A former Vice President at the World Bank and the man tipped as the next Governor of the Bank of Ghana has criticised President JEA Mills' first budget as too timid and the fiscal programmes for fixing the economy, "not
In his article, '2009 Budget Begins a Long Journey', top Ghanaian economist, Gobind Nankani, warns, "the election results make evident that Ghanaians expect some improvements in the government's social programmes for poor people and regions.'
The 2009 Budget, he argues, "is particularly silent on the actual measures that will get the fiscal deficit down to 9.4 per cent of GDP and, of course, also to three per cent in the medium term.'
Observing that the economy needs to adopt a macro-economic stance that will 'promote stable, shared and sustainable growth,' the Executive Director of the London-based International Growth Centre is particularly pessimistic of the government's ability to raise capital from the international market.
He predicts for instance that the 'current fiscal stance' and the absence of 'a firm medium term target in order to retain access to international financing during the global recession,' means that 'Private markets will remain shut probably through 2011, and possibly beyond.'
The 2008 fiscal deficit was 11.5%. However, Government has sought to make political capital of it by deducting divestiture receipts from it, to place it at 14.9%. This, as some analysts point out, has contributed to both Fitch Ratings and Standard & Poors revising Ghana's economic outlook to negative.
'By programming a fiscal deficit of 9.4%, down from 14.9%, the 2009 budget signals a move in the right direction, and with a useful, if somewhat timid, first step,' Dr Nankani notes.
Arguing that the NDC should come clean on the quality of its fiscal stance, as it is 'absolutely key', Dr Nankani says 'It has to be based on reforms that will promote growth and provide social support for poor people.'
He says the fiscal deficit target for 2009 is modest when one goes into the details of last year's expenditure, as a high percentage of it was one-off expenditure.
'Since the 2008 budget deficit contained many expenditures that are unlikely to be repeated in 2009 anyway, such as the oil subsidy when oil prices were at levels like $147 per barrel, and the additional three per cent (of GDP) of public investments that were promoted probably because it was an election year, the 9.4 per cent deficit target is not as ambitious as it appears at first sight,' he states.
Total oil import bill at the end of the second quarter amounted to US$1,326.5 million. This increased to US$2,017.6 million in the third quarter with the surge in crude oil prices, and then to US$2,349.2 million at the end of December 2008. This compares with corresponding amounts of US$846.6 million, US$1,523.9 million in the second and third quarters and a full year bill of US$2,095.0 million for 2007.
He says the 'journey from a 9.4 per cent deficit to the medium term goal of three per cent will clearly need a more direct attack on key expenditure reforms that are hinted in the budget.'
He names these as responsible for expenditure valued at about 5% of GDP. These are the Wage Bill, public sector reform, and 'the growing menace of subsidies to the energy-related utilities such as the Volta River Authority (VRA), the Electricity Company of Ghana (ECG) and the Tema Oil Refinery.'
He does not see oil revenue helping to maintain a better fiscal stance. 'Unless the two sacred cows of public sector reform and energy-related subsidies to the utilities are addressed, they will fully absorb the entire gain of five per cent of GDP that the oil revenue stream will, on average yield to
Writing in a language that is polite but without compromising his professional analysis of the timidity in the government's economic programme, he described the prescribed economic remedy by the National Democratic Congress as 'a glass that is fractionally full.'
With interest rates now around 32%, inflation at a five-year high and the cedi speedily losing its value to the major currencies, Dr Nankani outlines, what he sees to be the needs of the domestic economy:
(a) the fiscal deficit must be reduced significantly in order to help reduce inflation, which hits poor people the most;
(b) its reduction will also help to bring down interest rates, which the private sector needs if it is to play its leading role in driving economic growth; and
(c) the quality of expenditure and revenue changes must be significantly enhanced, in order to get over the phenomenon of 'joyless growth' that characterised Ghana over the 2003-2008 period.
Total expenditure for 2008 amounted to GH¢8,009.8 million (46.5 percent of GDP) compared with a budget estimate of GH¢6,466.1m, and GH¢5,611.1m (40.2 percent of GDP) for 2007. Wages and salaries amounted to GH¢1,987.6m (11.5 percent of GDP).
Excess wages and salaries over the budget estimate amounted to GH¢427.8m (2.5 percent of GDP), and transfers to purchase crude oil to power
Sovereign bond financed expenditure was GH¢581.9m (3.4 percent of GDP) mainly to cover investment in energy. Donor financed capital expenditure amounted to GH¢906.5m (5.3 percent of GDP). Total capital expenditure for 2008 was 11.7 percent (an annual average of 10.0 percent).
These developments resulted in a budget deficit (excluding divestiture) of GH¢2,558.5m (14.9 percent of GDP) in 2008. Including divestiture, the overall deficit amounted to GH¢1,976.5m (11.5 percent of GDP), up from 8.1 percent of GDP for 2007, and 7.7 percent for 2006.
The NDC promises to maintain total public debt below 60% of GDP. This is welcomed by Dr Nanakani, though he says the NDC programme lacks details.
Ghana's debt in 2008 stood at $7,918.1m (55.9 percent of GDP), up from US$7,411.7m (51.4 percent of GDP) in 2007.