDP), 5.5 per cent lower than the target.

He said the government’s liability management programme, including re-profiling, was expected to provide provisional savings of GH¢612 million and indicated that domestic interest payment for the period amounted to GH¢5.3 billion, against a target of GH¢5.7 billion, indicating potential savings of GH¢374.6 million for the period, arising mainly from the re-profiling of maturing domestic debt.

Mr Ofori-Atta said transfers made to statutory and earmarked funds fell below target mainly because of lower domestic revenue.

He said capital expenditure (CAPEX) amounted to GH¢2.4 billion (1.2 per cent of GDP), 81.8 per cent of the period target of GH¢2.9 billion (1.4 per cent of GDP), while foreign-financed capital spending was higher than target due mainly to improved project loan disbursements.

He said the government planned to eliminate all government arrears by the end of 2019, following the outcome of an audit of the outstanding commitments generated as of the end of 2016.

Public debt

Mr Ofori-Atta said from a debt stock of GH¢9.5 billion at the end of 2008, the public debt increased to GH¢122.3 billion at the end of 2016 (an increase of 1,154 per cent).

He said the debt servicing payments arising from the legacy of debt accumulation amounted to some 45 per cent of total domestic revenue.

“The revised 2016 nominal GDP of GH¢167.3 billion put the public debt-to-GDP ratio at 73.1 per cent of GDP, against the 72.5 per cent reported in the 2017 Budget presented to this House earlier in March this year,” he said.