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The 2013 Budget Statement

By Ghanaian Chronicle

 Mr. Speaker, I beg to move that this august House approves the Financial Policy of the Government for the year ending 31st December, 2013.

Mr. Speaker, my presence in the House today is to present to you, for the first time in my capacity as Minister for Finance, and on the authority of His Excellency, John Dramani Mahama, the recently elected President of the Republic of Ghana, the full-year Budget Statement and Economic Policy for 2013. This is in accordance with Article 179 of the 1992 Constitution.

Mr. Speaker, this presentation is an abridged version of the 2013 Budget Statement. I would like to request the Hansard Department to capture the entire Budget Statement and Economic Policy.

In October 2012, my predecessor, Honourable Dr. Kwabena Duffuor, appeared before this august House to lay the Expenditure in Advance of Appropriation for the first quarter of 2013. This was in accordance with Article 180 of the 1992 Constitution. Those Estimates were also the first allocation of resources to Ministries, Departments and Agencies (MDAs) to be presented on behalf of His Excellency President John Dramani Mahama. This was shortly after he was sworn-in to complete the term of our beloved late President, His Excellency Professor John Evans Atta Mills. The approval of those Estimates by this House has made it possible for government business to continue uninterrupted.

5. Mr. Speaker, from January 2009 to December 2012, the NDC government implemented cogent policies and programmes and pursued activities that were based on the strategic goals of the Ghana Shared Growth and Development Agenda (GSGDA) policy document which was approved by this august House.

6. As stated by His Excellency John Mahama in the State of the Nation address, the vision and commitment of government over the medium term is to build a prosperous and equitable society in pursuance of the common and cherished goal of ―Advancing the Better Ghana Agenda‖ for

Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖

all. This vision is anchored on the commitment to Putting People First; A Strong and Resilient Economy; Expanding Infrastructure; and Transparent and Accountable Governance.

Mr. Speaker, we have achieved macroeconomic stability and growth on the basis of strong real and external sector performance, including low rates of inflation and the build-up of substantial foreign exchange reserves. We have achieved these goals against the backdrop of the global financial crisis; we have also acted decisively to implement policies that address the challenges that occasionally confront our forward march.

Mr. Speaker, as we are all aware, the global economy remained fragile in 2012 following four years of weak and uneven recovery notably the persistent Euro-zone debt crises and the uncertainty surrounding the fiscal issues in the United States. Therefore, Ghana's 2012 provisional growth rate of 7.1 percent is still high given that it is on top of the growth rate of 14.4 percent recorded in 2011 when the GDP first reflected the impact of crude oil production in commercial quantities. Moreover, the 2012 provisional growth rate compares favourably with the global growth of 3.2 percent and sub-Saharan Africa growth of 4.8 percent. [According to the IMF's World Economic Outlook (Jan 23, 2013)].

Mr. Speaker, in contrast with the gloomy global picture, Ghana recorded relative economic stability and appreciable growth rates. Gross Domestic Product (GDP) which was about GH¢30 billion in 2008 expanded to GH¢71.8 billion at the end of 2012. This testifies that output from all sectors of the Ghanaian economy (not just oil and gas) has grown in leaps and bounds. It is anticipated that the economy will achieve a growth rate of between 8.5 and 9.0 percent at the end of 2012, when the final GDP estimates are updated by end April 2013;

Mr. Speaker, the journey to attain macro-economic stability over the past four years has not always been smooth because we are still vulnerable to several external and domestic shocks. These require decisive and immediate correction at all times. During the first half of 2012, the cedi came under speculative attack and despite an election year, the Bank of

Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖

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Ghana and MOF implemented measures to stabilize the foreign exchange and reserve situations;

The correction of economic threats is an obligation that we cannot compromise. We need to work harder than ever to consolidate the economic fundamentals that have been built over the years. With the consolidation of these fundamentals the transition from a lower middle income country to a middle income country will be easier. The Bank of Ghana and the Ministry of Finance will continue to install early-warning mechanisms and programmes to carefully identify and manage all sources of fiscal and monetary risks to the budget and financial framework.

Mr. Speaker, in fulfilment of government promise of improving the conditions of service and productivity in the public service, the NDC government undertook to implement the Single Spine Salary Structure (SSSS); an obligation that was bequeathed by the previous Administration on the very eve of its departure from power. Nonetheless, in the interest of social and industrial harmony the government proceeded with the roll-out. Government was mindful of the need to stop the continuing exodus of quality staff, improve salary levels and attract critical skill to enhance productivity. The demands and pressures that came in the wake of the implementation of the scheme compelled government to shorten the 5 year implementation stretch. This has created the situation where compensation to public sector workers grew overnight to 72.3 percent of tax revenue (including oil) as at end December 2012: a figure that is in fact higher than the 60.9 per cent in November 2012 as cited in the State of the Nation address. This outcome has crowded out the fiscal space for spending on critical social intervention and other infrastructure programmes.

Mr. Speaker, at this stage there is therefore need to strike a balance between (a) public sector productivity and remuneration and (b) the equally important allocation of national revenues to expenditures on goods and services, and investments. We aim at achieving this through increased national output and higher levels of revenue mobilization.

Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖

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Mr. Speaker, one of the critical challenges that Ghana faces in the quest to give real developmental meaning to its status of a Middle income country, is the imperative need to widen the socio-economic infrastructure space, through the replacement of old and worn out ones and the building of new ones. Our efforts to attract foreign investment, create international competitiveness for indigenous private business, encourage the entrepreneurship of the youth and provide gainful employment for our growing population, are contingent upon such expansion and modernization of our socio-economic infrastructure.

Mr. Speaker, the downside of our transition to a Lower Middle Income Country (LMIC) status is that we shall gradually lose a substantial amount of grants and concessional loans that accrue to developing countries. It means that we must rely more on our own internal resources and the capital markets for our developmental needs.

Therefore, Mr. Speaker, His Excellency President Mahama's first term will be used to implement programmes that consolidate our fledgling middle-income status and extend its benefits to current and future generations. Already we are on track to consolidate our LMIC status.

As a nation that is determined to learn from its own history (and that of others), with respect to natural resource management, we passed the Petroleum Revenue Management Act (PRMA) to direct the use of identifiable oil and gas revenues. Consequently we have been complying with the Act in the following transparent and accountable manner:

Regular publication of various PRMA reports by MOF and BOG

The publication of the first report of the Public Interest and Accountability Committee (PIAC) that was laid before this House in 2012; and

ï‚· The compilation of the first Annual PRMA Report by a Minister of Finance which I will lay before this House as part of the presentation of this Budget.

Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖

Obviously, there are lessons to be learnt from these reports and, therefore, while the Executive awaits the recommendations of this House, His Excellency President John Mahama has directed that we take the following appropriate steps:

Track the ABFA allocations transferred to the Consolidated Fund to ensure that they are used for pre-approved programmes and activities as required by Section 21 of the PRMA;

Ensure that the approved proportions of the Ghana Petroleum Funds (GPFs) are paid into the Ghana Stabilisation Fund (GSF) and the Ghana Heritage Fund (GHF) and in a manner that captures the spirit of the PRMA;

Prepare a plan for using part of the ABFA to set up an Infrastructure Fund to ensure the country's cost-effective access to the capital markets as part of the plan for enhanced financing of the country's capital expenditure; and

ï‚· Ensure that the independent expert appointed under the Act works with relevant public institutions to validate the estimation of the Benchmark Revenue and improve the estimation of corporate tax revenues in particular, on account of the generous incentives that the petroleum sector enjoys under various agreements.

His Excellency, the President has also directed that MOF and the Attorney General's Department complete the PRMA Regulations, as part of a comprehensive review to improve the smooth implementation of the PRMA.

Thus, over the past three years the Government has strenuously sought and secured considerable foreign grants and loans, to rebuild worn out roads and construct new ones, construct classrooms, teachers' accommodations and other much needed educational facilities; in addition to building hospitals and clinics.

Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖

Unfortunately, a considerable proportion of the secured foreign loans remain in the disbursement pipeline; a situation that frustrates the process of closing the infrastructure gap. One of the key features of my tenure as Minister of Finance will be the removal of bottlenecks that impede the disbursement process.

Mr. Speaker, the structural challenges that face the nation require very decisive initiatives with their attendant huge financial implications. Over the years, the initiatives have been driven mainly by Government in spite of the huge potential of the private sector. It is, therefore, Government policy that the next phase of the transformation process must involve the private sector. In this respect, among others we will embark on the following specific actions:

The Private Sector Advisory Council chaired by H. E. President John Mahama, will continue to engage with the private sector at the highest levels;

The Ministry of Finance will initiate a major review of our tax and investment promotion laws—to be tabled as Bills before this House by the Ministry of Finance – to bring them abreast with the needs of our investing public. Many of these were enacted over a decade ago and they have amendments that makes their implementation difficult;

Government will accelerate targeted investment in several sectors of the economy to cater for the public goods that facilitate private sector activities such as marketing and exportation. These include infrastructure in transportation (e.g., roads, ports and railways), energy (e.g., power, oil and gas), agriculture (e.g., irrigation and buffer stock), public safety, education, and health (e.g., hospitals, clinics, and ambulances);

The Ministry of Finance will lead a comprehensive review of services and charges at strategic public sector, trade and investment locations such as the airport, harbours and other entry points to ease business and reduce burdens on importers;

Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖

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It is the decision of government to consolidate various public sector identification programmes including: national identification, driver's license, national health insurance, taxpayer identification, and others as part of cost saving measures;

It is also the intention of government, to ensure implementation of local content policy even as we conduct a review of the public procurement law and other regulations to boost the domestic industry; and

Government will also enhance the country's competitiveness in import-export (EXIM) trade, investment and loan arrangements and negotiations with advanced and BRICS-country EXIM institutions. This is to improve access to foreign markets by our local firms and strengthen our balance of payments (BOP) and current account (CA) situation.

Mr. Speaker, we are resolved to tackling the main fiscal challenge which is the budget deficit. The sources of the excess deficit are known and include;

ï‚· Shortfalls in corporate income taxes, notably from the petroleum sector - GH¢708.2 million (1.0 percent of GDP);

ï‚· Shortfall in grants from our development partners - GH¢389.4 million (0.5 percent of GDP);

ï‚· Implementation of the single spine salary structure - GH¢1.91 billion (2.7 percent of GDP);

ï‚· Higher interest cost - GH¢245.0 million (0.3 percent of GDP);

ï‚· Utility and fuel subsidies - GH¢339.0 million (0.5 percent of GDP); and

ï‚· Higher spending on goods and services (which is already constrained by other expenditures) - GH¢354.7 million (0.5 percent of GDP).

Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖

Mr. Speaker, as part of the corrective measures to be undertaken, in January 2013, the NPA announced an adjustment in petroleum prices to a reasonable level that is still below the full cost. Government will take seriously, the suggestion to implement a periodic upward or downward adjustments to avoid severe disruptions to public and private sector output and financial planning.

We will continue to identify credible sources for financing infrastructure projects to curtail costly and ad hoc short-term borrowing. The purpose is to curtail over reliance on short-term instruments such as treasury bills to finance the capital budget and deficit. Government will endeavour to maintain a stable macro-economic and debt service record in other to tap into the 10 year or more bond and loan markets. This will ease pressure on credit to the private sector and help reduce interest rates.

Mr. Speaker, since the problems are also structural, we are implementing more efficient systems and procedures for processing government transactions. In this regard:

Ghana Revenue Authority (GRA) will hasten its reforms to improve the tax processes and elevate them to an electronic platform; improve compliance to increase the level of taxes we generate; and root out corruption, tax evasion and tax avoidance;

Improve the efficiency of government expenditures by hastening the implementation of new budget and accounting modules under the Ghana Integrated Financial Management System (GIFMIS) reforms to replace existing manual processes.

Mr. Speaker, as already directed by Cabinet, MOF will evolve a financing plan to sustain the expansion of infrastructure into the near-term without threatening our public debt status. Debt sustainability is a crucial element of our sovereign ratings and our ability to borrow in a cost-effective manner to finance the infrastructure projects. Obviously, this is also a key element of our transition to middle-income status, as the flow of grants and concessional loans to the Budget dwindles. Some elements of an improved sovereign financing plan include:

Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖

Ensuring that commercial projects pay for the facilities that finance their implementation, through mechanisms such escrow and on-lending arrangements;

Financing the capital component of our Budgets with longer tenor bonds and loans, preferably from the international capital markets, to ease the pressure on the short-end of our domestic treasury markets (a practice that crowds out credit to the private sector and increases the cost of borrowing to businesses and the government);

Vigorously pursuing the public-private partnership (PPP)programme that the government approved in 2011;

Exploring the use of insurance and risk management options to reduce the premium that the country pays on its commercial loans for country and project risks;

Improving operational and financial efficiency in our state-owned enterprises—notably those in infrastructure development—to enable them borrow from the local and foreign capital markets on their own Balance Sheet, without recourse to sovereign guarantees;

Minimizing the risk that is put on public debt through the use of sovereign guarantees and making the issue of such guarantees commensurate with the risk that the state assumes in the implementation of all projects.

Mr. Speaker, I now proceed to present other key elements of the 2013 Budget which is aimed at sustaining confidence in the future of the Ghanaian economy.

Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖

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GLOBAL ECONOMIC DEVELOPMENTS
Mr. Speaker, following four years of weak and uneven recovery from the global financial crisis, the global economy remains susceptible to another economic downturn stemming from the lingering euro zone crisis, the challenges in dealing with the US fiscal crisis, and low output growth in Japan.

These challenges, notwithstanding, the International Monetary Fund's (IMF) World Economic Outlook (WEO) for January 23, 2013 indicates a modestly improved global economic environment during the third quarter of 2012, which positively impacted on overall growth in 2012. The Fund also projects further moderate increase in economic growth during 2013. The expected improvement in the current economic environment is predicated on the fact that, some of the factors underlying the soft global activity will subside.

Mr. Speaker, the main sources of global growth in 2012 has been from the emerging and developing economies, where economic activities picked up during the third quarter of 2012, and the United States where a surprising upside is being experienced. Sub Saharan Africa, also made significant contribution to global growth in 2012 largely on account of relatively high commodity prices, though in a far lower magnitude compared to 2011.

According to the WEO (January, 2103 update) the global economy grew by 3.2 per cent in 2012, a 0.1 per cent dip from the October forecast of 3.3 per cent and, lower than the outturn of 3.9 per cent in 2011. This was as a result of slowdown in manufacturing activities and marked decline in economic activities in the global Euro area as a result of the sovereign debt crisis.

The growth outturn is expected to strengthen gradually through 2013 to about 3.5 per cent. The euro zone was most affected, as growth reduced from 1.2 per cent in 2011 to -0.4 per cent in 2012.

Growth in the advanced economies slowed down from 1.6 per cent in 2011 to 1.3 per cent in 2012. This is expected to increase moderately to

Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖

1.4 per cent in 2013, a reflection of improvement in external demand due to pick up in growth in some emerging market economies and a moderation of fiscal consolidation in Europe.

Mr. Speaker, in emerging markets and developing economies, the spillover effects of the problems of the advanced economies combined with internal problems to hold back growth by lowering commodity prices. Consequently, growth fell further from 6.3 per cent in 2011 to 5.1 per cent in 2012 but it is expected to recover moderately to 5.5 per cent in 2013. Among the emerging and developing economies, China and India led the growth, with 7.8 per cent and 4.5 per cent growth, respectively, in 2012 compared to 9.3 per cent and 7.9 per cent, respectively, in 2011.

Mr. Speaker, sub-Saharan Africa (SSA) continued to exhibit a favourable growth in 2012, against the backdrop of difficult external conditions. Growth in the region slowed down from 5.3 per cent in 2011 to 4.8 in 2012 and is expected to expand to 5.8 per cent in 2013. Growth in oil exporting economies was higher at about 6 per cent and, is projected to remain favourable with an average growth rate of about 7 per cent in 2013. There is, however, a very high risk to these projections because of the global uncertainties especially, in the euro area and in the BRIC countries. An escalation in the euro crisis, leading to further slowdown in growth will adversely affect SSA through trade.

In the same way, softer commodity prices would adversely affect the region's natural resource exporters, just as an escalation in food prices will undermine the external and fiscal balances of food importing countries in the region.

To be continued .