Ofori-Atta presents mid-year review today
After a mixed half-year performance, Finance Minister Ken Ofori-Atta returns to Parliament to revise some key budget estimates contained in the 2017 budget and also seek an expanded fiscal space to allow government prosecute some of its key policies.
While government achieved a lower than expected budget deficit of 1.5 percent of GDP against the budgeted 2.2 percent in the first quarter of this year, that performance is blighted by poor revenue performance which fell by GH¢2.3 billion.
The revenue underperformance did not come as a surprise as already many analysts had predicted that the projected domestic revenue of GH¢43.4 billion, which is 33.5 percent higher than the 2016 outturn, was very ambitious.
Due to the revenue underperformance, government had to cut down on its planned expenditure as way of controlling its deficit. In all government had to cut about GH¢3.6 billion of its expenditure which affected arrears payment, capital expenditure as well as good and services spending.
As the Finance Minister appears before Parliament, three months after he presented the maiden budget of the Akufo-Addo administration, he will have to either revise the revenue projection for 2017 or announce measures that will at least bring the projection on track.
According to economic policy think tank, Institute for Fiscal Studies in its review of this year’s budget performance, “Given that the objective of the 2017 to achieve strong revenue mobilisation is not likely to be achieved, at least for now, there is the need for the government to introduce additional measures to enhance the revenue mobilisation effort.
The economy grew by 6.6 percent year-on-year in the first quarter as compared to 4.4 percent recorded same period last year. But the strong performance is underlined by a 58.9 percent increase in oil production which left the non-oil sector growing at 3.9 percent as against 6.3 percent recorded same period last year.
Explaining the subdued non-oil GDP performance, IFS said government had to sacrifice growth for fiscal consolidation when it slashed its expenditure which was key to growth of the non-oil sector.
As Mr. Ofori-Atta appears before Parliament today, he is expected to announce measures that will ensure that the non-oil sector of the economy, which provides greater amount of jobs, is not stifled as was the case in the first quarter of the year when expenditure was heavily slashed.
According to IFS, it expects government in the wake of weak non-oil GDP growth, to reprioritise spending in favour of payment of valid arrears, increasing capital spending, and deal with budget rigidity caused by the wage bill and interest payments.
Apart from revenue which showed a weak performance, other economic indicators were robust. Inflation continued its descent, which commenced in September 2016, into the first half of this year. From a rate of 17.2 percent in September last year, inflation for June is 12.1 percent.
The disinflation process is supported by tight monetary and fiscal policies as well as a stable exchange rate regime. The year-to-date depreciation of the local currency against the dollar is about 3.7 percent.
The relatively stable local currency comes as a boost to government’s debt management strategy which has seen government employ a deliberate effort to prolong the maturity profile of its debt portfolio as well as a look to the external market for financing to prevent crowding out of businesses in the domestic market.
“Government should introduce measures to sustain the current macroeconomic stability and market confidence. This should involve measures to sustain the declining inflation rate, relative stability of the cedi and strengthen foreign reserve position.
Measures to ensure transparent and effective communication and strengthen ownership of policies will also help to maintain the momentum to sustain the market confidence,” he remarked.
From the first quarter performance, any downward revision of growth or deficit figures will likely put a clog in the smooth performance of the economic performance so far but in the same time could signal government’s readiness to control expectations.