Govt To Sustain Progress In Fiscal Consolidation
5/12/2012 9:08:33 AM -
The government has pledged its commitment to sustain the progress made in fiscal consolidation to support the macroeconomic stability achieved so far this year.
As a result, it said the 2012 budget had set a fiscal deficit target of 5.1 per cent of Gross Domestic Product (GDP) to be achieved by strengthening expenditure management and enhancing revenue mobilisation.
The Minister of Finance and Economic Planning, Dr Kwabena Duffuor, announced this when he laid the 2012 Budget Statement and Economic Policy of the government before Parliament in Accra yesterday.
“In reviewing the fiscal performance in 2011, provisional data up to the end of September 2011 have been used. Projections have been made to indicate the expected out-turn for the whole year based on the provisional data up to September 2011”, he said.
Dr Duffuor, who was composed and upbeat about the future of the economy, said: “Total revenue and grants for the first three quarters of the year amounted to GH¢8,798.2 million compared to the budget target of GH¢8,119.9 million”, he said, adding that
“this represents an increase of 8.4 per cent over the target. The high growth in revenue and grants was the result of improvements in tax revenue administration.”
He said for the first three quarters of 2011, domestic revenue totalled GH¢8.1million, equivalent to 14.4 per cent of GDP, and 15.9 per cent higher than the budget estimate of GH¢7,055.0 million, which, he said, showed a significant improvement in domestic revenue mobilisation.
Dr Duffuor said the government had projected that by the end of the year, total domestic revenue would amount to GH¢11,835.7 million, 11.7 per cent higher than the budget estimate of GH¢10,620.9 million.
During the first three quarters of the year, the Finance Minister said, the disbursement of programme grants was 1.6 per cent lower than the target of GH¢248.4 million. For project grants, the disbursement was 46 per cent lower than the target of GH¢663.8 million.
“Grants disbursement is expected to reach GH¢984.4 million by the end of the year, which will be 26.8 per cent lower than the budget estimate of GH¢1,346.5 million,” he said.
“Madam Speaker, total expenditure, including arrears clearance and commitments, in the first nine months of 2011 amounted to GH¢10,412.3 million, equivalent to 18.3 per cent of GDP. This figure is 1.2 per cent lower than the budget target of GH¢10,543.8 million,” he said.
Dr Duffuor said for the whole year, total expenditure, including provision for arrears clearance and commitments was projected at GH¢15,565.5 million, or 6.0 per cent higher than the 2011 budget estimate of GH¢14,397.4 million.
“The higher projected expenditure is attributed mainly to the higher than expected public sector wage bill resulting from the implementation of the single spine salary structure and the clearance of more than programmed during the year,” Dr Duffuor said.
“Madam Speaker, the overall budget balance for the period showed a deficit of 2.0 per cent of GDP, compared with a budget target of 4.4 per cent of GDP,” he said.
Dr Duffuor said based on the projected end year data, the fiscal deficit in 2011 was expected to be 4.8 per cent of GDP and the domestic primary balance would register a surplus equivalent to 2.6 per cent of GDP.
“Demand for money was generally strong in the first three quarters of the year. Broad money supply, including foreign currency deposits, grew by 41.9 per cent year-on-year, driven mainly by a huge surge in accumulation of net foreign assets,” he said.
The Finance Minister also touched on the progress made in the macro-economy in which inflation was a key indicator and said: “Inflation has seen a downward trend since the peak level of 20.7 per cent in June 2009.”
“Inflation dropped and has remained in a single digit since June 2010. This decline has been driven mainly by a decline in food inflation. Developments in the first nine months of the year indicate that the end of year inflation target of 9.0 per cent will be achieved,” he added.
He also mentioned the interest rates regime, which continued its downward trend during 2011 in line with declining inflation and inflationary expectations.
“The policy rate which stood at 18 per cent in December 2009 had by September 2011 dropped to 12.5 per cent. Rates on Treasury bill instruments have also been on a downward trend, with the rates for the 91-day bill and 182-day bill”, he said.
In the banking sector, he said: “The banking system continued to show a steady growth during the year, with its assets to GDP ratio rising to 43.5 per cent in August 2010, from under 30.0 per cent of GDP in 2008. Commercial banks’ lending rates have been trending down during the year, with the market leaders dropping their lending rates to 17 per cent and below and we expect all other banks to follow suit”.
The Finance Minister said the external sector continued to show strong performance during the year.
“The trade balance recorded a deficit equal to 4.5 per cent of the GDP for the first nine months of the year on account of a faster export growth. The stock of gross international reserves at the end of October 2011 stood at US$4.98 billion, enough to cover more than 3.0 months of imports of goods and services,” he said.
On public debt, the Finance Minister said the total public debt increased from US$11.2 billion in September 2010 (representing 37.8 per cent of GDP) to US$14.8 billion (representing 39.0 per cent GDP) in September 2011.
As at the end of September 2011, external debt amounted to US$7.1 billion, representing 48 per cent of the total public debt stock and 19.1 per cent of GDP. The increase in external debt stock is attributed largely to a positive net flow of project loan disbursements compared to debt service payment on existing loans.
Domestic debt, on the other hand, increased from US$5,682 million in 2010 to US$7,521.6 million in September 2011, representing 51.0 per cent of the total public debt stock and 19.9 per cent of GDP. The increase in domestic debt is largely explained by the issuance of the 5-year and 3-year fixed rate bonds to settle arrears owed to contractors and securitisation of TOR debt owed to Ghana Commercial Bank.
On the debt sustainability assessment, the Finance Minister said in November 2011, the government, in collaboration with the International Monetary Fund (IMF), and the World Bank, conducted the Debt Sustainability Analysis (DSA), which showed the public debt to be sustainable in the medium to long term, even when compared to the external debt thresholds.
“The solvency and liquidity condition, which demonstrates the ability to service the public debt, are, thus, favourable over the medium to long term,” he said.
“At a ratio of 33.6 per cent of GDP in 2008, the public debt is expected to rise to 37.2 per cent by 2015, by which period the China Development Bank (CDB) and other pipeline loans would have been disbursed,” Dr Duffuor said.