Fiscal Discipline Is Required To Make It A Reality-Otokunor | Economy |

November 29, 2013 3:05 PM

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“It's clearly a budget. It's got a lot of numbers in it”, this was George W. Bush’s rendition of what a budget is. Perhaps, George Bush got it all misconstrued, because budget goes far beyond a lot of numbers and looks into the strategies and approaches of using the numbers to deliver efficient and quality goods and services to people.

The 2014 budget statement and medium term economic policy as read by the Minister of Finance, Mr. Seth Tekper carried the theme “ Rising to Challenge: Re-aligning the Budget to meet key National Priorities”. I say the theme couldn’t have been framed any better, considering the age old problem of the misalignment of our limited resources to areas or sectors that do not really need them, whiles we starve crucial sectors and priority programmes of required resources to meet our development aspirations. Indeed, we have limited or no choice at all, than to rise to the challenge.

We are at an economic crossroad, where any economic decision taken has far reaching implications for the development objectives of our economy. We have had a very weak and quite undefined economic fundamentals which has impeded economic and social growth in the over 55 years of political and economic independence.

This paper seeks to empirically analyse the budget statement and economic policy to determine the extent to which it meets the economic aspirations of our people. For a country with a relatively lower tax effort relative to its potential and a larger untaxed informal sector, gathering, allocation and distribution of resources plays a very critical role in the attainment of economic and business success.


Macroeconomic Performance


The Ghanaian economy has greatly improved and stabilised significantly over the last medium term (2009-2012). The indicators showed a souring trend of economic growth which peaked in 2011, with real GDP growth of about 15%. The growth in 2011 is mainly attributed to the inclusion of oil production in Ghana.

The growth rate in 2012 fell to 7.9% because oil production targets were not met and the energy crisis also affected the productive sectors of the economy, thereby reducing general productivity. In 2013, the provisional GDP growth rate reduced further to 7.4%, however, this is considered quite a good performance considering the fact that the 2011 GDP was revised from 14.4% to 15% and that of 2012 from 7.1% to 7.9% in 2012, hence the 7.4% growth was over bigger principal (8.2% based on the unrevised GDP).

The provisional real GDP of 2013 also exceeded target by GHC 223 million. This was very impressive considering the enormous economic challenges ranging from the election petition to the energy crisis that characterised this fiscal year.

In 2013 the services Sector once again led the overall GDP growth, with a growth of 9.2%, a percentage point lower than that of 2012, followed by the Industry Sector with 9.1%, higher than that of 2012 by 31 percentage points and Agriculture with 3.4%, also higher than the previous year. Agriculture saw crops grow 3 times higher than the previous year, as well as cocoa growing from -6.9 to 3.7%. Most significantly is the growth of the fishing sub sector that was as twice that growth of the previous year from 4.7% to 8.9%.

This can perhaps, be attributed to the enormous investment in the fishing sub-sector ranging from the supply of large number of out-board motors by MASLOC to fisher folks in the coastal regions and the cushioning of the premix fuel prices. This also reflects the success of government’s efforts towards curbing pair-trawling and other criminal activities.

In the industrial sub-sector, apart from manufacturing and construction that suffered a slow growth, mining and quarrying, including petroleum sub-sector performed exceedingly better.


Inflation has been on an upward trend since the beginning of 2013, resulting in inflation above single-digit from January through October 2013 (10.1% to 13.1%).

The Ministry of Finance and Economic Planning attributed this upward trend to the pass through effect of the fuel and utility price increases and demand pressures.

Contrary to the assertion that the upward trend of inflation, is due to the pass through effect of the fuel and utility price increases and demand pressures., I believe the upward trend from January through October could mainly be as a result of the pass through effect of the exchange rate depreciation (4.12% and 14.1% against our major trading currencies the US Dollar and Euro respectively) over the period under question. This is because non-food inflation basket which contributes about 56.4% to the CPI, mainly comprise of import products and for that matter are hardly or lowly elastic to fuel and utility price adjustments.

Empirical evidence by Anokye and Frimpong 2010 shows a high exchange rate pass-through to inflation in Ghana, which is virtually confirmed by Antwi-Asare and Otokunor 2013, proving a high exchange rate pass-through to import prices in Ghana.

Monetary Sector Performance


The effort by the MPC to compliment government efforts at fiscal discipline and macroeconomic stability was quite impressive with the annual growth rate of Broad Money Supply (M2+) declining to 17.7% year-on-year, compared with a growth of 24.3% in December 2012 and 28.8% in September 2012. This had some negative implications for general inflation as well.

The robust Open Market Operations resulted in a slower reserve money growth of 21.0% (GH¢1,362.7 million) on year-on-year basis in September 2013 compared with 49.3 % (GH¢2,141.1 million) the previous year and 37.8% (GH¢1,191.1 million) in 2011. The slower pace of expansion in reserve money in the year was due to slower growth in Net Domestic Assets, which increased by a relatively meagre GH¢734.3 million (30.0%) during the review period, compared with an increase of GH¢3,414.6 million (351.9 %) in 2012.

Fiscal Sector Performance

Even though there were general shortfalls in both revenue and expenditure, that of revenue exceeded expenditure, thereby resulting in a fiscal deficit on cash basis in equivalence of 8.4% of GDP against a target of 7.2%. This compares unfavourably to a deficit of 7.7% of GDP for the same period in 2012.

Net Domestic Financing of the deficit amounted to GH¢4,419.5 million (60.3%), against a target of GH¢4,532.7 million (71.2%). Foreign Financing of the deficit was GH¢2,915.0 million (39.7%), against a target of GH¢1,835.6 million (28.8%). This outturn has positive implications for domestic private investments and enhances the tendency for reducing the challenges of ‘crowding out’ posed by domestic financing of the fiscal deficit.

Total revenue and grants for the period was GH¢13,868.2 million, equivalent to 15.9% of GDP, against a target of GH¢16,341.9 million, equivalent to 18.4% of GDP. Whiles, in nominal terms, the provisional outturn was 17.6% higher than the outturn for the same period in 2012; the shortfall has telling negative implications for fiscal stability. This shortfall has been attributed partly to low disbursement of grants from our development partners and, mainly due to lower than anticipated domestic revenue collections.

Total expenditure, including payments for the clearance of arrears and outstanding commitments for the first three quarters of the year amounted to GH¢21,202.8 million (24.3% of GDP), against a target of GH¢22,710.3 million (25.6% of GDP). The outturn was 6.6% lower than the budget target and 25.5% higher than the outturn for the corresponding period in 2012.

The growth in expenditure was mainly due to the increase in interest cost and the growth in the wage bill during the period.


Macroeconomic Target Analysis

Quite a number of the macroeconomic targets that were set in the 2013 budget were missed by the third quarter. This is indicative of what will happen by the end of the fourth quarter. Nevertheless, some of the indicators performed extremely well.

Economic activity in Sub-Sahara Africa was robust in the first half of 2013, amidst the recent global financial market volatility which has affected mainly frontier economies in the region. The region is expected to end 2013 with an average growth rate of 5%, which is projected to reach 6% in 2014. This makes our growth target of 8% quite ambitious and inspirational. But we can achieve this on the account of a sustained robust domestic demand. Other factors that are expected to feed into the growth in 2014 include investments in infrastructure and increased output from energy and other resource projects coming on stream in the Ghana.

In major emerging market economies, inflation has been relatively higher, a problem that has been magnified by the exchange rate depreciation of recent months. The external financing condition that has led to the weakening of emerging market currencies in recent months could also drive up inflation, so our target of 9.5% ± 2% at the end of 2014 is also very realistic.

One can only commend His Excellency President John Dramani Mahama and his team led by the Minister of Finance, Mr Seth Tekpe for a wonderful job done to stabilise our economy so far and the measures that has been put in place to improve and sustain the economy for the 2014 fiscal year.

However, the brilliant policy measures in this budget alone cannot yield the expected results in isolation; it requires even much more hard work and strict compliance to the ethics of the implementation process. There is no doubt though, that, the team at the Ministry of Finance will implement this budget with all the professionalism it requires. They are indeed capable and have proven to better managers of the economy over the last few years, but a strict budget monitoring mechanism will add to the efficiency as well.

I would want to further submit, that, much more effort is put into bringing the exchange rate fluctuations under control, so as to enhance the effectiveness of our inflation targeting policy.

Finally, measures must be put in place to make sure that donor partners fulfil or honour their commitments to the budget in time or in full, to enhance the effectiveness of the budget implementation process.

All in all, the 2014 budget is a perfect mix of policies and programmes that meets the development expectations and aspirations of the ordinary Ghanaian.


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