Finance minister Ken Ofori-Atta has presented government’s reviewed budget for 2017 as required by the Public Financial Management Act.
SECTION ONE: INTRODUCTION
- Right Honourable Speaker and Honourable Members of Parliament, in accordance with Section 28 of the Public Financial Management Act, 2016 (Act 921), I stand before this august House, to present a Mid-Year Fiscal Policy Review of the 2017 Budget. The 2017 Mid-Year Review is the first under the Public Financial Management Act, 2016 (Act 921).
- Mr. Speaker, before I proceed to make this presentation, I wish to convey our heartfelt appreciation to this august House, on behalf of the President,Nana Addo Dankwa Akufo-Addo, for the cooperation and support of Honourable Members in the management of the economy over the past few months. It is our expectation that we continue to strengthen this relationship towards the achievement of our collective development goals.
- Mr. Speaker on the 2ndof March 2017, I stood before this honourable House to present to you the President’s first Budget Statement, “The AsempaBudget”which brought hope back to Ghanaians and sowed the seeds for growth, prosperity and jobs.
- After the approval of the budget on 31st March 2017, we went to work “in a hurry”and the signs are clear on the progresswe have made so far.
- Mr. Speaker, because of the prudent economic policies, improved fiscal discipline and competent management of the economy, the macro-indicators for the first half of the year are pointing in the right direction. Typical of the strengthening performance is the fact that for the first six months of the new Akufo-Addo government, both the fiscal deficit and primary balance outperformed their targets. The exchange rate is stabilizing, inflationary pressures have eased and interest rates are trending downwards. Progressively, confidence is being restored in the economy and we are confident that this positive trend will be sustained in the months and years ahead.
- Mr. Speaker, through the cooperation of this august House, for which we are very grateful, we passed the Income Tax (Amendment) Act, 2017 (Act 941); the Customs and Excise (Petroleum Taxes and Petroleum Related Levies) (Repeal) Act, 2017 (Act 943); the Special Import Levy (Amendment) Act, 2017 (Act 944); the Energy Sector Levies (Amendment) Act, 2017 (Act 946); Value Added Tax (Amendment) Act, 2017 (Act 948), and the Earmarked Funds Capping and Realignment Act, 2017 (Act 947), Special Petroleum Tax (Amendment) Act, 2017 (Act 942) and Customs (Amendment) Act, 2017 (Act 949)
- Mr. Speaker as a result and in fulfilment of the President’s promise, Government has:
- abolished the 1 percent Special Import Levy which was imposed mainly on imported raw materials and machinery;
- abolished the 17.5 percent VAT/NHIL on financial services;
- abolished the 17.5 percent VAT/NHIL imposed on airline tickets;
- abolished the excise duty on petroleum to reduce the excess burden on final consumers;
- reduced the special petroleum tax rate from 17.5 percent to 15 percent to mitigate the excess burden on final consumers;
- abolished the 5 percent VAT flat rate on the sale of real estate;
- abolished import duty on spare parts;
- exempted from tax, the gains from realization of securities listed on the Ghana Stock Exchange;
- reviewed the ESLA to reduce the cost of power and reduced the National Electrification Scheme Levy from 5 percent to 3 percent; and the Public Lighting Levy from 5 percent to 2 percent;
- replaced the 17.5 percent standard rate with the 3 percent flat VAT/NHIL rate for supplies by retailers and wholesalers; and
- Capped earmarked funds to 25 percent of tax revenue.
- Mr. Speaker, we will be coming back to Parliament this week to laythe Regulations to abolish the 17.5 percent VAT/NHIL on selected imported medicines, which are currently not produced locally.
- Mr. Speaker, with this background and in accordance with the PFM Act, my presentation of this Mid-Year Fiscal Policy Review will focus on the following broad thematic areas:
- an overview of recent macroeconomic developments;
- an update of macroeconomic forecasts contained in the 2017 budget;
- an analysis of the total revenue, expenditure and financing performance;
- a presentation of a revised 2017 macro-fiscal frameworkand the implication of the revised budget outlook for the Medium-Term Fiscal and Expenditure Framework; and
- Key highlights of 2017 budget implementation.
- Mr. Speaker, in the 2017 Budget, we provided information on macro-fiscal developments for the 2016 fiscal year. We, however, now have updated information, which has resulted in the revision of some of the macro-fiscal variables for 2016. With your permission, Mr. Speaker, let me provide updates on these macroeconomic indicators.
- Provisional data released by the Ghana Statistical Service in April, 2017 show that real GDP growth for 2016 was 3.5 percent, against the provisional estimate of 3.6 percent reported in the 2017 budget and lower than the 3.8 percent recorded for 2015, the lowest in over fifteen years. The Services sector, which though was the best growth performer in 2016, recorded a growth of barely 5.7 percent, followed by the Agriculture sector, growing at 3.0 percent and the Industry Sector which contracted by 1.4 percent. The economy we inherited Mr. Speaker, was severely impaired.
- Mr. Speaker, the slowdown in growth in 2016 was largely underpinned by a substantial contraction in the Cocoa sub-sector (-7.0%) and the Petroleum sub-sector (-16.9%). The decline in the Petroleum sub-sector was largely because of the downtime that occurred because of damage to the turret bearing of the FPSO Kwame Nkrumah.
- The Services sector increased its share of GDP from 54.6 percent in 2015 to 56.9 percent in 2016. Over the same period, the share of Industry declined from 25.1 percent to 24.2 percent, while that of Agriculture also declined from 20.3 percent to 18.9 percent. The revised 2016 GDP data is presented as AppendixTable 1.
- Mr. Speaker, on the fiscal front, updated information shows that the end-2016 fiscal deficit was worse than previously estimated, at 9.3 percent of GDP compared to the provisionalfigure of 8.7 percent of GDP on cash basis at the time of presenting the 2017 Budget.The deficit on commitment basis is now at 10.9 percent of GDP up from the 10.3 percent previously reported. This revision has been occasioned by the reversal of interest payment on a non-marketable instrument that fell due at end-2016 but recorded as part of 2017 flows, as well as the revision of the 2016 GDP by the Ghana Statistical Service (GSS) in April 2017.
- Mr. Speaker, the interest payment reversed in 2016 amounted to GH¢758.5 million and the 2016 nominal GDP was revised from GH¢168.73 billion to Gh¢167.31 billion. The revised 2016 fiscal table is presented in Appendix Table 2.
- Mr. Speaker, in recent years the country has unfortunately accumulated a large amount of debt, which resulted in the country beingat a high risk of debt distress and putting our economic development in jeopardy. From a debt stock of GH¢9.5 billion at the end of 2008, it increased to GH¢122.3 billion at the end of 2016 (an increase of debt stock by 1,154%). The debt servicing payments arising from this legacy of debt accumulation amounts to some 45 percent of total domestic revenue. Unfortunately, our economy would have to live with this burden for some time as we make efforts to repair the damage.The revised 2016 nominal GDP of GH¢167.3billion, puts the public debt-to-GDP ratio at 73.1 percent of GDP against the 72.5 percent reported in the 2017 Budget presented to this House earlier in March this year.
- Mr. Speaker, we inherited a weak economy characterized by:
- high fiscal deficit (9.3% of GDP on a cash basis against a target of 5% on cash basis);
- a primary deficit of 1.4 percent of GDP against a target surplus of 1.2 percent
- high debt-to-GDP ratio (73.1% of GDP);
- high inflation (15.4%);
- low credit to the private sector;
- high interest rate (91-TB rate: 16.4%);
- weak domestic revenue mobilization;
- low external Reserves of 2.8 months of Import Cover;
- policy reversals including some unconstrained expenditures (Gh¢7bn of outstanding commitments and undischarged obligations); and
- weak economic growth (3.5%, lowest in fifteen years)
- Mr. Speaker, consistent with Section 28(2)(c) of Act 921, we will now present macro-fiscal developments up to the first half of 2017. In cases where January-June 2017 data are not available, we will provide the latest available data.
- Mr. Speaker, to put the performance of the economy in the first half of 2017 into perspective, it will be useful to remind ourselves of the macroeconomic targets we set for ourselves for the 2017 fiscal year based on the overall macroeconomic objectives of Government.
- Consistent with our medium-term development priorities, the macroeconomic framework for 2017 aims at ensuring macroeconomic stability, shifting the focus of economic management from taxation to production, protecting the preferential option for the poor and making the machinery of government work to deliver the benefits of progress for all Ghanaians. Anchored on the medium term macroeconomic framework, the specific macroeconomic targets set for 2017 were as follows:
- overall GDP growth rate of 6.3 percent;
- non-oil GDP growth rate of 4.6 percent;
- end-year inflation rate of 11.2 percent;
- average inflation rate of 12.4 percent;
- overall fiscal deficit of 6.5 percent of GDP;
- primary surplus of 0.4 percent of GDP; and
- Gross Foreign Assets to cover at least 3 months of imports of goods and services.
- Mr. Speaker, we promised to stabilize the economy in a sustainable manner, while accelerating growth and creating prosperity and jobs for all. The macro-fiscal performance we have achieved in the first six months of President Akufo-Addo’s administration is showing remarkable progress.The major macroeconomic indicators are now trending in the right direction indicating that the economy is on track.
- Mr. Speaker, developments from January up to June 2017, indicate that the President’s policies and programmes are yielding the expected results, and,in some case exceeding expectations.:
- The GDP for first quarter of 2017 grew by 6.6 percent against 4.4 percent for the same period in 2016;
- Inflation reduced to 12.1 percent at the end of June 2017, from 15.4 percent at end December 2016;
- Interest rates are on the decline. For example, the 91-day treasury bill rates have reduced from 16.4 percent at end 2016 to 12.08 percent at end June 2017;
- The fiscal deficit as a percentage of GDP for the period January-June 2017 was 2.7 percent compared with a deficit of 4.0 percent over the same period in 2016;
- The primary surplus for January-June 2017 was 0.6 percent of GDP compared to a deficit of 1.3 percent over the same period in 2016; and
- The Gross International Reserves at the end of June 2017 was US$5.9 billion, the equivalent of 3.4 months of import cover, up from US$4.9 billion at the end of December 2016 (equivalent to 2.8 months of import cover).
- Mr. Speaker, these indicators clearly show that the economy is on the path of recovery and investor confidence has been restored. Additionally, the business and consumer confidence surveys by the Bank of Ghana conducted in June 2017 broadly reflects positive sentiments in the direction of the economy as noted in the July edition of the Bank of Ghana’s MPC press release.
- Mr.Speaker, based on the significant progress that has been made in macroeconomic stability and improvements in real GDP growth, the Fitch Rating Agency, on 12th May 2017, revised its outlook on Ghana’s long term foreign and local currency Issuer Default Ratings (IDR) from Negative to Stable and affirmed the country’s IDR at B. We are optimistic that we will sustain the gains made in macroeconomic stability and instil more confidence in the economy for both domestic and international investors.
- Mr. Speaker, permit me to delve into the details of the macro-fiscal performance for the period under review.
- Mr. Speaker, provisional data from the Ghana Statistical Service (GSS)show that the overall real GDP growth (year-on-year) for the first quarter of 2017 was 6.6 percent, an increase from 4.4 percent registered for the same quarter of 2016. The Industry sector recorded the highest and impressive growth of 11.5 percent, up from 1.8 percent in the same quarter of 2016. The Agriculture sector recorded a growth of 7.6 percent, compared with 5.0 percent recorded over the same period in 2016.The Services Sectorrecorded a modestgrowth of 3.7 percent, compared with 6.6 percent in the same period of 2016, as shown in Appendix Table3.
- Mr. Speaker, the performance in the Industry Sector was largely driven by the Mining and Quarrying (which includes Petroleum) sub-sector, which had contracted over the corresponding period in 2016. Underpinning the year-on-year improvement in Agriculture was a strong growth performance in Crops and Cocoa, and a substantially improved performance in the Fisheries sub-sector. The year-on-year slowdown in growth of the Services sector reflects a corresponding slowdown in growth of the key subsectors of Information and Communication, and Finance and Insurance.
- In nominal terms, the first quarter 2017 GDP at current prices was GH¢44.7billion, compared with GH¢36.5billion for the corresponding period in 2016. In real terms, these translate into GH¢8.6billion and GH¢8.0 billion for first quarter 2017 and 2016 respectively. [EA1]
- Mr. Speaker, headline inflation consistently declined from 15.4 percent in December 2016 to 12.1 percent in June 2017. The consecutive decline in inflation during the period was broad-based with food and non-food inflation declining. Food inflation went downfrom 9.7 percent in December 2016 to 6.2 percent in June 2017, while non-food inflation declined from 18.2 percent to 15.1 percent over the same period. The observed disinflation process was influenced largely by monetary policy tightness, fiscal discipline and stability in the exchange rate.
Monetary, Credit, and Financial Markets
- Mr. Speaker, broad money supply (M2+) expanded by 23.7 percent in May 2017, in comparison with 16.8 percent a year ago. All the components of M2+ grew at higher pace in May 2017 compared with May 2016. Total outstanding credit stood at GH¢365 billion at the end of May 2017, of which the private sector accounted for 86.5 percent. Outstanding credit to the private sector recorded an annual growth of 16.2 percent in May 2017 against 10.1 percent a year earlier.
- Mr. Speaker,interest rates have responded to government’s economic policies and are now trending downwards.The Bank of Ghana reduced its Monetary Policy Rate (MPR) by 450 basis points from January to July 2017: 200 basis points (bps) from 25.5 percent to 23.5 percent in March 2017, by 100 basis points in May to 22.5 percent, and further by 150 basis points to 21 percent in July 2017.The trend of lower interest rates we are seeing is in direct response to the equally consistent declines in headline inflation and inflation expectations, and the general improvements in the macroeconomic fundamentals. In response, the average interest rates on the 91-day bill has declined since December 2016 from 16.81 percentto 12.10 percent in June 2017 while the rates on the 182-day Treasury-bill rate fell from 18.5 percent in December 2016 to 13.28 percent in June 2017.
- Mr. Speaker, the period under review witnessed a turn-around on the Stock Exchange, reflecting growing investor confidence in the economy. The Ghana Stock Exchange Composite Index (GSE-CI) closed at 1,964.6 points in June 2017, from 1,689.1 points in December 2016, gaining 16.3 percent on a year-to-date basis. Total market capitalization increased to GH¢59.5 billion in June 2017 from GH¢52.7 billion in December 2016, representing a year-to-date growth of 12.9 percent. The increase was due to higher trade volumes and share prices. Sectors that recorded market capitalisation gains were Oil, Food and Beverages, Agriculture, Finance, Distribution, Information Technology, and Manufacturing sub-sectors.
- Mr. Speaker, global developments continue to impact on the country’s external sector performance. Provisional estimates show that the trade account recorded a surplus of US$1,429 million for the first half of 2017 due to a significant increase in export earnings combined with lower imports. This compares to an almost equivalent deficit of US$1,403.7 million over the same period in 2016.
- Merchandise exports increased by 39.7 percent from a deficit of US$727.7 million same period last year to US$7.2billion for the Jan-June 2017 period reflecting higher gold and crude oil export earnings. On the other hand, merchandise imports reduced by 14.2 percent to US$5.7billion, mainly on account of decreases in both oil and non-oil imports.
- Mr. Speaker, the Ghana cedi remains relatively stable on the back of Ghana’s improved external payments position, improved market sentiments, the positive impact of fiscal consolidation, and increased foreign exchange inflows since mid-March 2017.
- Since March 2017, the exchange rate has been fairly stable on the back of government’s economic policies. This has been supported by improved liquidity, the emerging trade surplus and increased reserves.In the Inter-Bank Market, the Ghana cedi depreciated on cumulative basis by 3.7 percent, 8.3 percent and 10.8 percent against the US dollar, the pound sterling and the euro respectively by end-June 2017..
- Mr. Speaker, the country’s Gross International Reserves improved markedly from a stock position of US$4.9billion at the end of December 2016, which could cover 2.8 months of imports, to US$5.9billion in June 2017, sufficient cover for 3.4 months of imports.
- Mr. Speaker, fiscal policy in the 2017 Budget was designed to restore confidence in the economy, ensure fiscal and debt sustainability and promote overall macroeconomic stability. Preliminary fiscal data for the period indicates that:
- the overall fiscal deficit was 2.7 percent of GDP against a target of 3.5 percent;
- the primary balance for the period was a surplus of 0.6 percent of GDP against a targeted deficit of 0.01 percent;
- the lower than programmed deficit resulted from both revenues and expenditures falling below their respective targets;
- Total Revenue and Grants fell below target by 14.9 percent; and
- Total expenditure (incl. the clearance of arrears) was consequently aligned to match revenue inflows and thuswas below target by 16.7 percent.
- Mr. Speaker, Total Revenue and Grants for the period amounted to GH¢17.5 billion (8.6 percent of GDP) against a target of GH¢20.5 billion (10.1 percent of GDP). In nominal terms, the provisional outturn was 6.5 percent higher than the outturn during the same period in 2016, as shown in Appendix Table 4.
- Mr. Speaker, total Domestic Revenue, comprising all categories of tax and non-tax revenues amounted to GH¢16.9 billion. Of this amount, total tax revenue (including upstream petroleum receipts) was GH¢13.7 billion, against a target of GH¢15.7 billion. The provisional outturn was 13.1 percent lower than the target of GH¢15.7 billion. Upstream petroleum receipts amounted to GH¢342.9 million, against a target of GH¢319.3 million; of which, GH¢115.65 million was from Corporate Income Taxes.
- Mr. Speaker, revenue performance after the passage of the Budget at the end of March 2017 has seen much improvement compared to the first quarter. Tax revenue performance is expected to improve in the coming months as economic agents assimilate the new tax policy measures and the tax compliance measures to stop leakages,yield results.
- Mr. Speaker, taxes on Income and Property and International Trade accounted for about 47 percent and 33 percent of the total shortfall in tax revenue respectively. The remaining 20 percent was accounted for by the shortfall in taxes on Domestic Goods and Services.
- Mr. Speaker, a slower level of economic activity in the services sectors of the economy impacted Income taxes while lower import volumes led to lower revenues from International Trade taxes.
- Grant disbursements from development partners amounted to GH¢808.4 million and was 20.6 percent lower than the budget target of GH¢1.0 billion. In nominal terms, the outturn was 27.9 percent higher than the outturn during the same period in 2016.
- Mr. Speaker, Total Expenditure, including payments for the clearance of arrears amounted to GH¢23.0 billion (11.3 percent of GDP), against a target of GH¢27.6 billion (13.6 percent of GDP). Budget allotments for the period, were reviewed to match the revenue inflows to ensure that our fiscal objectives and targets were not derailed.
- Wages and salaries for the period amounted to GH¢6.8 billion (3.4 percent of GDP) which was within the target of GH¢6.9 billion.
- Mr. Speaker, expenditures on the use of Goods & Services amounted to GH¢854.6 million (0.4 percent of GDP) against the target of GH¢1.4 billion (0.7 percent of GDP).This represents 61.4 percent of programmed target for the period.
- Interest payments amounted to GH¢6.7 billion (3.3 percent of GDP) against a target of GH¢7.1 billion (3.5 percent of GDP), 5.5 percent lower than the target. Mr. Speaker, our liability management programme including re-profiling (extending maturity profile of domestic debt by issuing longer-dated instruments to replace shorter-dated instruments thereby reducing annual debt servicing cost and roll over risk) is expected to provide provisional savings of GH¢612 million. Domestic interest payment for the period amounted to GH¢5.3 billion against a target of GH¢5.7 billion, indicating potential savings of GH¢374.6 million for the period, arising mainly from the re-profiling of maturing domestic debt.
- Mr. Speaker, Grants to Other Government Units, which includes the transfers made to Statutory and earmarked Funds, fell below target mainly because of lower domestic revenues.
- Mr. Speaker, Capital Expenditure (CAPEX) amounted to GH¢2.4 billion (1.2 percent of GDP), 81.8 percent of the period target of GH¢2.9 billion (1.4 percent of GDP), Foreign-Financed Capital spending was, however, higher than target due mainly to improvedproject loan disbursements.
- Mr. Speaker, at the end of the 2016, new arrears of some GH¢5.0 billion had been accumulated, bringing the total arrears that should be cleared to GH¢7.0 billion. As I indicated in the 2017 Budget Statement, we are undertaking an audit of these arrears, which is expected to be completed by October 2017. We plan to eliminate all government arrears by end 2019 following the outcome of an audit of the outstanding commitments generated as at end 2016 and institute stringent measures that will prevent the accumulation of new ones. To this end, the clearance of arrears will be expedited in the second half of the year to ensure that the risk that these arrears pose especially to financial sector is minimized.
- Mr. Speaker, the cash fiscal deficit wasGH¢5.6 billion (2.7 percent of GDP) compared to GH¢6.7 billion (4.0 percent of GDP) recorded in the same period in 2016. This wasfinancedmainly from domestic sources and included a draw down on government deposits with the Bank of Ghana. Total net Domestic Financing amounted to GH¢5.5 billion, while net Foreign Financing amounted to GH¢76.8 million.
- Mr. Speaker, the primary balance recorded a surplus of 0.6 percent of GDP, against a target deficit of 0.01 percent, an indication that our fiscal effort is on track.This should ensure a lower rate of debt accumulation.
- Mr. Speaker, petroleum receipts in the first half of 2017 amounted to US$277.79 million, compared to the end-year projection of US$515.57 million. The revenue accrued from the Ghana Group’s 1st and 2nd Tweneboah-Enyerah-Ntomme (TEN) liftings, as well as the 35th-37th Jubilee Fields liftings. The proceeds for the 1st TEN and 35th Jubilee liftings,undertaken in December 2016 were received in the first quarter of 2017.
- Royalties from the Jubilee and TEN Fields for the first half of the year amounted to US$67.68 million, while Carried and Participating Interest amounted to US$182.13 million. Other petroleum revenue sources included corporate income tax (US$27.34 million), Surface Rentals (US$0.49 million) and Petroleum Holding Fund (PHF) income of US$0.17 million.
- Mr. Speaker, of the amount received, a total of US$90.90 million has been transferred to GNPC in respect of Equity Financing Cost (US$51.81 million) and its share of the net Carried and Participating Interest (US$39.10 million). The balance was transferred to the ABFA (US$117.74 million) and the Ghana Petroleum Funds (US$78.25 million). Of the amount transferred to the Ghana Petroleum Funds, US$23.48 million and US$54.78 million were transferred to the Ghana Heritage Fund and the Ghana Stabilisation Fund, respectively.
- Mr. Speaker, in nominal terms, the gross public debt stock stood at a provisional figure of GH¢138.5 billion (US$ 31.7 billion) as at end June 2017. The stock comprised external and domestic debt of GH¢74.6 billion (US$ 17.1 billion) and GH¢ 63.9 billion (US$ 14.6 billion) respectively. Mr. Speaker, contrary to the annual average rate of debt accumulation of 36.7 percent per annumover the last eight years, the rate of accumulation over the last six months is only about 13.3 percent.
- Mr. Speaker, as of end March 2017, the debt-to-GDP ratio was estimated to be 70.9 percent and given the current trend, we expect the ratio to be around 71.0 percent by the end of the year, once all the effects of this year’s debt re-profiling have materialised.
- Mr. Speaker, it is important to note that while we do not expect the debt reprofiling to add to the existing stock of debt, it is expected, however, that the stock of debt should increase marginally by the already programmed net financing of this year’s budget deficit.
Debt management strategy
- Mr. Speaker, the Medium-Term Debt Management Strategy (MTDS) for 2017-2019 is in fulfilment of Section 59 of the Public Financial Management Act, 2016 (Act 921), and is the first to be prepared under the Act.
- Mr. Speaker, the chosen strategy is in line with the debt management objectives of borrowing at a minimum cost and maintaining a prudent degree of risk while helping to develop the domestic capital market. It envisages increased interest by non-resident investors in the domestic bond market. Government intends to lower borrowing cost, minimize the growth of short-term domestic debt and lengthen the maturity profile of domestic debt under the re-profiling programme. The net result of this strategy should reduce the rollover/refinancing risk and broaden the range of instruments offered in the domestic market. It is important to recognize that re-profiling does not add to public debt and it remains our expectation that this august House, especially, will be united in supporting Government efforts to re-profile a significant proportion of our national debt stock.
Liability Management and the Re-Profiling Programme
- Mr. Speaker, the re-profiling programme of domestic debt, which involved extension of tenor and issuance of longer dated bonds, has been largely successful. We issued the first 15-year bond in April and issued a second 7-year bond. Provisional interest savings arising from Government implementation of the liability management programme by re-profiling domestic debt is estimated at GH¢612 million for 2017.This re-profiling will not add to thedebt stock by year-end but rather replaces existing debt as per the gross financing requirements.
- Mr. Speaker, over the past few years, as a result of a culmination of a chronically high and rising public debt and unsustainable debt burdens, risks such as roll-over and refinancing our debt has confronted us as a country.
- Mr. Speaker, for example, on a weekly basis, about GH¢1 billion of already contracted domestic debt was maturing. In fact, that means about GH¢4 billion of domestic debt matures per month at a time when our tax revenue per month is just about an average of GH¢ 2.2 billion. This then meant that we would have had a problem of refinancing this maturity. We would have had to stop salary payments and all government expenditures for the 2017 fiscal year, in order to pay back this debt. Even that one would still would not have been enough as it barely covers 50 percent of the maturing bill.
- Consequently, Government chose the option of reprofiling the maturing domestic debt because the domestic debt more so than the external debt posed the greatest risk to the debt portfolio at this time.
- Therefore, the strategy for 2017 was to issue long-term bonds which have an elongated tenure instead of 91-day Treasury bills which are issued on a weekly basis and as such mature on a weekly basis. The reprofiling replaces these short-term maturing bills with a new long-term domestic loan.
- Consequently, we issued about GH¢9.0 billion to reprofile the maturing domestic debt. This amount is different from the regular budget financing of the deficit. As this amount is replacing already existing debt and future maturing debt, it means that, the reprofiling transaction does not add on to the domestic debt.
- The benefits so far have been instrumental for macroeconomic stability. There has been a reduction in the mix of short to long-term loans. The stock of the 91-day bill declined on a cumulative basis by about 7.95 percent and 13.95 percent for first and second quarters, respectively. On the other hand, the 182-day bill also declined cumulatively by about 17.57 percent and 34.27 percent for first and second quarters, respectively. This is good news as it would reduce the pressure to refinance the monthly GH¢4 billion maturities of domestic bond.
- A major expected impact from the reprofiling operation is a reduction in interest rates. Over the period under review, interest rates on all marketable instruments have declined significantly despite the relatively high monetary policy. The 91-day T Bill rate has fallen significantly from 16.73 percent in 2016 to around 11.93 percent in June 2017. The 182-day T-bill rate has also declined from 17.64percent in December 2016 to around 12.9 percent as at end of June 2017. The 1 year, 2 Year, 3 Year and 5 Year Bonds all declined from 21.00 percent, 22.50 percent, 24.00percent and 24.75percent as at end 2016 to 15.00percent, 17.00percent, 18.50percent and 18.75percent respectively.
- The reprofiling has also led to an extension of Tenor with the Issuance of the first 15-year bond and is currently the longest dated Domestic Bond. As at last year, the longest dated domestic bond was 10 years. In addition, a second 7-year bond was issued in April 2017.
- The yield curve at the primary issuance of domestic bonds has also improved significantly compared to the trend in recent years.
- Following the reprofiling exercise, the savings from interest cost is estimated at GH¢612 million.
- Mr. Speaker, this is a significant performance, considering that interest payments have been increasing in recent times.
Energy Sector Legacy Debt
- Mr. Speaker, the huge pile up of arrears in the Energy sector continues to impact negatively on our economy. It stifles the capacity of players in the power sector to keep our lights on; it denies the banks liquidity, and, in all, frustrates economic activity and growth. That was why streamlining the Energy Sector legacy debt was made a priority policy initiative in the 2017 Budget Statement. As indicated, revenue streams from the Energy Sector Levies Act (ESLA) will beused to ensure certainty of cash flows for the payment of all corresponding debts.
- Mr. Speaker, in this regard, two Joint Lead Managers (JLM) have been appointed to establish a Special Purpose Vehicle (SPV) to issue a domesticmedium-to-long term Energy Bond by securitizing the ESLA receivables.
Implementation of the Credit Risk Assessment Framework
- Mr. Speaker, as stated in the Budget Statement and Economic Policy of government, the financial state of SOEs continues to be of concern. Government has started the implementation of Credit Risk Assessment Framework (CRAF) in observance of the provisions of the PFM Law. This framework helps to determine, largely, the ability of SOEs to repay their debt obligations.
- In this regard, SOEs seeking government support in the form of guarantee and/or on-lending facilities are evaluated through the CRAF framework before any request is granted. The implementation of this measure is to ensure that SOEs will remain creditworthy over the medium to long term after the restructuring of the energy sector debts.
SECTION FOUR: REVISED 2017 MACRO-FISCAL FRAMEWORK
- Mr. Speaker, since the presentation and approval of the 2017 Budget Statement and Economic Policy by this august House in March, there have been some developments, both externally and domestically which have necessitated a revision in the 2017 Fiscal Framework. Consistent with section 28(2)(D) of PFM Act, we present the revised budget for the rest of the 2017 fiscal year.
- The revised assumptions for the 2017 Mid-Year Review, relate specifically to non-oil tax revenues and non-oil related expenditures.
- Mr. Speaker, following the performance of non-oil tax revenues for the first six months of the year, the assumptions underlying the projections for some tax types, namely, Corporate Income Tax (CIT), Import VAT and Import Duty are being revised. Together, these amount to GH¢1.5 billion (0.7 percent of GDP).
- Mr. Speaker, these revisions have mainly been informed by lower than anticipated Corporate taxesand lower import volumes for the first sixmonths of the year. Even though the trend is expected to improve, we still find it prudent to revise the projections downwards.
- Mr. Speaker, unlike the practice in the recent past where government expenditures have actually increased in the face of declining revenues we are now in a regime where spending is based on recognised revenues and expected receipts.
- To ensure that we do not compromise our fiscal consolidation objectives and targets, expenditures are planned to match the downward revision in revenues. The downward revision in revenues and expenditures as well as reclassification of inflows from the sale of shares have resulted in the revision of the fiscal deficit target from 6.5 percent of GDP to 6.3 percent. These revisions are consistent with our fiscal and debt sustainability objectives. Mr. Speaker, being mindful of the high debt burden which has arisen largely because of high fiscal deficits in the past, the revision of the fiscal deficit further demonstrates our commitment to fiscal discipline.
- Mr. Speaker, going forward we will strengthenthe implementation of revenue measures to ensure that we meet our revised revenue targets. To ensure that the fiscal objectives and targets are not compromised, we will make the necessary downward adjustment to discretionary expenditures in the event that we are not able to meet our revenue targets.
Revisions to Total Revenue and Grants, and Expenditure
- Mr. Speaker, Total Revenue and Grants has been revised downwards by 0.9 percent of GDP from GH¢44.5 billion to GH¢43.1 billion. As earlier stated, the revision to total Revenue and Grants emanates from revisions made to Corporate Income Tax, Import VAT, Import duty as well as the reclassification of expected non-tax revenue inflows from the sale of government shares of GH¢500 million as financing.
- Mr. Speaker, total Expenditure has also been revised downwards by 1.1 percent of GDP from GH¢58.1 billion to GH¢55.9 billion, as shown in Appendix Table 5. The key revisions to expenditures include:
- 0.4 percent of GDP (GH¢867.0 million) adjustment to Goods and Services;
- 0.3 percent of GDP (GH¢553.2 million) reduction in total transfers to Other Government Units, which comprise all statutory and earmarked funds; and
- 0.3 percent of GDP (GH¢683.0 million) adjustment to Capital expenditure.
- Mr. Speaker, despite the measures being taken to ensure that we maintain fiscal discipline, government remains strongly committed to growing the economy and delivering services to our people through strategic allocation and efficient use of resources. Our flagship programmes such as the Free SHS, NHIS, School Feeding, LEAP, Planting for Food and Jobs etc. will be protected.
Overall Balance and Financing
- Mr. Speaker, following these adjustments, the overall fiscal balance is expected to improve from a deficit of GH¢13.2 billion (6.5 percent of GDP) to GH¢12.8 billion (6.3 percent of GDP).
- Total financing of the deficit will comprise a net foreign repayment of GH¢1.3 billion while Net Domestic Financing (NDF) will amount to GH¢14.1 billion.Mr. Speaker, the resulting primary balance from the adjustments in revenue, expenditures, and financing is a primary surplus equivalent to 0.2 percent of GDP.
Gross Domestic Product
- Mr. Speaker, even though the projected real GDP growth of 6.3 percent for 2017 has not been revised, the nominal GDP has been revised downwards from GH¢203.41 billion to GH¢202.01 billion, reflecting mainly the revision of the deflator downwards.
- Mr. Speaker, based on the above considerations, the revised macroeconomic targets are summarised below:
- Overall GDP growth rate is maintained at 6.3 percent with nominal GDP revised slightly to GH¢202.01 billion from the original projection of GH¢203.41 billion;
- non-oil GDP growth rate maintained at 4.6 percent;
- end-year inflation rate is maintained at 11.2 percent;
- overall fiscal deficit has been revised downwards from 6.5 percent of GDP to 6.3 percent of GDP;
- primary balance has been revised from a surplus of 0.4 percent of GDP to a surplus of 0.2 percent of GDP; and
- Gross Foreign Assets to cover at least 3 months of imports of goods and services, remains the same as originally programmed.
- Mr. Speaker, these revisions are consistent with government’s resolve to grow the economy and create jobs while maintaining macroeconomic stability through fiscal discipline and prudent economic policies. We will strengthen our collaboration with the private sector to address issues such as tax, energy, and cost of credit that impede their growth and expansion.
- Mr. Speaker, as a demonstration of our commitment to fiscal discipline, government has taken a decision to introduce a numerical fiscal rule to guide the implementation of fiscal policy. In this regard, we will bring to this house an amendment to the PFMA to limit the fiscal deficit within a range of 3 to 5 percent of GDP for any fiscal year.
SECTION FIVE: IMPLEMENTATION HIGHLIGHTS OF THE 2017 BUDGET
- Mr. Speaker, please permit me to now provide you with updates on implementation of some of the major programmes for the 2017 fiscal year.
- Mr. Speaker, in fulfilment of our promise to Ghanaians, we launched the ‘Planting for Food and Jobs’ programme to increase production, ensure food security as well as create jobs. As at June, 2017, about 185,907 farmers, out of a total of 200,000 farmers targeted for the 2017 cropping season, were registered. The farmers are being provided with seeds, fertilizers and extension services to improve their yields.
- During the same period, a total of 56,028 bags of improved seeds of maize, rice, soybean and sorghum, as well as 22,904 sachets of onions, tomatoes and pepper were distributed to beneficiary farmers across the 10 regions of Ghana. An additional 16,808 bags of improved seeds of maize, rice, soybean and sorghum, and 22,968 sachets of onions, pepper and tomatoes will be distributed before the end of the year.
- Mr. Speaker, over 1,896 hectares of maize, rice, soybean, sorghum, onion, pepper and tomatoes are under cultivation. An additional 569 hectares will be cultivated before the end of the year to bring the total to 2,465 hectares.
- Mr. Speaker, fertilizer is also being provided at a subsidized rate of 50 percent to participating farmers. I am happy to announcethat, the reports we are receiving suggest that the fertilizer is getting to its intended beneficiaries and at the reduced price. Beneficiary farmers pay 25 percent of the subsidized price before collection and 25 percent after harvest. As at June 2017, a total of 61,568.05mt (1,231,361 bags) out of 156,000mt (3,120,000 bags) was supplied, representing 39.47 percent of the target. Distribution of fertilizer is on-going especially in the 3 northern regions.
- Mr. Speaker, a total of 822 agricultural extension personnel trained by the Agricultural Colleges, who had been unemployed, were recruited and posted to 187 districts across the 10 regions of the country.
- Mr. Speaker, Government has initiated the following actions to improve the marketing of agricultural produce:
- Linkage to institutional buyers (MDAs, Grains and Legumes Development Board (GLDB), Poultry Farmers, Licensed Agents, etc.);
- Restructuring of Grains and Legumes Development Board (GLDB) to absorb operations of National Buffer Stock Company (NAFCO) and facilitate the purchase of produce from farmers;
- Restoration of existing warehouses – COCOBOD sheds, NAFCO warehouses to provide storage space for agricultural produce;
- Provision of warehouses in designated districts; and
- Aggregator-led business model – Involvement of aggregators in nucleus out-grower schemes to help address bottlenecks in produce marketing by farmers.
- Mr. Speaker, plans are also afoot to address the challenges associated with the supply of agriculture inputs and machinery. Government is procuring various agricultural machinery such as tractors, power tillers, slashers, mechanical planters, boom and vineyard sprayers, motorized sprayers, combine harvesters, irrigation kits, green houses, and grain dryers, which will be distributed to the farmers before the end of the year.
- Mr. Speaker, the incidence of the fall army worm invasion which was first reported in April 2016, posed a challenge to increased food production. Atotal of 112,812 hectares of crops were infested, out of which 14,411 hectares were severely affected. The most affected crops were maize and cowpea.
- Government responded by setting up a National Taskforce and sub-committees to create awareness and take steps to control the spread of the menace. Over 74,000 litres of various chemicals were procured and distributed to all the 216 districts in the country to control the infestation. Farmers are being educated on early detection of the fall army worm invasion.
- Mr. Speaker, the Ministry will continue to sensitize and create awareness among the farmers and the general public and also manage the pest in abandoned heavily infested fields, which could serve as breeding grounds for re-infestation. The Ministry is also establishing a national pest surveillance system.
- The President’s commitment to supporting farmers to feed the country and improve their own lives is very much on course.
- Mr. Speaker, Ghana’s cocoa output, which was over 1 million tonnes in 2010/11 crop year, declined to an average figure of 830,000 tonnes per annum in the past five years. It is the objective of the Government to reverse this declining trend and increase production to more than 1 million tonnes per annum, within the next four years.
- Mr. Speaker, in this regard, Ghana Cocoa Board has rolled out the artificial pollination programmes which are aimed at increasing productivity of cocoa farmers from an average yield of 450kg/ha to over 1,000kg/ha.COCOBOD has trained and deployed 10,000 hand pollinators to assist farmers.It is projected that 24,000 hectares of farms will be pollinated in 2017 with an expected increase to 30,000 hectares in the next three years.
- Mr. Speaker, in view of the effects of climate change and the associated harsh weather conditions, COCOBOD is promoting irrigation among cocoa farmers. This has the potential to increase cocoa production and to ensure high survival of transplanted cocoa seedlings.
- Irrigation systems are being set up around the cocoa stations and piloted on cocoa farms around the cocoa stations for effective monitoring and evaluation. Private sector companies with experience in irrigation in cocoa farms are leading the process with close collaboration of Cocoa Health and Extension Division (CHED) and Seed Production Division (SPD).
- Mr. Speaker, in light of estimated 22 percent of the country’s current cocoa tree stocks classified as over-aged/moribund or CSSVD infected, COCOBOD with support from Government continued the Cocoa Rehabilitation Programme.
- Mr. Speaker, COCOBOD also reformed the Mass Cocoa Spraying to involve greater private sector participation and farmer ownership.
- Mr. Speaker, Ghana and Côte d’Ivoire produce about 60 percent of the world’s cocoa and face common challenges in production and marketing of the beans.The individual country specific solutions are not sufficient to remedy these challenges.
- Mr. Speaker, under the determined leadership of His Excellency Nana Addo Dankwa Akufo-Addo and his Ivorian counterpart, the Ghana-Côte d’Ivoire Cooperation has been renewed and energized leading to a meeting in April 2017 in Abidjan and followed by a second meeting in Accra in June 2017. The meetings have set out the framework of the cooperation and worked out details of its implementation. The implemented decisions and initial successes so far include
- a common strategy,
- anti-smuggling initiative,
- a funding arrangement to undertake critical projects in both countries
- increasing use of cocoa butter equivalent (CBEs)
- formation of a new producer organization.
- Mr. Speaker, a Ghanaian student is eligible to benefit from the Free SHS policy if he/she writes the Basic Education Certificate Examination (BECE) from 2017 and is placed by the Computerized School Selection and Placement System (CSSPS) into a publicly funded second cycle institution. Beneficiaries of this Government scholarship will enjoy it for a period of three years. Foreigners are excluded from the Free SHS.
- Mr. Speaker, to ensure that the poor and the vulnerable are not left behind, students from disadvantaged backgrounds will be considered for placement. To prepare them adequately for a successful SHS programme, special in-school tuition will be provided for them. Additionally, 30 percent of vacancies in elite schools will be reserved for students from Public Junior High Schools.
- Mr. Speaker, government is taking the necessary steps to ensure that the quality of education is not compromised as a result of the implementation of the Free SHS programme. In this regard, a number of interventions have been outlined as part of the implementation of the programme. Notable amongst them are the following:
- Provision of four core textbooks for all first year students;
- Rationalization of teacher deployment and training at the SHS level;
- Optimization of instruction time by extending the school day as well as the number of instructional days;
- Establishment of robust school inspection and accountability systems; and
- One hot meal a day for day students.
Restoration of Health Trainee Allowance
- Mr. Speaker, the government planned to restore health trainee allowance in 2017 starting with the 2017/18 academic year. All health trainees in public training institutions will receive allowance starting September 2017. The Ministry of Health has made provision of Gh¢149million to pay for the four months ending December 2017. This will enable the health trainees concentrate on their education, reduce hardship especially on students from vulnerable and poor families and avoid disruptions in the school curriculum system.
Restructuring of the National Health Insurance Scheme
- Mr. Speaker, the NHIS has undergone several changes since its inception. At the time this government took office, the scheme was facing challenges in claims management (e-claims), delays in processing of claims, coupled with other challenges in the administration and management of the NHIA. The government promised to restructure the NHIS and make it more efficient and effective. Mr. Speaker, a committee has been put in place to review the report and put together a plan for restructuring the scheme.
- Mr. Speaker, presently the LEAP programme has 213,048 household in all 216 districts in all ten regions of Ghana. Out of the 213,048beneficiary households, 193,920 beneficiaries are registered and receive payment on the Ezwich platform operated by the Ghana Interbank Payment and Settlements System. The remaining beneficiary households are in the process of being registered onto the Ezwich platform.
- Total payment made from January to 31st July 2017 isGH¢56,317,670.94.The Government is currently working on a productive and financial inclusion strategy to facilitate the graduation of LEAP beneficiaries from the cash transfer programme.
School Feeding Programme
- Mr. Speaker, the concept of the Programme is to provide children in selected public kindergartens and primary schools in deprived areas of the country with one hot, nutritious meal per school day, using locally grown foodstuffs.
- The immediate objectives of the programme are:
- Increasing school Enrolment, Attendance and Retention
- Reduce Hunger and malnutrition
- Boost Domestic Food Production
The long-term goal is to contribute to poverty reduction and food security in Ghana.
- Currently, the programmer feeds 1,671,777 children in 5,530 schools in all 216 districts and provides employment for over 4,730 caterers.
- Mr. Speaker, achievements for the year include, the development of an effective linkage of the programme with farmer based organisations; development of a new caterer engagement contract, bye-laws and constitution, to govern caterer associations and operations and a strategic plan to enhance collaboration among stakeholders at the district level.
- Mr. Speaker, the energy sector, particularly the electricity sub-sector, has been a major challenge to the growth of the economy in the past years before we took over the administration of the country. The difficulties and unstable electricity supply had created significant constraint on industrial production and socio-economic activities in the country.
- Besides stabilizing the electricity supply, Government has made significant progress with respect to the interventions that were promised in the 2017 Budget Statement. Government has taken steps to deal with the financial difficulties in the sector. Cabinet has approved the implementation of the Cash Waterfall Mechanism (CWFM), which, together with the Energy Legacy Debt restructuring programme, is intended to resolve the perennial cash flow difficulties in the energy sector. Steps are being taken to implement the CWFM immediately.
- Mr. Speaker, we inherited a power sector which had contracted so many power purchase agreements (PPAs) well beyond the country’s demand with the potential to exacerbate the already dire financial crisis in the sector. As promised by His Excellency the President in the 2017 State of the Nation Address (SONA), Cabinet is deliberating on a Strategy Paper submitted by the Ministry of Energy towards rationalizing the PPAs to ensure some least-cost power generation capacity additions.
- On the regulatory front Cabinet has approved the establishment of the Electricity Market Oversight Panel (EMOP). The EMOP was provided for under the Electricity Regulations, LI 1937 but has not seen the light of day since 2008. The EMOP is to be inaugurated in August, 2017, to begin implementing its mandate.The EMOP will exercise oversight responsibility over the Wholesale Electricity Market (WEM) in Ghana with the objective of infusing operational sanity in the generation and supply of electricity in Ghana and particularly managing and optimising hydroelectric generation in the country.
- Mr. Speaker, one key intervention that Government promised in the 2017 Budget Statement was the restructuring of the Volta River Authority (VRA) to bring about increased operational efficiency and private sector investments in the power sector. Government has approved the VRA restructuring agenda submitted by the Ministry to Cabinet and processes towards the implementation of the restructuring agenda have begun under the coordination of the Ministry of Finance.
- Mr. Speaker, in the renewable energy front, Government has given approval to Bui Power to collaborate with SYNO Hydro to construct a 250mw solar power facility to operate as a hybrid electricity generation source to complement the hydro- electricity, so that the Bui power plant can enhance its electricity generation capability during off-peak periods.
- Mr. Speaker, in 2017 we inherited from the previous government Liquefied Natural Gas (LNG) supply contracts that were mispriced. Prices were higher than indigenous sources of gas and in some cases higher than the crude oil, it was designed to displace. We have restructured and renegotiated the terms of LNG supply such that the price is now below that of indigenous gas and guaranteed for the long term to be below that of alternative fuels such as light crude oil.Our successful renegotiations of these LNG contracts will result in savings of approximately a billion dollars.
- Mr. Speaker, these initiatives are aimed at achieving a reduction in the per kilowattprice of electricity for industry and households.
- Mr. Speaker, as part of Government’s effort to improve public mass transportation, the Ministry initiated processes for the acquisition of buses for the two Public Bus Companies. The objective is to improve the current bus fleet of Metro Mass and Inter-City State Transport Corporation (ISCT). In all a total of 800 buses will be acquired. These include 200 Compress Natural Gas (CNG) and 500 diesel buses for the Metro Mass Transit and the remaining 100 diesel buses for ISTC.
- As a demonstration of Government’s commitment to address challenges at Ghana’s Ports, and to improve ports efficiency, the government has decided to implement the following interventions:
- The launch of the first phase of the interconnectivity of computer systems between Ghana and Cote d’Ivoire Customs to facilitate better collaboration and coordination;
- Removal of all customs barriers on transit corridors;
- Mandatory Joint inspection by regulatory agencies at the Ports; and
- Implementation of 100 percent paperless processing procedures.
- Mr. Speaker, the establishment of a Ministry of Railways Development was to address what the President has continuously described as one of the greatest tragedies of our post-colonial development. From the colonial legacy of 947 kilometres at independence barely 13 percent was operational in January 2017. The renewed interest that has been generated in the sector by over 200 companies both local and foreign expressing interest in participating in the redevelopment of the rail sector more than justifies the wisdom in setting up a Ministry to focus on the redevelopment of the sector.
- Mr. Speaker, Tema to Akosombo has commenced and is projected to complete by mid-2020. On the Eastern Line, a feasibility study is ready to trigger a procurement process. On the Central Spine we have commenced the process of procuring a consultant to undertake a feasibility study.
Roads and Highways
- Mr. Speaker, the Ministry maintained its focus on routine and periodic maintenance activities to protect the huge investment made by Government in the provision of the road infrastructure.
- As at end of June 2017, routine maintenance had been undertaken on 6,233km (52% of the approved work plan) of the trunk road network; 8,899km (39% of the approved work plan) on the feeder road network; and 6,000km (59% of the approved work plan) on the urban road network.
- Mr. Speaker, within the same period, periodic maintenance activities, comprising re-gravelling/spot improvement and resealing works had been carried out on 199km (57% of the approved work plan), 100km (33% of the approved work plan) and 180km (51% of the approved work plan) on the trunk, feeder and urban road networks respectively. Periodic maintenance activities on the urban roads were mostly focused on resealing and asphalt overlay works which saw 100km of roads asphalted in MMDAs such as; Tema and Accra.
- Also, minor rehabilitation works covering minor upgrading and the construction of culverts and drainage structures were carried on 261km (75% of the approved work plan) and 25km (25% of the approved work plan) on the feeder and urban road networks respectively. The details of progress on some of the maintenance projects are shown below;