The finance minister, Ken Ofori-Atta, yesterday presented the budget statement to parliament. Here are a few thoughts.
1. The fiscal deficit of 10.3% on a commitment basis and 8.7% on cash basis is much more than I expected although I had been certain that the 5% was unrealistic in an election year. It’s no surprise then that the government has sought to extend the current IMF programme as the previous government failed to achieve its targets under it.
2.The abolishing of some indirect taxes (list here) are welcome as long as they will not affect the revenue targets that the minister expects to meet.
3. Talking about revenue targets, the most important part of the budget is the projected revenue of GH¢44.9 billion. This would be 33.5% more than the revenue in 2016. That is quite ambitious especially with the removal of some taxes and reduction of others.
4. In meeting the revenue target, the Minister projects oil revenue of $515.64 million with a benchmark price for crude at $56.142/bbl. This is higher than the current oil price and I think a benchmark of $50/bbl would be better in order to be cautious.
5. The review of import duty exemptions to check abuses is a commendable move. From now on all MDAs, suppliers, contractors, charities, investors and so on who want exemptions from import duty have to first pay the duty in full and then apply for a refund. This move is sure to close some loopholes and help the minister towards meeting his revenue target.
6. The growth target of 6.3% is below the 7.5% target that was projected by several bodies last year. I hope we at least meet this target since growth is crucial to our debt management and the government’s plans. With the debt being 73% of GDP, a boost to growth will serve to reduce the ratio and hopefully bring down our borrowing costs.
7. While there was no mention of the maturing 2007 Eurobonds, the drawdown of the Sinking Fund of about GH¢716.1 million could mean that is being used to meet the balance the country still owes from that issue.
8. The Minister indicating that the Bank of Ghana will raise the minimum capital requirements for banks is in the right direction. The B&FT reports that Ghana has 15 more banks than South Africa. One can only wonder how these relatively small banks will withstand major financial shock. Some consolidation is needed in the sector.
9. The dollar has been rising rapidly as the US Federal Reserve normalizes monetary policy and Trump strikes a protectionist tone. Even with a growing economy, a rapidly depreciating cedi could leave the debt/GDP high as the foreign component of our debt keeps appreciating in cedi value. The minister mentioned that prudent fiscal, monetary and external sector policies will ensure exchange rate stability. I believe that with time he would announce specific measures to address the exchange rate as it threatens to throw a lot of the government’s plans (such as reducing interest payments) into disarray.
10. The 25% cap on tax revenues to be used for statutory payments, transfers to GNPC and retentions by MDAs makes me wonder if arrears are going to be built up even of the government has the ability to pay. Already statutory funds suffer from late payments. I understand that the minister is trying to create fiscal space but statutory payments are supposed to be priorities. Even if they have not been treated as such over the years.
11. The minister did well to try to balance the reality of the fiscal situation with the generous campaign promises the NPP made. Corporate tax was not cut, which I think is the right move. As the free SHS and the restoration of allowances of teachers and nurses under training is going on the minister would be able to access their impact and then make decisions about what the fiscal space will allow.
The budget struck an optimistic tone, which I think is necessary in the situation in which we find ourselves. Hopefully, our optimism would prove to have been warranted.