Expenditure cuts improve economy...as public debt slumps
The Minister of Finance and Economic Planning, Dr. Kwabena Duffuor has indicated that the agenda of cutting down on public expenditure to improve on the economy is on course, as available records in the first half of the National Democratic Congress' (NDC) administration points to a number of successes in all areas of the economy.
According to him, the NDC led administration in its eight months into office has managed to maintain the country's budget deficit at 4.5% of the projected Gross Domestic Product (GDP), which was highlighted in the Government's budget estimate in March, this year.
According to Dr. Duffuor, “Ghana's public debt stood at about US$8,073.3 million as at December 2008… but we have reduced the stock of debt to US$7,841.3 million as at the end of June, 2009.”
“The economic challenges that the NDC Government faced when we took over the administration of the country was to deal with imbalances in the economy to restore the macro-stability and fiscal sustainability.
The 2009 Budget, therefore, sought to gradually adjust and consolidate public spending to reduce the pressures on inflation, exchange rate, and the balance of payments”, the Finance Minister said. “This we believe was necessary to pave the way for sustainable economic growth, job creation and improvement in the livelihood of the citizens for a better Ghana”, he added.
Presenting a mid year review of the 2009 budget and supplementary estimates of the government to parliament, the Minister said they are seeking Parliamentary approval to commit the required additional resources to address the inadequacy of the amount of monies approved under the 2009 Budget.
Rundown Economy
Dr. Kwabena Duffour disclosed that the NDC Government inherited an economy that had been rundown, characterized by severe imbalances that resulted in a huge public debt and a ballooned overall budget deficit of 14.5% of GDP.
The huge deficit, he added, did not include expenditure arrears and commitments which are currently estimated at about GH¢1.7 billion, equivalent to 9.7% of GDP for 2008.
“In this regard, we are seeking the approval of this august House to appropriate additional resources to resolve the domestic interest costs and also to liquidate some arrears and other outstanding commitments in conformity with Article 179(8) of the Constitution”.
He mentioned that the economy of Ghana at the end of December 2008 was not as robust and resilient as they were made to believe, as the overall budget deficit including divestiture receipts would have been in the threshold of 24.2% of GDP, if the arrears and commitments had been taken into account.
Free fall of Cedi arrested
He explained that the effect of this excess expenditure was the rapid depreciation of the Cedi against currencies of our major trading partners during the first quarter, but through the prudent management of the economy by the NDC government, the free fall of the Cedi has been arrested.
The Finance Minister noted that although the latest indicators point to a slowdown in the pace of the global economic contraction, there is not as yet any concrete evidence of the start of a firm recovery.
He hinted that although the year began with some uncertainty following from the large macro-economic imbalances, the anxiety of markets and policy makers is giving way to hope, greater confidence and optimism, as such the economy is beginning to witness some consolidation of the gains associated with both fiscal and monetary prudence.
Inflation drops
Dr. Duffour observed that Inflation had lingered around 20% with a rate of 20.6% recorded in April 2009, 20.1% in May 2009 and 20.7% in June 2009. The slight increase in the June inflation rate reflects mainly the pass-through effect of the petroleum price increases which caused the monthly non-food prices to rise by 3.9% in June, 2009 compared to a rise of 2.4% in May 2009.
According to the Minister, monetary developments during the first half of the year show a slowdown in money supply growth, as broad money supply expanded moderately by 1.9% in the first quarter and by 2.7% in the second quarter.
He added that the slowdown in monetary growth during the first half of the year was mainly the result of the general tightening of domestic credit. Net claims on Government during the period, however, remained relatively strong.
Growth in Banking Secter
The banking sector, he mentioned, continues to remain fairly liquid as the sector registered strong asset growth, increased competition and improved profitability during the period. “The sector has proved to be resilient in spite of the global financial crisis,” he emphasized.
He said the inflation pressures built up in late 2008 have significantly reduced with a drop of inflation rate, including the arrest of the free fall of the Cedi against the major trading currencies (dollar, euro and pound sterling) as well a sharp drop in the trade deficit.
This he said has resulted in the country accumulating enough resources to cover nearly two months of imports of goods and services. To this end, Dr. Duffour noted that the confidence and stability in the economy is rapidly being restored due to the positive impact of the government's fiscal and macro-economic policies being implemented.
He renewed government's commitment to continue pursuing sound economic policies that will propel the country to greater heights.
“The continuation of the fiscal adjustment and consolidation in the second half of the year is imperative in propelling the economy onto a sustainable growth trajectory.
We need to do this to ensure that we have a robust economy in place before the oil revenues are generated. With a solid macroeconomic foundation and a careful management of the expectations of the oil economy, we will succeed in laying a firm basis for accelerated and shared growth for a better Ghana”, he emphasized.
Big boost for youth in agriculture
Touching on a policy for the youth, he said a total amount of GH¢10.7million has been earmarked in the supplementary budget estimate to support the youth who are into farming of crops such as maize, rice, sorghum and soya beans.
Seven regions - namely Northern, Ashanti, Brong-Ahafo, Central, Volta, Upper East and Upper West are to benefit from this initiative with 14,000 hectares of land expected to be cultivated. An additional amount of GH¢10.0 million was also earmarked to support the 50% subsidy on fertilizer.
According to Dr. Duffour, 41 dams are being rehabilitated in the three Northern Regions to support dry season farming. An amount of GH¢1.1 million from the Export Development and Investment Fund (EDIF), according to the Minister, has also been approved for eight farmer-based organizations and associations in the Northern and Upper West regions to cultivate 180 acres each of mango plantations to be incorporated with annual crops like soyabeans, groundnuts and yams.
He said the Ministry of Food and Agriculture, under the Food Security and Emergency Preparedness Programme is embarking on an extensive production of rice and maize in some strategic locations in the country.
To this end, he said an amount of GH¢3.6 million has been provided to support the procurement of machinery and equipment to support farmers who are into rice and maize production.
He therefore advised farmers to take advantage of the investment that government is making to increase food production in the country, whilst improving on their living standards.