Mr. Speaker, I now present the macroeconomic performance for the first five months of 2014.
Macroeconomic Targets for 2014
- Mr. Speaker, the 2014 Budget aims at restoring stability and set the following targets:
a) overall real GDP (including oil) growth of 8.0 percent;
b) non-oil real GDP growth of 7.4 percent;
c) An end year inflation target of 9.5 percent within the band of ±2 percent;
d) overall budget deficit equivalent to 8.5 percent of GDP; and
e) Gross International Reserves of not less than 3 months of import cover of goods and services.
- Developments from January to May 2014 indicate that the economy continues to face challenges due to unfavourable developments in both domestic and external environments. However, as we have noted already, the medium term prospects are brighter. The details of the macroeconomic performance for the period under review are highlighted below.
GDP Performance
- Mr. Speaker, GDP grew by 6.7 percent in the first quarter of 2014, down from 9.0 percent in the corresponding period in 2013. The Agriculture Sector led with a growth of 12.7 percent, up from 6.7 percent in the analogous quarter in 2013. The Services Sector followed with a growth of 4.6 percent compared to 10.4 percent recorded in the same quarter of 2013, while the Industry Sector contracted by 1.1 percent compared to its growth of 8.1 percent growth in the corresponding period in 2013.
Inflation
- Mr. Speaker, inflation has continued to increase in 2014, after assuming double digit rates in 2013. Inflation rose to 15 percent in June, 2014 from 13.5 percent at the end of December 2013. The rise in inflation during the period was mostly influenced by cost push pressures arising from upward adjustments of petroleum and utility prices, higher transportation cost, and the pass through effect of the currency depreciation. We expect inflation to ease with good harvests, stabilization of the cedi and improvement in economic performance.
Banks’ Outstanding Credit
- Mr. Speaker, the annual growth rate of banks’ outstanding credit to the public and private institutions in May 2014 indicated an upward trend as it stood at 46.0 percent (GH¢6,725.3 million) against 34.6 percent (GH¢3,756.8 million) at the end of May 2013. In real terms, it grew from 21.4 percent in May 2013 to 27.2 percent in May 2014. The private sector accounted for 88.8 percent of the total outstanding credit at the end of May 2014 compared with 88.1 percent at the end of May 2013.
- The nominal growth rate in outstanding credit to the private sector alone increased from 32.7 percent at the end of May 2013 to 47.2 percent at the end of May 2014. In real terms, the growth rate increased from 19.6 percent at the end of May 2013 to 28.2 percent at the end of May 2014.
Interest Rate Developments
- Mr. Speaker, developments in interest rates in the first five months of 2014 indicate a rising trend. The Monetary Policy Committee increased the Policy Rate by 200 bps to 18.0 percent at its meeting in February and recently to 19.0 percent to rein in the volatility in the domestic foreign exchange market.
39. Consequently, money market instruments recorded significant increases in rates during the review period compared to the downward trend observed in 2013. On year-to-date basis, the rates on 91-day and 182-day treasury bills increased by 526 bps and 246 bps, respectively, to 24.07 percent and 21.29 percent, respectively.
Exchange Rates Developments
- Mr. Speaker, the cedi weakened during the first five months of the year on account of relatively higher demand for foreign exchange from both the formal and informal sectors relative to the supply. While still a major concern, the rate of depreciation moderated after March following a tighter monetary policy stance and strict implementation of existing foreign exchange regulation by the Central Bank.
- In the Inter-Bank Market, the Ghana Cedi recorded cumulative depreciation of 23.9 percent against the US dollar, 24.1 percent against the pound sterling and 21.4 percent against the euro in the first five months of 2014.
- To address the liquidity overhang and improve supply of foreign exchange in the markets, the cash reserve requirement of banks was revised to 11.0 percent from 9.0 percent while Net Open Position (NOP) limits of banks have been revised downwards. The single currency NOP has been reduced from 10.0 percent to 5.0 percent and the aggregate NOP has been reduced from 20.0 percent to 10.0 percent.
- Meanwhile the foreign exchange measures introduced in February 2014 have been revised in June to minimise the unintended consequences of the measures.
Balance of Payments
- Mr. Speaker, the value of merchandise exports during the first five months of 2014 was estimated at US$5,871.9 million, indicating a decline of 7.5 percent from the outturn in the corresponding period of 2013. The decline in exports was as a result of low receipts from gold and crude oil against strong demand for foreign currencies. Total value of merchandise imports during the review period was valued at US$6,028.4 million, also indicating a decline of 17.8 percent on the level in the corresponding period of 2013. The decline in imports was recorded in both oil and non-oil imports. The trade balance for the period January to May 2014 consequently registered a deficit of US$156.6 million, an improvement from a deficit of US$990.8 million recorded by end-May 2013.
International Reserves
- Mr. Speaker, at the end of June 2014, the country’s Gross International Reserves stood at US$4,471 million sufficient to provide 2.5 months of imports cover compared to the stock position of US$5,632.15 million at the end of December 2013 which could cover 3.1 months of imports. This development partly reflects the seasonality in foreign exchange flows during the year.
Fiscal Performance
- Mr. Speaker, against the background of ensuring fiscal prudence and debt sustainability,2014 Budget uses the overall budget deficit as the fiscal anchor, and targets a reduction in the deficit from 10.1 percent of GDP in 2013 to 8.5 percent of GDP in 2014. The 2014 Budget, therefore, introduced a number of revenue enhancing measures, debt management reforms, and expenditure rationalisation and realignment of the key components in the Budget, namely compensation, goods and services, debt service and capital.
- Mr. Speaker, preliminary data from January to May of the year indicate that, both revenue and expenditure were below their respective targets for the period. However, as in 2013, since the shortfall in revenue was lower than the shortfall in expenditure, the resulting cash fiscal deficit was equivalent to 3.6 percent of GDP, against a target of 3.5 percent. This compares to a deficit equivalent to 4.0 percent of GDP for the same period in 2013.
Revenue
- Mr. Speaker, total revenue and grants for the period was GH¢9,043.8 million or 7.9 percent of GDP, against a target of GH¢9,527.9 million or 8.3 percent of GDP. The shortfall in total revenue and grants for the period was the result of low disbursement of project grants from our development partners and lower domestic revenue collections. In nominal terms, the provisional outturn was 14.3 percent higher than the outturn for the same period in 2013.
- Total tax revenue amounted to GH¢7,076.8 million, 2.7 percent lower than the Budget target of GH¢7,273.7 million. The shortfall in tax revenue was partly due to the slowdown in economic activity, the delay in the implementation of the change in petroleum excise from specific to ad valorem, lower than anticipated revenue from excise taxes as well as the delay in the implementation of the VAT on fee based financial services. In addition, declining gold prices on the world market and rising operating cost led to lower corporate income taxes from the mining sector.
- Oil Tax Revenue, however performed very well as it was 179.3 percent higher than the budget target and 211.5 percent higher than the outturn for the same period in 2013.
- Grant disbursements from our development partners was only 21.0 percent of the budget target and 72 percent lower than the outturn recorded during the same period of 2013 mainly on account of slow disbursement of project grants from our development partners.
Expenditure
- Mr. Speaker, total expenditure, including payments for the clearance of arrears and outstanding commitments from January to May 2014 amounted to GH¢13,170.9 million (11.5 percent of GDP), against a target of GH¢13,587.5 million (11.8 percent of GDP). The outturn was 3.1 percent lower than the budget target and 12.6 percent higher for the same period in 2013.
- Expenditure on Wages and Salaries for the period totaled GH¢3,802.9 million, 2.2 percent higher than the budget target of GH¢3,720.3 million and 26.2 percent higher than the outturn for the same period in 2013. In addition to this, an amount of GH¢348.5 million was spent on the clearance of wage arrears.
- Mr. Speaker, interest payment for the period totaled GH¢2,832.1 million, 26.0 percent higher than the Budget target of GH¢2,246.8 million and 49.8 percent higher than the outturn for the same period in 2013. The higher interest cost in the period was the result of high domestic interest rates and higher than estimated domestic borrowing during the period. Domestic interest cost was 35.8 percent higher than the Budget target. On a year-on-year basis, domestic interest grew by 49.5 percent.
- Capital expenditure from January to May 2014 amounted to GH¢1,767.2 million, against the Budget target of GH¢2,169.9 million. The outturn was 26.9 percent higher than the outturn for the same period in 2013. The shortfall in capital spending was mainly as a result of lower than estimated foreign financed-capital expenditure due to the slow disbursement of project loans and grants. A successful launch of the 2014 Eurobond is expected to bridge the gap.
Overall Budget Balance and Financing
- Mr. Speaker, the cash fiscal deficit of 3.6 percent of GDP for the period under review was financed mainly from domestic sources, resulting in a Net Domestic Financing (NDF) of the budget of GH¢3,234.5 million (2.8 percent of GDP). The NDF for the period was 6.5 percent higher than the budget target of GH¢3,036.9 million.
- Foreign Financing of the budget was GH¢848.4 million, against a target of GH¢1,011.5 million.
Petroleum Revenue Receipts for the First Half 2014.
- Mr. Speaker, US$562.48 million was realised as total petroleum receipts in the first half of 2014. This consists of US$410.44 million lifting proceeds from the sixteenth to nineteenth liftings and US$152.04 million from other petroleum receipts such as corporate income tax, royalties, surface rentals. Of this amount, transfers to Ghana National Petroleum Corporation (GNPC) for Equity Financing Cost (US$33.72 million) and its share of the Net Carried and Participating Interest (US$78.73 million) amounted to US$112.45.
- Mr. Speaker, The remaining balance of US$450.03 million was distributed between the Annual Budget Funding Amount (US$204.54 million) and the Ghana Petroleum Funds (US$245.49 million), in accordance with the provisions in the PRMA. Of the amount allocated to the Ghana Petroleum Funds, the Ghana Heritage Fund received US$73.65 million, while the Ghana Stabilisation Fund received US$171.84 million.
Developments in Public Debt
- Mr. Speaker, provisional public debt stock as at end-May 2014 was GH¢62,861.72 million (US$21,661.52 million), representing 54.8 percent of GDP compared to the same period end-May 2013 of GH¢38,593.77 million (US$19,977.11). This is made up of GH¢34,331.22 million (US$11,830.19 million) and GH¢28,530.50 million (US$9,831.32 million) for external and domestic debt respectively.
- Mr. Speaker, Ghana’s total external debt stock stood at GH¢34,331.22 million (US$11,830.19 million) at the end May 2014 representing 29.93 percent of GDP and 54.61 percent of total public debt. The high Ghana Cedi equivalent of the end-May figure partly as a result of the depreciation of the Ghana Cedi. Similarly, the total domestic debt stock at GH¢28,530.50 million (US$9,831.32 million) at the end of May 2014 representing 24.87 percent of GDP and 45.39 percent of Total Public Debt. The low US Dollar equivalent of the end-May figure is as a result of the depreciation of the Ghana Cedi.
Status of implementation of key policy initiatives and measures
- Mr. Speaker, in presenting the 2014 Budget, we outlined a number of policy initiatives and fiscal measures aimed at:
a) resolving our short-term imbalances from the 2012 Budget over-runs; and
b) consolidating and sustaining our Lower Middle Income status.
- These measures also prepare us for managing traditional volatilities and policy setbacks; and deal with the challenges of financing and accelerating our development. We hereby present an update on the implementation of these measures.
Addressing Ghana’s International Reserves to Restore the Value of the Ghana Cedi
- Mr. Speaker, there is no doubt that the Ghana Cedi has lost value in recent months. However, we are working to stabilise the value of our currency. There are a number of factors that have contributed to this phenomenon:
a) The loss of foreign exchange from the rapid fall in world commodity prices, especially gold and cocoa in the 2013 fiscal year;
b) The loss of foreign exchange from the sharp decline in grants from our Development Partners from 2012 to date;
c) Speculative activities of some Banks, Financial Institutions and foreign exchange bureaux that are allowed to retain foreign exchange; and
d) Our growing and insatiable appetite for the consumption of imported goods which is putting a strain on available foreign exchange reserves.
- While this depreciation could be positive for exporters, its impact has to some extent affected fixed income earners, inflation, interest rates and economic activities.
- Consequently, Government has, and will continue to design and implement appropriate responses including the following:
a) Continuing review and clarification of the Bank of Ghana foreign exchange measures to stop its unintended consequences, especially those that affect business confidence, and introduce further measures intended to boost the flow of foreign exchange into the economy;
b) Increasing the production of crude oil and gas to reduce the reliance on imported light crude oil for the generation of power, thereby reducing the demand for forex. This coupled with expected reversals in the low world commodity price of cocoa would improve the foreign exchange position of Government;
c) Enforcing H.E. the President’s directive for all MDAs and MMDAs to patronize Made-in-Ghana products to preserve foreign exchange;
d) Addressing the annual seasonality of our foreign exchange inflows by effectively arranging the smooth use of our international reserves through interventions including swaps, especially for the period after the cocoa season;
e) Continuing with on-going discussions with the business community that is allowed to retain significant foreign exchange to channel those funds through the Bank of Ghana and our domestic banks;
f) Ensuring compliance with Customs import valuation which tends to undermine our tariff policies and makes imported goods cheaper in relation to domestic goods on our market;
g) Enforcing Government’s directive for MDAs and MMDAs to award contracts only in Ghana Cedis.
h) At the same time, checking the illegal practice of dealing in forex transactions on a large and often speculative scale without licence; and
i) Implementing the directive of Cabinet to review our laws and generous incentive packages to make retentions commensurate with the risk associated with doing business.
- Mr. Speaker, these measures will assure Ghanaians, especially the business community, that we can manage rapid shortfalls in commodity prices; implement compliance and regulatory measures without affecting business confidence and foreign exchange flows; and use additional future flows of foreign exchange for investment, not consumption and wage payments.
Automatic Fuel Price Adjustment and Mitigating Measures
- Mr. Speaker, the recent queues at the filling stations arising from delayed adjustments of fuel prices and speculations grossly affected business activities and caused a lot of personal discomfort for Ghanaians.
- In the same vein, the recent significant ex-pump fuel price increase was equally disruptive for the average Ghanaian and as with similar past increases, affects the effective planning by the business community.
- The implementation of a gradual and automatic adjustment to ex-pump fuel price within tolerable price bands and the establishment of an effective over/under recovery mechanism that will avoid wide swings in prices.
- In addition, interventions in the areas of support for public and urban transportation will be pursued to ensure alternative options for the most vulnerable in society. In this regard, an estimated 450 buses are expected soon to contribute to this process.
- Government will also review the fuel pricing structure and the method of assessing foreign exchange losses and subsidies to reduce the overall fiscal deficit.
Sustaining the New Pay Policy
- Mr. Speaker, one of the major policy challenges to align the budget since 2010 is the implementation of the Single Spine Pay Policy (SSPP). Government is therefore implementing a number of initiatives to ensure the sustainability of the Single Spine Pay Policy towards our goal of achieving a wage to tax revenue ratio of 35 percent by 2017. These measures include:
a) Public Sector Wage Negotiations: Mr. Speaker, in line with the conclusions reached at the Ho Forum on the sustainability of the SSPP, wage adjustment for 2014 was moderated through the wage negotiation process resulting in the introduction of 10 percent Cost of Living Allowance (COLA) effective May 2014 to cushion workers. Government will work closely with Organised Labour and Employers’ Associations towards the completion of the 2015 wage negotiations before the presentation of the 2015 Budget to Parliament.
b) Weaning off Sub-vented Agencies from Government payroll: As at June, 2014, the Sub-Committee on Sub-vented Agencies held preliminary meetings with eight (8) out of the twelve (12) identified Sub-vented Agencies to assess their capacities and readiness to be weaned-off Government subvention. The issues that are being considered include:
• The need to amend laws that established the institutions;
• Irregular review of fees, levies and charges on the goods and services they provide, which is preventing them from making sufficient income/revenue;
• The need to complete on-going projects before weaning-off. These would require Government support.
c) Recruitment and Replacement: Government is also implementing the following measures on recruitment and replacement to control the wage bill:
• enforcement of policy of institutions seeking financial clearance before recruitment and replacement of staff;
• imposition of sanctions on heads of institutions who flout the policy on financial clearance;
• payment of arrears of newly recruited staff not exceeding 3 months until auditing is done by the Auditor-General for the rest of accrued arrears;
• justification of request for replacement of staff by MDAs/MMDAs at the Public Services Commission or the OHCS for initial approval, in addition to a final approval by the Ministry of Finance; and
• strict enforcement of expiry of financial clearance at the end of each year.
d) Market Premium: Mr. Speaker, in line with Section 3.5 of the Government’s white paper on guidelines for the determination of Market Premium under the Single Spine Pay Policy, the Fair Wages and Salaries Commission is to determine Market Premium for the attraction and retention of critical but scarce skills in the Public Service within the budget constraints of relevant MDAs. To this end a labour market survey is being conducted to identify critical but scarce skills to form the basis for the determination of Market Premium for such skills. Consistent with Section 4.2 of the white paper, Market Premium shall not apply to all jobs within a particular service classification or be granted across board. The newly determined Market Premium shall come into force in 2015 at which stage the payment of interim Market Premium will cease.
e) Public Service-Wide Performance Management System: Mr. Speaker, the following activities have so far been completed under the Public service–wide performance management system at the end of June. These are a:
• working document or blueprint to guide the roll out of the Public Service-Wide Performance Management Monitoring and Evaluation System;
• policy document and proposal for sourcing funds;
• performance management monitoring and evaluation instrument;
• monitoring and evaluation framework; and
• national roundtable conference on productivity.
f) Categories 2 and 3 Allowances: Mr. Speaker, the ongoing work on harmonization and standardisation of Categories 2 and 3 is at advanced stages. Consistent with the outcome of the Ho Forum on the sustainability of the Single Spine Pay Policy, government has indicated that the implementation of the recommendations by the PSJNC and its sub-committee on the subject matter will be subject to budget constraints.
g) National Research Facility: Mr. Speaker, in the 2014 Budget Statement and Economic Policy, Government indicated its decision to review the existing system of payment of Book and Research Allowance and replace it with a research and innovation facility with a seed funding of GH¢15 million, which has been created and funded. The Professor Mireku Gyimah Committee was mandated to make recommendations on the operationalisation and establishment of the National Research Facility. They have submitted their report and implementation will commence soon.
h) Human Resource Management Policy: Mr. Speaker, the Comprehensive Human Resource Management Policy Framework and Manual has been approved by Cabinet. Training of selected public service organizations for the policy framework and manual will begin in August 2014. Furthermore, the Human Resource Management Information System (HRMIS) is being implemented ¬to strengthen controls around entrance, progression and exit of public service employees, link HR information to budget preparation and payroll processing.
Nine MDAs – Public Services Commission (PSC), Office of the Head of Civil service (OHCS), Local Government Service (LGS), Ghana Education Service (GES), Ghana Health Service (GHS), Ministry of Food and Agriculture (MoFA), Ghana Police Service and Ghana Prisons Service, which constitute about 80 percent of the total workforce in the public service, have been selected to pilot the project.
i) Payroll Upgrade: The upgrade of the IPPD2 payroll system has been completed and has been used to run the payroll from February 2014 to date. The upgraded IPPD2 has resulted in the correction of inherent errors in the old payroll calculations as well as distortions to individual monthly salaries
j) Integration of Payroll: The upgraded payroll system has been integrated into GIFMIS. This will facilitate budgetary control over payroll costs. With this, heads of institutions now have direct responsibility for managing the payroll budget as they do for other items of expenditure.
k) Electronic Salary Payment Vouchers (ESPV): The ESPV system provides online access to heads of management units and human resource managers to approve staff to be paid for a particular month as well as the amounts to be paid to them. With the 24-hour access to the payroll data, the manager has adequate time to continuously review the payroll report. As at the end of June, the system had been deployed to 73.3 percent of management units in the Greater Accra Region. The validation of the June payroll of these management units has resulted in the deletion of 266 names and blocking for investigation of 2,531 staff. The total estimated payroll cost of the 2,797 staff is GH¢36.7 million per annum. Projecting this result to the entire mechanised payroll and discounting it by 40 percent generates an estimated savings of GH¢414 million per annum or GH¢172.5 million for the rest of the year.
l) Electronic Pay Slips System (E-pay slip): At the end of June 2014, about 385,000 government employees on the mechanised payroll representing 75 percent with a geographical coverage of 90 percent have registered on the E-Pay slip system. The verbal complaints by employees on salaries have minimized because the system provides information to employees as well as an avenue for channelling of complaints. Registration onto the system is ongoing and it is expected that all staff will be registered by the end of 2014.
m) Payroll Audit: Mr. Speaker, the Internal Audit Agency conducted a pilot audit on GES staff in the Shai Osudoku District of the Greater Accra Region. This exercise was to validate staff strength and determine whether adequate controls existed over the management of the payroll and personnel records to confirm payroll data. The audit has been completed and it was observed that 40 teachers representing 4.7 percent of the staff strength who were on the GOG payroll were neither on the nominal payroll of their management units nor sighted during the headcount. We have taken action to block the salaries of the 40 teachers whilst measures are being taken to expand the audit to cover other districts and also recover illegal payments.
n) Biometric Registration: Validation of the current Biometric database is in progress to isolate duplicate names. A total of 1,656 employees data have been identified as duplicates for further interrogation with an estimated payroll cost savings of about GH¢6.5 million. The biometric registration function will be merged with that of the National Identification Authority.
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By: Mawuli Tsikata/citifmonline.com/Ghana