Source: Graphic Online
The government’s 2015 Budget statement has already generated heated debate both substantive and general nature, even within the corridors of Parliament.
The Daily Graphic’s Political Editor, Mr Kobby Asmah, elicited the views of Mr Alan John Kwadwo Kyerematen, a former Trade Minister and runner-up in the 2016 flag-bearer contest of the New Patriotic Party, on the budget as presented by the Finance Minister, Mr Seth Terkper, last Wednesday, November 19, 2014.
Kobby Asmah (KA): Can the 2015 Budget lead to transformation?
Alan Kwadwo Kyerematen (AKK): The theme of the budget seeks to position it as a framework for prosecuting a transformational agenda for the country, without providing adequate and substantive policy initiatives and programmes aimed at realising the transformation objective.
A transformation is generally said to occur in an economy when there is a significant change in the structure of the economy, reflecting changes in the relative contribution of different sectors to the performance of the economy, and which leads to long-term macroeconomic stability, a quantum leap in growth, employment , income levels and standard of living. This often requires massive and sustained investments in infrastructure and the productive sectors of the economy, among other things. Although there is a reference in the budget to economic diversification and enhancing production in poultry farming, rice and the fisheries sector, it is not clear that these interventions will provide the foundations for the transformation. The sectoral initiatives proposed for trade, industry and agriculture are relatively weak and not comprehensive enough to lead the transformation agenda.
Although the proposed and existing interventions in the energy and petroleum sectors are positive for the medium term outlook, there is a critical and urgent need for short-term operational and tactical measures to be implemented to deal effectively with the current energy supply deficits which have occasioned the existing load-shedding programme (Dumso Dumso) with very serious negative effects on business and domestic consumers.
In general, reforms in the energy sector must essentially be seen as input for achieving competitiveness and not as an end in themselves.
KA: What do you think about the budget’s targets?
AKK: The projections for macroeconomic performance for fiscal year 2015 may be difficult to achieve based on current and past economic trends.
The end-year inflation target of 11.5 per cent for 2015 from a current high of 16.9 per cent is overly optimistic. Although the rise in inflation pressures in 2014 was partly due to the significant decline in the value of the cedi, as well as the effects of the fuel and utility price adjustments, the high level of interest rates has been an equally important contributory factor, considering the fact that a key component of the cost of production in Ghana is the cost of capital. With the current increase in the Monetary Policy Rate from 19 per cent to 21 per cent as well as the increase in T-Bill rate(91-day) from 19.2 per cent to 25.5 per cent, the signals are clear that interest rates will remain high, thus reducing the prospects of a downward slide in inflation over the plan period. In addition, the fundamental causes of the sharp depreciation of the cedi, leading to high inflation, have not been substantively addressed. It is generally known that the recent rise in the value of the cedi was primarily due to inflows from the Eurobond issue as well as the Cocoa syndicated forex loan. These are seasonal inflows and do not provide a structured response to the management of the cedi. Furthermore, the IMF Balance of Payments Support to be expected, if the GOG/IMF negotiations are concluded, will not provide a permanent solution for the stabilisation of the cedi either for a variety of reasons. This, among other things, is because it will be difficult to predict the impact of external shocks on forex inflows, arising from price volatility for Ghana’s primary export commodities. All of the above, coupled with the current significant levels of debt servicing commitments, is likely to continue to put pressure on the cedi.
The overall budget deficit target of 6.5 per cent, gross international reserves of not less than three months, the GDP growth rate (including oil) of 3.9 per cent, are all achievable, if the fiscal discipline that is often occasioned by an IMF intervention is maintained by the government. The budget deficit target of 6.5 per cent in particular will only be realised if the revenue mobilisation initiatives proposed in the budget are kept on track, as and if the government embarks on a major and comprehensive public sector- wide expenditure audit to reduce leakages, which will include a more decisive programme of action and commitment to curb corruption.
KA: The budget proposes a special tax on petroleum; what is your candid opinion?
AKK: One of the most controversial components of the budget has been the imposition of the Special Tax on petroleum products. The primary difficulty in analysing this policy measure is the lack of clarity and consistency by government officials in explaining the nature and basic elements of the tax, although it is very obvious that it is designed to be a revenue-generating policy measure. My own understanding is that essentially, the pricing formula for petroleum products has been restructured by doing the following: recalibrating the automatic price adjustment formula to cover some outstanding debt obligations in the petroleum sector; imposing a 17.5 per cent consumption tax (although it is not being described as VAT) on petroleum products which will extend the reach of the tax to most Ghanaians; introducing an element of price stabilisation and mitigation to deal with price volatility of crude oil on the world market; and varying the different types of levies and margins in the cost build up of different categories of petroleum products, to ensure that the effect of the special tax is varied depending on consumer sensitivity for each product. If my understanding is correct, then government needs to be transparent about its explanation of the policy, especially when it is expected that it will contribute among other things, to revenue mobilisation.
KA: How do you propose the government handles its debt management?
AKK: The existing debt stock of Ghana, which is currently estimated at 60.8 per cent, is already at a level deemed to be unsustainable. Government’s debt management strategy has the potential of being undermined by government’s own declaration of intent to execute a number of new and pipeline development projects in fiscal year 2015. In my opinion, the government must curb its appetite for borrowing if its debt management strategy is to be effective, but this will require government exploring more private sector-led financing options for executing development projects, with more targeted and attractive incentives for the private sector, both domestic and foreign. Parliament must also strengthen its oversight functions in respect of domestic borrowing by government, and if possible, back it by legislation.
KA: What in your view must the export-led strategy be predicated on?
AKK: In my opinion, the export-led strategy must be anchored on the basic fundamentals for enhanced production, productivity and competitiveness. There must be a comprehensive and strategic framework outlined in the budget.
The proposal to establish a Ghana Export/Import (EXIM) Bank is a positive one. However in addition to this, the draft Ghana Export Development Strategy as well as the National Trade Policy and Industrial Policy must be subjected to extensive public dialogue to ensure effective buy-in by both domestic and foreign investors.
For example, the Presidential Special Initiatives (PSI) launched under President Kufuor’s administration were all designed as elaborate programmes for export development in new strategic sectors of the economy. They were designed to reduce the over-reliance on cocoa and gold as Ghana’s major export commodities. It is worth noting that Indonesia and Malaysia currently earn $20 billion and $16 billion dollars respectively from oil palm export alone
KA: Is there any hope for Ghana’s economy in the future?
AKK: I believe the efforts of the New Patriotic Party over the period 2001 to 2008 while in government showed a promising outlook for Ghana and that the future was bright. I think there is significant potential for Ghana to achieve accelerated economic growth and development if proactive government policy interventions are introduced and the private sector is put at the centre of Ghana’s economic development. This would involve focusing on key development priorities, including maintaining sustained macro- economic stability at all times, ensuring fiscal discipline, achieving low inflation, introducing competitive interest rates, dealing decisively with corruption and ensuring sustainable levels of both domestic and external debts.
Secondly, we must also embark on aggressive and massive provision of infrastructural projects targeted at supporting the productive sectors of the economy.
It is only in the light of these priorities, among others, in my view, that the 2015 Budget Statement must be evaluated.
Thirdly we must enhance the contribution of the industrial sector in national development by promoting local production based on import competition as well as import substitution.
Fourthly, aggressively promoting Export in strategic productive sectors of the economy for which Ghana has both comparative and competitive advantage based on natural resource endowment, technology innovation, potential for generating mass employment, particularly in rural and peri-urban communities, as well as generating significant levels of foreign exchange based on global market potential.