Commentary on Mid-Year Review and Supplementary Budget – By NPP Minority Caucus, Sept. 2009

On August 25 th , the Minister of Finance and Economic Planning, Dr. Kwabena Duffuor presented a Mid-Year review of the Budget Statement and Economic Policy and Supplementary Estimates to Parliament.   In March, 2009 when he presented the Budget Statement and Economic Policy, he sought to give the impression that the NDC Government inherited an economy in “predicament” in which “all the targets (set by the NPP government in 2008) were missed.”   At that time we in the opposition told Ghanaians that the Minister's presentation was fictional; that he had been disingenuous and told Ghanaians half-truths.  

 
We had thought that eight months into the NDC administration the Minister would have settled down and would have been much more prudent and sincere with Ghanaians.   Our fears have once again been proven right.   And to show Ghanaians how right we are we will proceed to provide comparative data on how the NDC Government left the economy in 2000 to how the NPP Government left the economy in 2008 so that Ghanaians can judge for themselves.

 
In 2000, when the NDC Government concluded their term of office, inflation stood at 41%, as compared to 18% when the NPP Government left office in 2008.   Again in the year 2000, the cedi depreciated by 50%, whilst in 2008, the cedi depreciated by 22%; In 2000, lending rates were around 50%, but in 2008 lending rates had dropped significantly to around 27%; when the NDC Government left office in 2000, they left a meager reserves of $236 million whilst the NPP Government left reserves to the tune of $2036 million, almost ten times that of the NDC Government enough to provide import cover for 9 weeks whereas at the exit of the NDC the import cover was for 2 weeks.

 
In 2000, when the NDC Government was leaving office, the total debt to GDP ratio stood at 186%, meaning that we needed almost two times our national income to pay off all our debts.   But in 2008, when the NPP Government was about to leave office the total debt to GDP ratio stood at only 46%, meaning we needed less than one-half of our income to pay off all our debts.   In 2000, the economy grew in real terms by only 3.7%, but by 2008, we were growing at a much FASTER RATE OF 7.3%.   Consequently, in 2000 if we shared all our total income among the population, each Ghanaian would have gotten only $290.   However in 2008, each Ghanaian would have received at least $712, about two-and-a-half times as we did in 2000.   Now with these few statistics, we believe Ghanaians can judge for themselves which economy, NDC 2000, or NPP 2008, was run down.   It is important to let the good people of Ghana know the hypocrisy of the NDC for in a letter written on June 26, 2009 to the IMF the Minister provided a completely different and indeed the truest picture of the state of the economy.   The question to ask the Mills' government is why the double speak?   Why paint a different image to the IMF and World Bank about how well the Kufuor administration had done and turn round to demonise same government to the people back at home?? Let us look at some the inconsistencies in the supplementary Budget.

In his letter to the IMF, Dr. Dufuor said “Real GDP growth increased steadily from 3.7 percent to 7.3 percent in 2008.   This growth was fostered by significant debt relief which provided the country with fiscal space to embark on critical infrastructure investments, particularly in the energy and road sectors, as well as targeted social spending, all under the Ghana Poverty Reduction Strategy (GPRS).   The combination of higher output declining inflation, and improved social spending under the GPRS framework contributed significantly to lower poverty levels.   The national incidence of poverty declined from 39.5 percent in 1998/99 to 28.5 percent in 2005/06.   At this rate, Ghana is poised to achieve the Millennium Development Goal (MDG) of halving extreme poverty ahead of 2015.”

 
Are these the signs of a run-down economy?
It is significant to remind ourselves that in March when the Minister presented his maiden budget he stated emphatically that the NPP government targeted a real GDP growth of least 7.0 percent.   This target was missed and real GDP grew at 6.2 percent.”   It is instructive to note that whereas the Minister acknowledged in his letter to the IMF that the economy grew at 7.3% he fails to acknowledge this fundamental fact in his mid-year review.   Is that honesty or dishonesty?   But the Minister is an honourable man.

 
In 2000 the national incidence of poverty was about 39%.   The Minister acknowledges that in 2005/2006 the levels had decreased to 28.5% and concedes that at that rate (attributable to the positive interventions of the NPP administration) Ghana is poised to achieve the MDG of halving extreme poverty ahead of 2015.   That is good admission.   The question however is, why didn't the Minister use the 2008 figure of 24.5%?   The Minister is an honourable man.

Dr. Duffuor goes on further, “in the education sector, gross enrolment ratio have increased.   A major initiative for improved enrolment ratio was the abolition of mandatory school fees for basic education and the introduction of capitation grants in the 2005/2006 academic year”.

 
The Minister of Finance concedes that significant amounts of government expenditure was earmarked to improve educational infrastructure and also subsidize education by the two-pronged policy on school fees and capitation grants.   The resources were not wasted, and it showed in the enrolment ratios.   Are these the signs of a run-down economy?

 
Hear Dr. Duffuor again:   “In the health sector, there have been progressive improvements in the delivery of a number of important outputs.   Most notable are: increase in life expectancy from 55 years in 2003 to 57.9 in 2006; the introduction of a pre-paid National Health Insurance Scheme in 2004; and the introduction of free maternal care for expectant mothers.   These, together, have put healthcare within the reach of the poor and vulnerable groups.”

Can a run-down economy bring about such progressive improvements in the health status of Ghanaians?   Again, one may ask why did the Minister not use the 2000 life expectancy figure of 52 years?   And why did he not use the 2008 figure of about 60 years?   Yet the Minister is an honorable man.   All of them are people of intergrity.  

Let us listen to what Dr. Duffour said on Gender parity;   “Gender disparities are gradually declining in some areas of service provision, such as primary education, where the country has almost achieved gender parity.   Recent estimates suggest that gross enrolment ratios have been higher for girls than for boys putting Ghana on track to achieve MDG 3 (gender parity in primary enrolment).”

 
Can a run-down economy help Ghana achieve gender parity pursuant to the MDG 3?

The Minister could not help but concede again, “The improved macroeconomic environment during the period paved the way for Ghana to make a debut on the international capital markets in October 2007, raising US$759 million as additional capital targeted at infrastructural development for growth especially in the key area of energy.”

 
Lest we forget, first, the debut was in September 2007, not October, 2007.   It is worth stressing that it was oversubscribed by almost 4 times (about US$3.2 billion).  

 
Can a run-down economy achieve such a feat on the international capital market?.

“In the financial sector, important structural and institutional reforms have also been undertaken recently.   In particular, a comprehensive legal and regulatory framework and strengthened risk-based prudential supervision policies have been put in place to further deepen financial sector and safeguard the safety and soundness of the financial system.”     This statement is not from an NPP propagandist, it is from the finance Minister who is an honourable man.

 
Being a former Governor of the Bank of Ghana, what Ghanaians want to ask Dr. Duffuor is, are these symptoms of a run-down economy?.

 
We in the Minority have since 2006, informed Ghanaians about the challenges faced by the economy and how because of the resilience and good economic policies we were able maintain stability in spite of severe global crisis.   Clearly, the honourable Dr. Duffour in the letter of June 2009 to the IMF, confirms this in a very unequivocal manner.

 
Let us hear what he said.   “In spite of the progress in the macroeconomic and structural areas, the economy has come under severe stress since 2006.   The macroeconomic situation deteriorated sharply on the back of both domestic and external shocks.   In 2006 – 2007, Ghana suffered a severe energy crisis as a result of severe drought, leading to a significant shift from a predominant hydro to thermal generation at a time of rising crude oil prices, with adverse impacts on the economy.”   This is an affirmation of fact.  

 
He goes on further to say; “The global food and fuel price increases in 2007 - 08 adversely impacted most sub-Saharan African countries, including Ghana.   In the context of these global shocks and the 2008 elections, public sector spending increased substantially, raising the fiscal deficit from 7.5 percent of GDP in 2006 to 14.5 percent of GDP in 2008.   Contributing to the strong fiscal expansion were high energy-related subsidies, increased infrastructure investment, higher wages and salaries, and a rise in social mitigation expenditures to dampen the effects of the global price shocks.”   In the face of these admissions of truthfulness and statement of fact to the IMF and World Bank only two months ago, why the resort to pedestrian propaganda back home?

In the face of these severe crisis, we in the NPP maintain that it would have been irresponsible for the NPP Government not to have taken the measures it took, to provide some relief to Ghanaians.   Indeed without these interventions the economy would have slowed down considerably and many businesses would have collapsed without adequate and reliable electricity supply.

 
Aside from the food and crude oil price shocks, the global financial crisis also took its toll on the economy and the   honourable Dr. Duffour agrees with this assessment.   He notes “The global financial crisis has contributed to further balance of payments pressures.   Whole export proceeds have not, thus far been significantly impacted, private remittances are slowing,; there has been some outflow of portfolio investments, and the outlook for foreign direct investment is not encouraging. …”

 
In spite for this outlook, the NPP government was able to negotiate with Vodafone in 2008, to increase substantially its portfolio investments in Ghana, perhaps the single largest FDI by a UK- based company.

 
The question Ghanaians want the Minister to answer is which information about the state of the economy is correct; the one he characterizes as “run-down” or the one he describes in his June 2009 letter to the IMF?   We know he cannot lie to the IMF, Because the sanctions will be most severe as occurred in 2001, when Ghana was made to pay back almost $34 million dollars as a result of the NDC government's   misreporting on our external debt in 2000.  

 
On the matter of the performance of the economy as of end June, the Minister stated in paragraph 28 of the mid-year Review that “Provisional data for the first half year indicate that both revenue and expenditure were below their budget targets”.   In that same paragraph he also states further that “Consequently the fiscal deficit including divestiture receipts was GH¢965.4 million, equivalent to 4.5 percent of GDP.   This compares with a targeted deficit of GH¢1400.5 million equivalent to 6.5 percent of GDP”   This statement, ladies and gentlemen is so misleading and completely disingenuous.   We will explain why.

 
First in paragraph 7, the Minister stated that the NDC inherited “overall budget deficit of 14.5 percent of GDP.   The huge deficit did not include expenditure arrears and commitments which are currently estimated at about GH¢ 1.7 billion equivalent to 9.7 percent of GDP for 2008.”   Let us not forget that in the March Budget the Minister had stated that the overall deficit was equivalent to 14.9% of GDP.   Which figure is right 14.9% or 14.5% (ref paragraph 89)?

 
When he was calculating the deficit for June 2009 under the NDC government, we note that he conveniently includes divestiture , but excludes arrears and commitments .   But in calculating the deficit for 2008, under the NPP Government he conveniently excludes divestiture receipts and rather conveniently includes arrears and commitments.   Is that honesty or dishonesty?   Let Ghanaians be better judges.

 
Since when did the definition of deficit change because of a change in Government?   Is that what Ghana is getting to?   Clearly, if the Minister of Finance wants the definition of a deficit to include divestiture, arrears and commitments , then he should be consistent across years and governments, so at least we can compare umbrellas to umbrellas.

 
On page 23 of the Budget Statement presented in March, 2009, paragraph 90, the Minister, told Ghanaians that the overall budget deficit including divestiture was “equivalent to 11.5 percent of GDP”   If we are to believe him, why he is using 14.5 percent of GDP or 14.9 percent, whichever suits his convenience?   Did he make a mistake or was he deliberately misleading Ghanaians and being disingenuous?   Ghanaians can judge for themselves.

 
Again looking at the deficit of 4.5 percent of GDP, that he quotes for end June 2009, the question to ask is, does it include arrears and commitments, if so how much of that was excluded?

 
The Minister did not disclose information on the so called commitments, because they tend to show up after the fact.   But with respect to arrears, the data presented in appendix table 2 of the supplementary budget, do give us a clue.

 
For example, on the payments on external debt service, there are arrears amounting to at least GH¢ 139.2 million; the District Assemblies Common Fund is owed at least GH¢ 10 million; with respect to transfer to households, arrears amounting to at least GH¢46.6 million are owed; The GETFund is owed about GH¢ 25.5 in arrears; Together the total amount of these statutory arrears amount to GH¢ 221.3 million.

 
Aside from these statutory arrears, there are also arrears owed on discretionary payments.   To begin with salary arrears owed to workers since January to June 2009, amount to at least GH¢186.9 million; road sector arrears amount to at least GH¢ 20 million; arrears on other transfers amount to GH¢ 98.7 million; arrears on Reserve fund amount to GH¢ 62.6; arrears on MDRI expenditures amount to about GH¢ 9.2 million.   This gives a total arrears in discretionary payments amounting to GH¢ 377.4 million.

 
At least a total of about GH¢ 598.7 million is owed in arrears, and that is if we assume for the sake of argument that the quantum of commitments is zero (very unlikely).   With this stock of arrears, it is not surprising that the Minister is jubilating about a deficit of about 4.5 percent of GDP.   This deficit is certainly not the real position.   The man of honour, Dr. Duffuor knows that.

 
We have gone through a great deal of explanation to simply show that since March 2009, the Minister of Finance and Economic Planning has not been truthful with Ghanaians about the true state of the economy.   He has been consistently providing falsehoods and half-truths when it suits him.   He is an honourable man and we want to advise him to be honourable about the information he gives.

 
When it suits him he provides data on the deficit that includes divestiture as he did in the mid-year review.   But when it is about the NPP government, he conveniently excludes divestiture receipts.   Mr. Minister come clean.   The artificial deficit of 4.5% the GDP that you claimed to have achieved for the half year does include divestiture but excludes all the arrears that you have either not paid or refused to pay.   Meeting IMF benchmarks, while Ghanaian workers have not received any salary increases is certainly not socially democratic.

 
Finally, on the supplementary budget, that was presented to Parliament, we note that it is contingent on receipts of $150 million from the World Bank, $50 million from ADB and another $50 million from the EU, all money that is being front loaded.   The question to ask is have we fulfilled all the prior actions (conditionalities) that would qualify us?

 
For example, have we eliminated all ghost workers in the education sector yet?   If so how many ghost workers were there?   Again, since the wage rate increase in 2009 is reported to have been established, what contingency measures have been taken to correct any deviations with respect to the fiscal deficit?

 
But given the impasse between Government and GMA, can we really say that the wage rate increase for 2009 has been established?   If not how can we assure ourselves that the $150 million will really be coming?   The same can be said of the expected inflows from the EU and the ADB.

 
In essence, there may be risks associated with the receipts of these expected inflows and so we caution the Ministry not to engage any activities that could compromise the receipt of these inflows.

 
In any event, even if these inflows do flow in, they are likely to come in very late in the year, and hence not likely to have much impact for the fiscal year 2009, unless Government chooses to bridge finance these gaps, which will cause domestic interest rates to even go up higher.  

 
Ladies and gentlemen, the NDC government, pursuant to its avowed agenda to demonise the NPP administration has not missed any opportunity to relate to the “huge TOR debt” left behind by the NPP in spite of the TOR debt recovery levy.   Various amounts have been quoted by different people in respect of the same debt.   Clearly, TOR and the Ministry of Finance need to do some reconciliation.  

 
The fact of the matter is that government policy on fuel products was towards full cost recovery plus some other taxes known to all of us.   Beyond $116 per barrel, government decided that it would be irresponsible to pass the entire cost onto consumers.   Government provided subvention beyond US $ 116 per barrel.   That meant that when the cost per barrel reached $ 147 government was subventing each barrel purchased by $31.   Given the fact that the country uses about 65,000 – 70,000 per day it meant on the average government was subventing to the tune of US$ 2 million each day.    Since the NDC still quotes in the previous denomination it meant government's subvention at that time was in excess of 2 trillion cedis every day.   Ladies and gentlemen, let us calculate the number of days that the product stayed above $ 116 per barrel and even the uninitiated would understand how come the debt left over at TOR.

 
Significantly, Professor Mill's NDC hiding behind the cover of the CJA shouted from the rooftop that government must not pass the total cost to the consumer.   Government listened and acted.   Today, Professor Mills turns around to blame the NPP for imprudent management.   But we should pause to ask Prof. Mills:   is government today providing any subvention on fuel products?   If so, by how much?   The jury is still out on this.

Ladies and gentlemen, thank you very much indeed.