Budget Day: Ofori-Atta to turn attention to growth

As Ken Ofori-Atta heads to Parliament this morning to deliver the Akufo-Addo government’s second budget statement in the space of ten months, there is a lot of pressure on him to translate the modest gains made in the macroeconomy to real economic growth.

The performance of the economy in the last ten months should give the Finance Minister a fair idea of what works and what does not, and those lessons are supposed to inform his government’s approach to delivering an economic policy statement that will deliver the goods and bring about the much-anticipated people-centred growth.

Over the past few months that Ken Ofori Atta has been in charge of the nation’s finances, the economy has virtually stabilised – with business confidence, as measured by the Association of Ghana Industries and the central bank, recovering from a slowdown in the last few years.

Last year, economic growth was at 3.6 percent – the lowest in over two decades. However, interim data from the Ghana Statistical Service indicate that government’s growth target of 6.3 percent is likely to be met, although the threat from poor domestic revenue performance could potentially hold it back.

So far, there has been improvement in macroeconomic stability in the first half of the year with most key indicators – including inflation, the exchange rate, interest rates, the external accounts and international reserves – moving in the right direction.

Latest fiscal figures show that government’s fiscal deficit, as of July, 2017, is at 3.0 percent. The deficit target for the end of year is 6.3 percent and, given the current performance, government is in line to meet that target.

Beyond the growth figures for this year, several economists have expressed worry that the economic growth being touted is not reflective of the reality, seeing this growth is largely driven by increased oil and gas production from both the TEN and Jubilee Fields.

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The Ghana Statistical Service’s latest data show a stronger overall real GDP growth of 9 percent in quarter-two, driven by higher oil output, whereas non-oil GDP growth was depressed – the same as it turned out in the first quarter.

Having inherited an economy that was saddled with a near double-digit deficit and mounting arrears, Mr. Ofori-Atta can, perhaps, be forgiven for trying to focus on restoring the economy to a path of fiscal consolidation at the expense of growth.

But given government’s achievement in strengthening the macroeconomy, there is enough justification for Ofori-Atta to turn his attention to growing the non-oil sector of the economy, which has been less impressive over the past few months.

It is in this sector that the Finance Minister will have to meet myriads of expectations from a population that voted overwhelmingly for the Akufo-Addo government. Even before he appears before Parliament, Vice President Dr. Mahamudu Bawumia has hinted that government will use today’s budget to unveil a comprehensive programme of support for the agricultural sector.

There is no denying the potential that agriculture holds for the economy and today’s budget, just as earlier indicated, is expected to go beyond lip-service and build on government’s flagship Planting for Food and Jobs programme as well as the nationwide warehousing initiative.

The industrial sector is also expected to benefit from a massive cut in power tariffs as government has already hinted. Mr. Ofori-Atta has been given the task of breaking down what the new tariff regime is expected to look like.

Arguably, the tariffs to be announced should also entice investors interested in the One-District, One Factory initiative, as government plans on fast-tracking the country’s industrialisation agenda.

Raking in revenue

As at July 31, when Mr. Ofori-Atta presented his Mid-Year Budget Review, total revenue (including grants) was short of the GH₵20.5billion target by GH₵3.1billion or 14.9%. As a percentage of GDP, the revenue collected was 8.6% against a target of 10.1% and, also, less than the outturn of 9.8% in the first half of 2016. The poor revenue performance is reflected in almost all the revenue lines.

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In the Mid-Year Review, the revenue target was revised downward by GH₵1.9billion to GH₵43.1billion, which is 28% more than was collected in 2016. Despite the revision, fiscal policy think-tank Institute for Fiscal Studies (IFS) maintains that the target remains ambitious.

Its reason is that in the first half of the year revenue growth was just 6.5% year-on-year, and achieving the new target would require revenue to increase by 48.3% year-on-year in the second half of 2017.

Having implemented initiatives such as the paperless ports, e-business registration, and with other initiatives such as the national identification card in the offing, Mr. Ofori-Atta will be cautious in making domestic revenue projections.

Government needs more revenue to pursue some of its social intervention programmes – but having campaigned on the back of reducing the tax burden on businesses, it is very unlikely to see Ofori-Atta introducing any tax that would make his government unpopular and thus give more ammunition to the opposition.

Ofori-Atta will be expected to reveal some more social intervention programmes in furtherance of the numerous promises the NPP made in the run-up to last year’s general elections.

The pressure on Ofori-Atta is huge. But he has, so far, showed that he is not a man that will baulk under pressure. As always, he will be expected to show up in his favourite dull, spotless white garb to deliver what will be government’s key policy statement for the next 12 months.

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