Within the last four years, economic growth rate has doubled from 3.4% to 7% mainly due to strategic initiatives in the agriculture, services, and industrial sectors aided by fiscal discipline, growth in revenue mobilisation and containment of expenditures within targets.
As at September 2019 inflation was 7.6% compared to 15.4% in December 2016, 91-treasury bill rate was 14.7% in September 2019 against 17% in December 2016, fiscal deficit fell below 5% of GDP for three consecutive years and the trade deficit improved from US$1.8 billion in 2016 to a surplus of US$2.6 billion in August 2019.
The foundation for accelerated growth has been laid for 2020 and beyond. The 2020 budget has therefore been themed “Consolidating the Gains for Growth, Jobs and Prosperity for All”. Government intends to drive this agenda through eight (8) strategic pillars in line with the President’s Consolidated Programme and the Ghana Beyond Aid vision:
- Domestic Revenue Mobilisation;
- Business Regulatory Reforms;
- Intensified Drive for Foreign Direct Investment;
- Accelerated Infrastructure Development;
- International Financial Services Centre;
- Enhance Financial Support to Local Enterprises; and
The 2020 budget is the first, election year budget to be prepared under the Fiscal Responsibility Act (2018), which places a 5% cap on fiscal deficit, and it is also the first, since 2015, to be done without an IMF programme. This therefore puts pressure on Government to adhere to its fiscal policy framework.
Overall GDP growth is projected at 6.8% (including oil) in 2020 owing to the expected growth in agriculture, services and industrial sector. Government has been cautious with the growth forecast in the agriculture sector compared to previous years. The conservative growth forecast of 5.1% can be attributed to the 2019 underperformance in the fisheries subsector. The subsector growth was constrained to 3.30% in 2019 compared to a targeted growth of 13.80%. This was due to the outbreak of the Infectious Spleen and Kidney Virus Disease (ISKVD) which destroyed fish farms. Going forward, Government’s policy in the agriculture sector will be driven by the following initiatives:
- Provision of timely fish health extension services to fish farmers;
- Planting for Food and Jobs (PFJ);
- Rearing for Food and Jobs (RFJ);
- Planting for Export and Rural Development (PERD);
- Greenhouse Villages;
- Irrigation and Water Management Programme;
- Agricultural Mechanisation;
- Ghana Incentive – Based Risk Sharing System for Agricultural Lending (GIRSAL); and
- The National Development Bank
To achieve or exceed the 5.1% target, we expect Government to invest in data and predictive analysis to increase productivity and efficiency of crop production. This approach would provide farmers the precise crop variety, exact types and doses of fertilizer, pesticides and herbicides, and proper irrigation to meet the demands of crops for optimum growth and development. We also urge Government to improve access to farm gates to reduce post-harvest losses. In addition, with favourable weather conditions in 2019 we expect growth in the agricultural sector to be high, which will trigger a reduction in food inflation.
The 2020 budget projects a 5.8% growth in the services sector. This will be driven by a strong performance in the Health and Social Work. To improve the quality of life and enhance economic development, Government seeks to focus on:
- Education and training;
- Health and health services;
- Food and nutrition security;
- Population management and migration for development;
- Poverty and inequality;
- Water and environmental sanitation;
- Child protection and family welfare;
- Support for the aged;
- Youth development;
- Social protection;
- Empowerment of women and girls;
- Disability and development; and
- Employment and decent work.
These social intervention programmes are aimed at reducing economic and social hardship in the country. To achieve or exceed growth target, we expect professional standards in the health sector to be monitored and enhanced, then Governments aim of positioning Ghana as a medical tourism hub will be achieved. Furthermore, there needs to be an improvement in the monitoring and evaluation systems to track the impact of these social intervention programmes. Lessons learnt will form the basis for future improvement in such interventions. We also expect this policy to create employment opportunities, expand Governments tax revenue base, improve productivity and create markets for the agriculture sector and downstream industrial activity.
We recognise that the financial and insurance subsectors are the backbone of a functioning economy. In 2019 Government continued its sector clean-up exercise aimed at strengthening the financial system. The financial sector has been streamlined and is said to be well capitalised. With easier access to credit, increased competition between banks for big ticket transactions and prospects for enhanced employment opportunities in 2019. But we hope to see these in 2020. Also, with the increase in the minimum capital requirement of insurance companies, we expect a lot of consolidation in the sector and the ability of the sector to underwrite big ticket transactions. These expected successes notwithstanding, it is important to bring proper closure to the clean-up exercise by making public, the breakdown of the cost of the clean-up exercise and to assure investors and depositors what happens to their remaining investments or deposits beyond the initial pay-outs that was done, whether those balances will be attracting interests in so far as it remains unpaid. This will engender investor and depositor confidence and reignite the much-needed savings culture for the development of the country.
Since 2011, the industrial sector over the years had been mainly driven by the oil (petroleum) subsector. Growth in the sector is expected to decline to 8.6%. The projected growth forecast for 2020 is expected to be driven mainly by the non-oil sector due to an anticipated decline in crude oil production from existing fields. Industrial sector growth in 2020 will be spurred by increased, investment in infrastructure development, power production, mining and quarrying activities, and operationalisation of 181 factories under the 1District 1Factory (1D1F) policy. A growth rate of 8.6% is highly achievable. We expect this to create additional employment opportunities and the advancement in biotechnology to improve yields and quality of produce to feed manufacturing activities.
Revenue mobilisation remains a major challenge for government. Government was unable to reach its revenue target of GH¢54.5 billion. The shortfall was due to the following:
- Underperformance of non-oil tax revenue particularly, the negative impact of lower import volumes on International Trade taxes (Import Duty and Levies, External VAT, and Customs National Health and GETFund);
- High admittance of imported goods into zero-rated or tax-exempt import brackets; and
- Weak performance from Corporate Income Tax collections.
In addressing these challenges, Government seeks to intensify its efforts to digitise tax revenue collection and broaden the tax net. Through effective implementation of the revenue mobilisation measures/initiatives, Government expects to increase revenue to GH¢67.07 billion in 2020.
This target is very aggressive. Even though, the aforementioned initiatives caused a 9.2% growth in revenue 2019, we do not believe that they are enough to push revenue up by 22.9% in 2020. Government should also adopt alternative dispute resolution mechanisms to settle tax issues to free up cashflows locked up in tax litigation.
On Government expenditure, we recommend that Government refocuses on self-liquidating investments in infrastructure and related economic activity as opposed to recurrent expenditure (i.e. Compensation of Employees, interest payments and statutory transfers which take approx. 80% of total expenditure). By so doing the burden of recurrent expenditure will be redirected to the private sector.
We are of the view that Government has demonstrated its commitment in exercising macroeconomic discipline, improving the quality of life and enhancing economic development.
However, Government’s commitment to addressing fiscal indiscipline while embarking on its initiatives will be put to the acid test during 2020 which is an election year. We urge Government to stay within its expenditure targets and not succumb to election pressures.
The writer is the CEO: C-NERGY Ghana Limited(investment Banking& Advisory Services Firm