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11.03.2009 General News

Excerpts from 2009 budget presented to Parliament by Finance Minister Kwabena Duffuor on Thursday March 5, 2009 MACROECONOMIC POLICIES, STRATEGIES AND TARGETS FOR 2009

By The Statesman

180. Madam Speaker, in the 2008 Manifesto of the NDC, we pledged that an NDC Government would "establish a lean but effective and efficient government by cutting out ostentation and profligate expenditure; rationalizing ministries and ministerial appointments; and promoting service, humility and integrity as canons of government'.

181. This is one of the main policy directions that this Budget seeks to achieve. As a first step towards the creation of a lean government, the total number of Ministries has been rationalized, reducing them from 27 to 23.

182. Madam Speaker, based on the 2008 fiscal outturn, and the world economic outlook already outlined in Chapter Two of this Statement, our broad economic and financial objectives for 2009 include:

Real GDP growth of 5.9 per cent;
Average inflation target of 15.3 per cent;
End period inflation of 12.5 per cent;
An overall budget deficit equivalent to 9.4 per        cent of GDP;

Gross international reserves of more than two months of import cover of goods and services.

183. Considering the harsh global environment, these macroeconomic targets may look rather ambitious. However, we believe that Ghana's situation could be more favourable than other sub-Saharan African countries and emerging economies in general. We are, therefore, optimistic that these targets are achievable.

Fiscal Policy Challenges
184. For 2009 in particular, and the medium term in general, the Government will be committed to correcting the large fiscal imbalance experienced since 2006 by focusing on, among others, tackling underlying issues to enhance domestic revenue

mobilisation; rationalizing subsidies to State-Owned Enterprises (SOEs), particularly, in the energy sector; and rationalizing public sector wages and other expenditures.

Outlook for 2009
185. Madam Speaker, GDP growth for 2009 is targeted at 5.9 per cent. This is informed by the global economic meltdown with a resultant forecast of 0.5 per cent growth and 3.5 per cent for emerging economies. Our relatively higher GDP growth target is driven in part by our commitment to the agricultural sector which is relatively more insulated against global developments. The private sector is also expected to contribute significantly to the growth

186. Agriculture Sector growth rate is targeted at 5.7 per cent and will be based on the following measures among others:

Increases in the area under cultivation of maize, rice and groundnut by about 24 per cent, 9 per cent and 1 per cent respectively;

Government intervention in post-harvest handling of agricultural production, storage and processing facilities; and

Improvement in the performance of local breeds of livestock.

187. Industry Sector growth is projected at 5.9 per cent and the Services Sector is expected to grow at 6.6 per cent.

Resource Mobilisation
188. Madam Speaker, the total resource envelope or total receipts for the 2009 fiscal year is projected at GH¢9,793.1 million, equivalent to 45.8 per cent of GDP. The projected receipts for the year represents 2.7 per cent increase over the outturn for 2008.

189. The apparent marginal increase in projected total receipts for 2009 over the outturn for 2008 can be attributed to the exceptionally huge inflows from divestiture receipts and the draw-down on receipts from the sovereign bond in 2008. This led to the large amount of total receipts recorded during the year. In 2009, however, these exceptional receipts will not recur.

190. Domestic revenue, consisting of tax and non-tax revenue, is projected at GH¢5,935.1 million, a 23.6 per cent increase over the outturn for 2008.

191. Total tax revenue comprising revenues from the Internal Revenue Service (IRS), Customs Excise and Preventive Service (CEPS) and Value Added Tax Service (VATS) is projected at GH¢5,117.1 million, representing 23.9 per cent of GDP. The 2009 estimate for tax revenue shows an increase of 19.0 per cent over the outturn for 2008.

192. Out of the projected tax revenue, direct taxes are estimated at GH¢1,554.5 million, accounting for 30.4 per cent of total tax revenue. This amount indicates a 24.0 per cent increase over the outturn for 2008.

193. Indirect taxes are projected to increase by 25.1 per cent from the 2008 level to GH¢1,917.4 million in 2009. The estimate for 2009 is made up of GH¢1,418.5 million for total VAT, with petroleum and excise taxes yielding GH¢436.2 million and GH¢62.7 million, respectively.

194. International Trade taxes, comprising import and export duties, are projected at GH¢922.5 million, representing 4.3 per cent of GDP and 17.8 per cent of total tax revenue. The estimate indicates a 28.2 per cent increase over the outturn for 2008. Import duties constitute about 95 per cent of the projected international trade taxes for 2009.

195. Madam Speaker, the National Health Insurance Levy (NHIL) is estimated to yield an amount of GH¢375.2 million, representing 1.8 per cent of GDP and an increase of 17.9 per cent over the outturn for 2008. The yield from the NHIL includes an amount of GH¢117.4 million from the Social Security and National Insurance Trust (SSNIT).

196. Non-Tax Revenue is projected at GH¢590.9 million, equivalent to 2.8 per cent of GDP. Out of this amount, GH¢386.9 million is to be retained by the MDAs and GH¢204.0 million will be lodged for general government budgetary support.

197. Grants from development partners are projected at GH¢1,301.9 million, equivalent to 6.1 per cent of GDP. This is made up of project and programme grants of GH¢683.1 million and GH¢395.6 million, respectively. Highly Indebted Poor Country (HIPC) Assistance from multilateral institutions and, Multilateral Debt Relief Initiative (MDRI), are expected to yield GH¢130.0 million and GH¢93.3 million, respectively.

198. Total loans are estimated at GH¢1,029.2 million, equivalent to 4.8 per cent of GDP. This is made up of Project and Programme Loans of GH¢792.5 million and GH¢236.7 million, respectively.

199. Exceptional financing made up of HIPC relief from our bilateral partners, is projected at GH¢134.7 million.

Resource Allocation
200. Madam Speaker, total payments for 2009 is projected at GH¢9,793.1 million. Of this amount, GH¢3,012.7 million, equivalent to 14.1 per cent of GDP or 30.8 per cent of the total payments, is estimated for statutory payments and GH¢6,780.4 million, equivalent to 31.7 per cent of GDP as discretionary payments.

Statutory Payments
201. Statutory payments, comprising all expenditure items which are mandatory, are estimated at GH¢3,012.7 million. The estimate for statutory payments indicates a 27.8 per cent increase over the outturn for 2008.

202. External Debt Service is estimated at GH¢855.1 million, out of which GH¢537.9 million is estimated to be used for interest payments and the remaining for amortization.

203. Domestic interest payments for the 2009 fiscal year are estimated at GH¢507.7 million.

204. Madam Speaker, Central Government transfers to the District Assemblies Common Fund and Ghana Education Trust Fund are estimated to be GH¢345.7 million and GH¢275.1 million, respectively, and an amount of GH¢375.2 million will be transferred to the National Health Insurance Fund.

205. The Road Fund is expected to receive an amount of GH¢123.3 million, while GH¢3.5 million will be transferred into the Petroleum-related Fund, for the funding of exploration and other petroleum-related activities.

206. Transfers to Households, which is made up of an amount of GH¢211.9 million for Pensions, GH¢95.6 million for Gratuities and GH¢219.7 million for Social Security contributions by Government on behalf of its employees, will amount to GH¢527.2 million, equivalent to 2.5 per cent of GDP.

Discretionary Payments
207. Madam Speaker, total discretionary payments is estimated to be GH¢6,780.4 million, equivalent to 68.9 per cent of total payments. The estimate is 5.6 per cent lower than the outturn recorded in 2008. The low projection is mainly explained by the non-recurring expenditures including the sovereign bond proceeds which occurred in 2008.

208. Personal emoluments (item 1) for 2009 is estimated at GH¢2,533.8 million, representing 11.8 per cent of GDP, 42.5 per cent of domestic revenue, and 37.9 per cent of total discretionary payments.

209. In 2009, some salary related allowances which are currently classified as part of administration expenditure (item 2) have been consolidated with the basic salary. This partly explains the increase in the wage bill from 11.5 per cent of GDP in 2008 to 11.8 per cent of GDP in 2009.

210. Of the estimated GH¢2,533.8 million, the allowances are estimated at GH¢324.0 million equivalent to 1.5 per cent of GDP. Thus, in 2009 the estimated wage bill excluding the allowances is equivalent to 10.3 per cent of GDP. This compares with the outturn of 11.5 per cent of GDP for 2008.

211. Madam Speaker, Administration and Service (Items 2 and 3) expenses for MDAs are estimated at GH¢266.3 million and GH¢149.0 million, respectively. The two together represent 1.9 per cent of GDP, 7.0 per cent of domestic revenue, and 6.1 per cent of discretionary payments. The estimates for items 2 and 3 are 36.0 per cent lower than the outturn for 2008.

212. The consolidation of category 1 allowances as part of personal emoluments for 2009 explains the reduction in the estimate for items 2.

213. As part of Government"s policy to reduce the budget deficit through expenditure rationalization, service activities in the areas of foreign travels, workshops and seminars are to be curtailed. This accounts for the reduction in item 3 expenses.

214. Domestic-Financed Investment (excluding those financed from statutory funds) are projected to be GH¢305.8 million, equivalent to 1.4 per cent of GDP and 4.5 per cent of discretionary payments.

215. An amount of GH¢1,475.6 million, equivalent to 6.9 per cent of GDP and 21.8 per cent of total discretionary expenditures is estimated for Foreign Financed Investment.

216. Other transfers are estimated at GH¢905.7 million, out of which GH¢35.0 million will be used to mitigate the impact of petroleum price liberalization, while an amount of GH¢19.0 million is being projected for reimbursement to ECG in respect of subsidies to lifeline consumers of electricity. An amount of GH¢386.9 million of internally generated funds is expected to be retained by MDAs, while import duty exemptions (classified as tax expenditure) are estimated at GH¢464.8.

217. Madam Speaker, total receipts from the HIPC debt relief initiative is estimated at GH¢264.7 million. As has been the practice, 20 per cent of receipts from the HIPC debt relief initiative will be used for the reduction of domestic debt. In 2009, 50 per cent of the HIPC relief totaling GH¢131.8 million will be distributed to MDAs, MMDAs and other institutions for the implementation of activities aimed at reducing poverty and improving the economic and social conditions of Ghanaians. The remaining 30 per cent will be used as general budgetary support.

218. MDRI-financed expenditure is projected at GH¢93.3 million.

219. An amount of GH¢344.5 million has been provided in a reserve fund for the payment of judgment debts, payment into the Northern Development Fund, and purchase of strategic oil stocks, among others.

220. A total amount of GH¢533.5 million has been set aside for the settlement of payments that were due but not made in 2008.

Overall Budget Balance and Financing
221. Madam Speaker, the 2009 budget envisages an overall budget deficit equivalent to 9.4 per cent of GDP.

222. The overall budget deficit is expected to be financed from both domestic and foreign sources. Net Domestic Financing of the budget is estimated at GH¢1,392.2 million, equivalent to 6.5 per cent of GDP. Financing from foreign sources are projected at GH¢626.0 million, equivalent to 2.9 per cent of GDP.