Give us GH¢865m to spend on ‘pipeline’ projects - Terkper appeals to Parliament

Charles Benoni Okine Jul - 21 - 2015 , 22:06

The government is seeking parliamentary approval to spend an additional GH¢865.8 million for the rest of the year to implement its transformational agenda, in spite of calls on it to control its expenditure.

The amount is about 2.1 per cent of the GH¢41.2 billion approved for the government in the 2015 budget.

The request, according to the government, would help it maintain the recent gains in the growth and macroeconomic stability agenda while entrenching the country’s lower middle-income status.

The Minister of Finance, Mr Seth Terkper, made the request for additional funds when he presented the mid-year review of the 2015 budget statement and economic policy and supplementary estimates to Parliament yesterday.

“The short-term and more structural elements are designed to manage issues such as higher foreign-financed capital expenditure due to the exchange rate effects,” he said.

He further explained that the amount would also help deal with rising inflation, the impact of gold and cocoa prices, revisions in the benchmark crude oil prices, additional spending related to the recent flooding and refinancing of existing debt stock.

MDAs/MMDAs warned

Subsequently, he used the opportunity to remind ministries, departments and agencies (MDAs) and metropolitan, municipal and district assemblies (MMDAs) “that this revision and supplementary estimates will not result in automatic increases in expenditure across the board”.

“Further, they do not accommodate significant new expenditures that must be justified in budget context. Our prudent expenditure drive continues, with additional expenditure allowed only when revenues increase,” he stated.

The Finance Minister, whose presentation was seldom interrupted by the Minority, noted, on the other hand, that “we are confident that as the economy rebounds, the expenditure envelope will increase in tandem with revenue”.

In the interim, he said, “focus will be on pipeline projects and MDAs/MMDAs are not to incur unauthorised expenditures beyond their budgets and budget allotments”.

Macroeconomic targets

The Finance Minister pointed to developments from January to May 2015, particularly fiscal performance, and indicated that the government’s policies and reform measures being implemented since 2013 were taking hold and yielding results.

“Fiscal performance has improved significantly but, until recently, the economy witnessed a sharp depreciation of the cedi which partly contributed to rising inflation,” he said.

GDP growth

On Gross Domestic Product (GDP), he pointed to the fact that the Ghana Statistical Service (GSS) had revised the GDP methodology, a move which had marginally affected the nominal and real GDP figures from 2007 to 2014. Consequently, provisional GDP growth in 2014 was four per cent.

For the first quarter of 2015, compared with the first quarter of 2014, the provisional GDP numbers indicated that the economy grew by 4.7 per cent, instead of the negative growth rate of 3.8 per cent.

Similarly, the agricultural sector grew by 7.4 per cent, compared with a decline of 8.0 per cent; the industrial sector grew by 0.9 per cent, compared with negative 1.8 per cent, while the services sector grew by 4.7 per cent, compared with negative 5.5 per cent.

“Mr Speaker, it is gratifying to note that all these growth numbers are pointing to an upward trend – in line with our stabilisation-to-growth policy launched in 2013 under the ‘Home Grown Policy’,” Mr Terkper said.

Gross international reserves

At the end of May 2015, the country’s gross international reserves decreased by US$1.9 billion to US$3.5 billion, down from a stock position of US$5.5 billion at the end of December 2014.

The present level of reserves was sufficient to provide cover for only 2.3 months of imports, compared with 2.7 and 3.0 months of import cover as of May and December 2014, respectively, he said.

However, the Finance Minister was optimistic that the BoG’s reserves would improve with expected inflows and the implementation of policy and operational measures during the second half of 2015 and 2016.

Fiscal performance

Another area of interest to the public is the government’s fiscal performance.

According to Mr Terkper, preliminary fiscal data for January to May 2015 indicated an over-performance in revenue and grants, while expenditures were below target for the period.

That, he said, resulted in cash fiscal deficit equivalent to 1.9 per cent of GDP, against a target of 3.4 per cent, adding: “This compares to a deficit of 3.7 per cent of GDP for the same period in 2014.”

However, he said total revenue and grants for the period were GH¢12.1 billion, equivalent to 9.0 per cent of GDP and against a target of GH¢11.4 billion, equivalent to 8.5 per cent of GDP.

“In nominal terms, the provisional outturn was 28.1 per cent higher than the outturn for the same period in 2014,” he said.

The over-performance in total revenue and grants was mainly due to a strong growth in domestic revenue, driven mainly by a good tax and non-tax revenue performance.

Expenditure

He said total expenditure, including payments for the clearance of arrears and outstanding commitments for January to May 2015 amounted to GH¢14.6 billion (10.8 per cent of GDP), against a target of GH¢16.1 billion (11.9 per cent of GDP).

The outturn, Mr Terkper said, was 9.1 per cent lower than the budget target and 7.4 per cent higher than the outturn for the same period in 2014.

To him, the lower-than-estimated expenditure for the period was mainly as a result of the containment of spending.

A major expenditure area which often puts the government budget out of gear has been wages and salaries.

However, Mr Terkper boasted that “expenditure on wages and salaries for the period totalled GH¢4.2 billion, 1.2 per cent lower than the budget target of GH¢4.3 billion and 11.4 per cent higher than the outturn for the same period in 2014.

“In addition to this, GH¢319.7 million was spent on the clearance of wage arrears”, he said, adding, “Mr Speaker, while we have made progress on containing wage expenditure pressures, the public sector compensation bill, which is currently above 50 per cent (without arrears) of tax revenue, is significantly high.”

Developments in public debt

Amidst boos and jeers, Mr Terkper said Ghana’s total public debt stock, which stood at GH¢53.1 billion (US$24.5 billion) as of end-December 2013, increased to GH¢79.6 billion (US$24.8 billion) as of the end of December 2014.

He said the provisional debt stock as of the end of May 2015 stood at GH¢90 billion, representing 67.53 per cent of GDP.

That was made up of GH¢53.8 billion and GH¢36.2 billion for external and domestic debts, respectively.

Although the Finance Minister tried to calm the House by noting that the growth in public debt as of the end of May 2015 was largely on account of the significant risk of exchange volatility which affected more than 50 per cent of the entire public debt stock, the reaction of the Minority in particular lent credence to the concerns expressed by many economists about the impact of the debt on the overall economic performance of the country.

Both multilateral and bilateral donors have cautioned against the government’s excessive borrowing because it is reaching unsustainable levels, but in a strong assurance to the House, Mr Terkper said, “The expectation is that the significant recovery of the cedi against the major trading currencies will fundamentally reduce the ratio of public debt to GDP.”

Revisions to the fiscal framework

Based on revisions to the macro-economic framework, the government revised its 2015 macroeconomic targets.

For instance, overall real GDP growth had been revised downward from 3.9 per cent to 3.5 per cent; non-oil real GDP growth too was down from 2.7 per cent to 2.3 per cent while end-year inflation has been revised upward from the projected 11.5 per cent to 13.7 per cent.

Furthermore, the overall budget deficit target which was estimated at 6.5 per cent of GDP is now up at 7.3 per cent, while gross international reserves are projected to remain at not less than three months of import cover of goods and services.

Revisions to total revenue and grants

The estimated total petroleum receipts for the 2015 budget amounted to GH¢4.2 billion. Of the amount, GH¢2.5 billion was allocated as

Annual Budget Funding Amount (ABFA) to finance specific programmes in the budget; GH¢1.1 billion was estimated to be transferred into the Ghana Petroleum Fund and GH¢697.7 million to the Ghana Oil Company.

However, based on the revised oil price assumption, revised total petroleum receipts for 2015 are estimated at GH¢1.8 billion (1.3 per cent of GDP), compared with the 2015 Budget estimate of GH¢4.2 billion (3.1 per cent of GDP).

The difference of GH¢2.2 billion is 58 per cent lower than the 2015 Budget target.

In addition to the direct impact on petroleum receipts, the decline in crude oil prices is expected to impact negatively on the Special Petroleum Tax (SPT). Thus revenue yield from the SPT is estimated to be lower by GH¢124.4 million.

The estimate for total expenditure and arrears clearance has also been revised downwards from GH¢41.2 billion to GH¢40.3 billion (30 per cent of GDP). This is mainly on account of lower spending from oil revenues and lower domestic interest payments.

Meanwhile, Mr Terkper said in anticipation of the proposed Eurobond issue of US$1.5 billion in 2015, domestic financing was estimated to be lower than projected in the 2015 budget.

“In this regard, domestic interest payment has been revised from GH¢8 billion to GH¢7.7 billion. On the other hand, external interest is estimated at GH¢1.6 billion, higher than the 2015 budget estimate by GH¢72.6 million. On the whole, total interest payments for 2015 have been revised downward by GH¢227.4 million, from GH¢9.6 billion to GH¢9.3 billion”, he said.

The revised budget deficit will be financed from foreign and domestic sources. Foreign financing of the deficit is estimated at GH¢4.7 billion. Of this amount, GH¢5.1 billion will be sourced from the international capital market, part of which will be used to buy back Ghana’s Eurobond which matures in 2017.

Domestic financing of the budget is estimated at GH¢4.97 billion, indicating a downward revision by GH¢2.6 billion from the estimate in the 2015 budget.