Pre Mid-Year Budget Review

The Financial Management Administration Act requires the Finance Minister to come before Parliament not later than July 31, to submit a mid-year fiscal policy review. This enables the Finance Minister to give an account of the performance of the economy, review government's budget for the fiscal year and in most cases solicit Parliament's approval for additional budget. Ghana’s economy can best be described as cyclical. This is due to series of recoveries and recessions. The recoveries are characterised by expansion in economic activities whilst contraction of economic activities usually dictated by rise and fall of commodity prices are evident in the recession period. For instance, the annual real GDP growth declined from 9.3 percent in 2008 to 4.8 percent in 2009. It then increased to 14 percent in 2011 and dropped to 3.6 percent in 2016, the lowest in 17 years and then inched up again to 8.5 percent in 2017.

The period of oil production for the first time, rather orchestrated an unprecedented five consecutive years of consistent year-on year decline in economic growth from 9.3 percent in 2012 and declined continually to 3.6 percent in 2016. Since November 2017, when the Minister presented the budget statement, the country has witnessed a lot of positive developments. The energy problem (DUMSOR) has ceased, with electricity tariff which was suffocating industries has reduced. GDP growth rate also shot up from the 3.6 percent, the lowest in 17 years to 8.5 percent, the highest in 5 years. Expenditure overrun to a large extent has been tamed, inflation has dropped from 10.3 percent as at January 2018 to 10 percent as at June 2018. Policy rate has also declined from 18 percent in March 2008 to 17 percent in May 2018. The Planting for Food and Job Programme and Free SHS Programme have also entered the second year.

However, cost of doing business still remains high. This is evident by the Association of Ghana’s Industry (AGI) Business Barometer, which indicates that the business confidence index has declined from 107.9 in the last quarter of last year to 100.5 as at the end of first quarter of this year. Revenue underperformance is rife and there is uncertainty in the foreign exchange market. Wages and salaries consume 42 percent of tax revenue and 39 percent of domestic revenue. Wages, salaries and interest payments consume 87 percent of tax revenue and 68 percent of domestic revenue. Interest payments alone is more than projected revenues from VAT and excises, this means that the entire proceeds from VAT and excises cannot even pay off accrued interest of 2018. According to the Bank of Ghana, Ghana’s total debt increased from GH145 billion in February 2018 to GH154 billion in May 2018. This implies that government borrows GH100 million daily as against projected daily tax revenue of GH 109 million. This huge debt makes Ghana vulnerable to sudden tightening of global financial conditions which could disrupt market access and dent economic activity.

Besides, it can hinder government's ability to implement a strong fiscal policy response to support the economy in the event of downtown. As a result, we do not expect the minister to increase taxes because many of the youth, especially graduates who are expected to work are jobless, with loans to private sector contracting hence raising taxes may worsen the plight of Ghanaians. We expect the minister to suspend tax incentives granted to businesses and rather focus on investing in trade enhancing infrastructure in order to quicken the face of industrialization. We also expect the Minister to tighten policy stance to increase domestic savings whilst at the same time fashioning out policies to profile public investment and other public sector activities to keep pace with export revenue and domestic savings. With all these in mind, there is no way Mr Ken Ofori-Atta can ‘‘put Ghana back to work’’ without taking radical decisions. It therefore behoves all Ghanaians to kits the bullet to put the economy in shape.

BY YAW OHEMENG KYEI, A FINANCIAL ANALYST

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