We should commend the Honourable Minister of Finance for a valiant effort at producing a relatively bold and comprehensive budget for 2009. The document and the parliamentary address that launched it were replete with lofty sentiments and noble intentions. Every emphasis was on: “social democratic agenda”, a phrase interpreted to be synonymous with “pro-poor”.

But few will disagree that in economics and politics great intentions do not always lead to great results, and for that reason it behoves on civil society organizations such as ours to be forceful in our duty of pointing out potential chasms in the 300-page document that might lead to implementation risks in the months ahead. While it is true that a budget statement is essentially a list of projections, it is also very true that it is a blueprint that guides government action, so that when such a vital document contains problematic elements there is every possibility that government program for the year, and even for subsequent years, could be severely derailed.

In the next section, we will run a general commentary on facts and figures we found interesting in the budget. The final section will highlight what we believe to be red flags deserving of the attention of both civil society and government stakeholders.

INTERESTING ITEMS
The Honourable Minister did an accurate analysis of the challenges facing the administration as a result of the “twin deficits” plaguing the current and balance of payment accounts. Nevertheless he was emphatic that not only is the Administration still focused on creating real jobs, ensuring access to basic necessities and a lifestyle of dignity for all citizens regardless of class, as well as the provision of healthcare, education, and a dignified retirement for senior citizens, he was also adamant that this was the right budget needed to begin delivering on these ideals.

The Minister affirmed the NDC's reintroduction of the Vision 2020 program, previously converted into a Vision 2015 program by the erstwhile NPP Administration. Many observers see this partisan wrangling as merely pedantic, and of little bearing on real economic policymaking. They draw attention to the fact that “middle income status” could be reduced to a play of semantics by varying the parameters of estimation such as PPP (purchasing power parity) etc. Essentially any position would be tenable depending on what you declare “middle income status” to mean in per capita income terms. Some have said that a per capita income of $1000 is sufficient a marker of this status. If that were indeed the case then the country will automatically reach that status before 2014 based on the current GDP growth rate. But that merely raises another contention.

The GDP growth rate has itself come under some controversy, resulting in the budget committee choosing to refer to the figure of 6.2% used in the budget as provisional. Some speculate that 7.2% was at one point the figure under consideration. One hopes the latter is nearer to the truth, because given our high population growth rate, a 6.2% growth would imply a per capita growth rate of 3.4%, and as every first year economics student will attest, the per capita factor is the primary determinant of living standards. In fact we would muddy the waters further by controversially introducing another factor, rarely considered in GDP calculations: the depreciation of gross capital investment. At our level of development the capital stock is at such a level that its depreciation (roads that don't last more than 2 years etc.) might prove more determinative than might be the case elsewhere.

We would even deepen the controversy further by assigning a 2.5% depreciation rate, conjecturally based but also informed by trends in the private sector infrastructure development market. With flourish, we could then announce that the “real growth rate” is 0.9% (!) and then retire in glee as better informed analysts close in to crucify us. But the point should be made one way or the other: the current din over the growth rate is unlikely to provide more insight over confusion.

All the above notwithstanding, the Honourable Minister appeared committed in his speech to dampening our expectations of economic growth for the near-term. He seemed wildly pessimistic about the impact of the Global Economic Crisis (GEC) on Ghana in coming months – more so than some of us, we must admit. Then he mentioned the downward pressure on the cedi, likely falls in commodity prices and the spectre of inflation. He also promised that government will prevent over-leveraging in domestic markets. We were puzzled to know whether that meant going beyond Basel II.

Our own view is that anxiety about over-leveraging is probably more a luxury than a necessity for a treasury man with bigger fish to fry. High capital adequacy compliance and the obvious risk-aversion to innovation exhibited by our banks leaves one to wonder where such “over-leveraging” would emanate from. We will return to the “pessimism” issue later on, when it is most relevant to the analysis.

Where the domestic environment is concerned, we concur fully with Dr. Duffuor that the cause for immediate anxiety is more pronounced. The macroeconomic targets for 2008 were sorely breached – no doubt about that. Over expenditure by Ministries, Departments and Agencies (MDAs) were frightening in some instances. Spending on personal emoluments grew by over 24% - not surprising in a context in which statutory expenditures and discretionary payments overshot by 31% and 33.5% respectively. As if on cue Broad Money swelled by 40% (compared to 36% in 2007 – another expansionary year), according to the Minister, on a “basis of trade and consumption”.

Confronted with what appeared to them to be an overheating economy, Dr. Duffuor and his team appear to have relegated “single-digit inflation” from the foreground to a medium-term goal; and prioritized current account deficit reduction, fiscal management strengthening, coordination of fiscal and monetary policy and the stabilization of the GDP-to-Debt ratio as the key technical focuses. On the program side, agriculture is to receive a boost, while the previous government's love affair with the phrase “public-private partnership” appeared to have been retained with a host of other public management tools.

It wasn't clarified though whether the present Administration intends to maintain the domestic debt – to – GDP ratio as the fiscal anchor.

While one cringes at the thought of quarrelling with the lofty goals espoused in the budget statement: “fair distribution of economic growth proceeds”, “smoothening out market failures”, “addressing intergenerational inequity”, “fixing the existing social and economic order” and widening access to “basic technology”, one is nevertheless compelled to worry whether such objectives can be attained when the chief obstacles to economic management appear to have been left untouched. To be fair, the Minister did mention that several “reviews” were underway, but this does not offer any consolation as the policy direction is already obvious in the numerical projections.

The consolidation of the existing 27 ministries into 24 cannot be viewed as a major pro-efficiency reform if there is no intention to reduce the staff employed in these places. The cost of maintaining a ministerial office is not negligible, but it is not very significant either. Ministers and their perks (including Special Assistants, Spokespersons, official vehicles etc.) are moral irritants to most of us uptight armchair commentators but even a GHC100, 000 price tag per portfolio may be exaggerated.

We all know where the real costs are – general personnel remuneration. It is disappointing that Dr. Duffuor failed to cost, element by element, the exact savings to the nation as a result of the proposed cost-cutting measures such as reduction of ministerial/senior civil servant travels by 50% etc. We are sceptical that the savings would amount to much.

Which is why notwithstanding these consolidations, public sector expenditure will rise from 65% in 2008 to nearly 70% of tax revenues and 12% of GDP in 2009.

Likewise, it is worrying that while acknowledging the fiscal character of the ongoing deterioration of State-owned enterprises' (SOEs) balance sheets, Dr. Duffuor and his team had very little to say about the main difficulty facing these entities: under-recovery of costs due to reckless government interference with their operating environment.

To promise recapitalization without voting considerable funds for it, and to refuse to commit government to either full direct subsidization or acquiescence to full cost recovery by the SOEs, is to significantly devalue government's industrial policy for the coming year.

It is also not clear how Government proposes to reduce debt servicing from 17% of payments in 2008 to 14% in 2009 when carry-over effects of 2008's deficit financing, reserve fund depletion, arrears (for which some GHC533m has been voted in the budget), and SOE's financial distress in 2008 all point to higher debt servicing (even accounting for lower deficit financing for 2009 itself).

We were also puzzled to find the money voted for the laudable Savannah Accelerated Development Agency (SADA) bundled together with funds for a strategic oil reserve and “other projects”.  Continued    Source: Bright B. Simmon & Franklin Cudjoe - Ghanaian Chronicle