Business News of Thursday, 12 March 2015
The Finance Minister, Seth Terkper, is expected to cut government’s expenditure and implement a slew of IMF-inspired rationalisation measures for 2015 when he presents a revised budget to parliament on today to account for the plunge in crude oil prices.
Government previously planned to spend GH?42billion this year on the assumption that crude oil would trade at least US$90 per barrel, and the rapid fall in the price of the commodity could potentially stall government’s fiscal deficit target of 6.5 percent of GDP.
The revised budget has also been occasioned by the deal it reached last month with the International Monetary Fund (IMF) for an economic stability programme.
It is expected that Mr. Terkper will announce a raft of measures that will reflect the IMF’s economic support programme, which could fetch up to US$940million in financial support throughout the three-year duration of the programme.
When the Finance Minister presented the 2015 budget to Parliament in November last year, he projected total revenue from oil to be GH¢4.2 billion — equivalent to 3.1 percent of GDP. But since then crude oil prices have fallen from about US$75 per barrel to as low as US$49 per barrel, with the decline impacting immensely on government’s revenue projection from crude oil exports.
President John Mahama has said the decline in the oil prices will cost the country about US$700million, and the Finance Minister is expected to detail measures for containing the sharp decline in receipts from oil revenue.
According to the IMF estimates, the substantial decline in oil prices is projected to result in a budget revenue shortfall of about 2 GDP percentage points.
Mr. Terkper will thus present a budget to Parliament that will reveal measures which will see a reduction in budget ceilings for current and capital spending totalling about 1.2 percent of GDP.
The remainder of the revenue shortfall is expected to be covered by drawings from the oil stabilisation fund — in line with the Petroleum Revenue Management Act. These measures, which include safeguards put in place to ensure that line ministries’ spending commitments remain within the new ceilings, bear the IMF’s seal of approval.
One of the key pillars of the recently announced IMF deal is a restraint on wage expenditure, and the Finance Minister is expected to brief the house on tight measures to consolidate the public sector wage bill — which has seen large overruns over the past three years.
As at the time the Finance Minister appeared on the floor of parliament to present the 2015 budget, government was locked in negotiations with labour over wage demands. But the negotiation has since been completed and workers have accepted a 13 percent increase in base pay, despite expiration of the 10 percent cost of living allowance (COLA) at the end of 2014.
Government’s tight stance in the 2015 wage negotiations is part of measures to exert control on its fiscal exigencies, which have an overall goal of cutting the wage-to-tax revenue ratio to 35 percent by 2017. Once again, efforts being made to check inefficiencies and leakages in the public sector payroll system will be highlighted in the budget review.
These measures, the IMF said, should strengthen government’s control of the wage bill and address payroll irregularities.
Mr. Terkper in his review is expected to maintain strict control on new hiring and the reduction in the number of subvented agencies in order to further help contain the wage bill.
The Finance Minister will also announce in his review the implementation of a host measures such as the elimination of distortive and inefficient energy subsidies and the new tax on petroleum products among others, which will contribute to a significant reduction in the fiscal deficit over the medium-term.
On the back executing these measures, Mr. Terkper will tell Parliament that government now expects a fiscal deficit of 7.5 percent in 2015, rather than the 6.5 percent it initially outlined in the 2015 budget. The deficit is expected to decline to about 3.5 percent in 2017, including the repayments of all arrears outstanding at end-2014.