‘Sowing the seeds for growth and jobs’ (pt 4)
Total revenue and grants for 2016 amounted to GH¢33,678 million compared to a revised budget of GH¢37,889 million, marking a shortfall of 11.1 per cent and representing 20.0 per cent of GDP.
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The shortfall in total revenue and grants was largely caused by the impact of energy challenges on households and firms, low petroleum receipts as a result of lower than expected crude oil price and production, and non-realisation of proceeds from both tax and non-tax categories.
With the exception of taxes on goods and services which exceeded the target marginally, all the other tax types, as well as foreign grant disbursements, fell below their respective targets.
Although on a year-on-year basis the nominal outturn of tax revenue was 16.5 per cent higher than the outturn for the same period in 2015, the nominal growth of 25.5 per cent on a year-on-year basis between 2014 and 2015 indicates a more robust performance in 2015 compared to 2016.
In 2017, government budgets total revenue and grants of GH¢44,961 million. This represents an increase of 33.5 per cent over 2016 actual and 22.1 per cent of GDP. While government expects to grow its total revenues, it has initiated policies to either abolish or reduce a number of taxes. The review of taxes is expected to encourage production of goods and services. The chart below shows the sources of budgeted total revenue for 2017.
Government’s key policy thrust for the economy is a shift away from taxation to production over the medium term. In this light, a number of tax cuts and reductions have been proposed to encourage production, especially in the private sector, and this is expected to improve tax revenues.
While this policy initiative is laudable, the outcome of improved tax revenue may not be achieved, at least
in the short-term. In addition to these tax initiatives, the private sector also requires available market and healthy underlying macro-economic variables such as favourable interest rates and a stable currency to thrive. To achieve the revenue target for 2017, government intends to broaden the tax net, reduce exemptions by eliminating discretionary tax waivers at the ports and only grant waivers on application to the Ministry of Finance. We believe this policy is in the right direction and will address incidences of unwarranted waivers by port officials.
Petroleum receipts
According to figure 2, total petroleum receipts (i.e. proceeds from Jubilee liftings and other petroleum receipts) as at the end of 2016 was US$247.18 million (GH¢972.55 million), compared with the 2015 receipts of US$396.17 million (GH¢1,449.92 million).
In 2017, government expects to make total petroleum receipts of US$515.64 million based on oil price forecast of US$56.14/ bbl.
The sum of the field-by-field averages of the three producing fields – Jubilee, TEN and SGN (SGN will start production in the second half of 2017) – will yield a 2017 crude oil output of 43,875,920 barrels, compared to 32,209,060 barrels in 2016.
Oil revenue budget for 2017 is US$515.7 million, based on benchmark revenue crude oil price of US$56.14/ bbl.
Given the volatility in oil prices, actual revenues may vary significantly. Although OPEC has agreed to cut volumes by some 1.2 million barrels per day, Libya, Iran and Nigeria have indicated an intention to increase the supply of oil onto the market and this could put pressure on oil prices, thus affecting government’s revenue target. Also, the revenue from the TEN field could be affected by the maritime dispute with Côte d'Ivoire and depending on the outcome, this may impact on the realisation of the projected revenue from petroleum receipts.
Total petroleum receipts for 2017 is expected to increase to US$515.67 million (GH¢2,358.18 million) from US$247.18 million (GH¢972.55 million) in 2016, representing about 108 per cent increase.
Expenditure
Total expenditure for 2016 amounted to GH¢51,125.04 million (30.3% of GDP) against a revised budget of GH¢43,983.84 million (26.4% of GDP). Total expenditure exceeded the revised budget by 16.2 per cent.
Expenditure on compensation to employees (wages, salaries and social contributions) for the period from January to December 2016 totalled GH¢14,164.79 million, against a revised budget of GH¢13,730.92 million.
Interest payments on domestic and external borrowings for the period amounted to GH¢10,770.44 million. This was 2.7 per cent higher than the revised budget of GH¢10,490.26 million. Of this total amount, domestic interest payment amounted to GH¢8,466.37 million representing 79 per cent of total interest payments.
Total capital expenditure for the year ending 2016 amounted to GH¢7,678 million, exceeding the revised budget by 20 per cent. The foreign financed component of total capital expenditure was GH¢5,629.57 million representing 73 per cent of total capital expenditure.
Government projects total expenditure to increase by 6.4 per cent from GH¢51,125.04 million in 2016 to GH¢54,394.79 million (26.7% of projected GDP) in 2017. The chart below shows the breakdown of budgeted expenditure for 2017.
Government’s anticipated social interventions, including the free senior high school (SHS) commencing in the 2017/2018 academic year, the Zongo Development initiative, the allocation of US$1.0 million to each constituency as well as high-interest payments can lead to budget overruns if revenue does not perform as expected and other sustainable sources of funding are not found to maintain these initiatives.
Government will have to improve domestic revenue mobilisation efforts, including the use of Electronic Point of Sale devices to monitor the collection of VAT and the full implementation of the Excise Tax Stamp Act, 2013 (Act 873), in order to meet its target budget deficit of 6.5%.
Other policy initiatives which we believe would be helpful in this regard are the role out of the National Identification and digital property addressing systems. In our view, these policy initiatives, if properly implemented will enhance revenue mobilisation.
Deficit
In 2016, the overall budget deficit on cash basis was the equivalent of 8.7 per cent of GDP against the IMF Extended Credit Facility Programme target of 5.3 per cent of GDP. On commitments basis, the fiscal deficit was 10.3 per cent of GDP. This was mainly as a result of large fiscal slippage and poor revenue performance. The deficit was financed from a mix of domestic and foreign sources. Domestic financing comprised solely marketable instruments in the wake of the first year of implementation of zero central bank financing. Foreign financing included project loan disbursements on ongoing projects and a sovereign bond issue to partially refinance the maturing bond in 2017 and for budget support.
Based on the revenue and expenditure estimates, the 2017 budget will result in an overall budget deficit of GH¢13,175.7 million, equivalent to 6.5 per cent of GDP down from 8.7 per cent in 2016. Financing of the deficit will be from both domestic and foreign sources. Net Domestic Financing is estimated at GH¢14,579.5 million, equivalent to 7.1 per cent of GDP, and includes additional financing from divestiture proceeds of GH¢1,829.2 million. Net foreign financing is estimated to constitute a net repayment of GH¢1,317.4 million, equivalent to 0.6 per cent of GDP.
Government’s original target deficit for the medium-term in line with the IMF Extended Credit Facility Programme was set at 3.0 per cent by the end of 2018. However, in view of the deficit of 10.3 per cent of GDP on commitment basis and 8.7 per cent on cash basis recorded in 2016, mainly as a result of large fiscal slippage and poor revenue performance, coupled with government’s planned developmental programmes for 2017, the government has revised its budget deficit target to 6.5 per cent in 2017. While this target is reasonable, its attainment is largely dependent on whether or not government will be able to achieve the revenue target. Government must, therefore, aggressively pursue the measures intended to address the fiscal deficit through improved revenue mobilisation, efficient management of public expenditures as well as prudent debt management.
Public debt
The public debt stock stood at 72.5 per cent of GDP as at the end of 2016 from 72.2 per cent of GDP in 2015. On a nominal basis, the provisional debt stock as at December 2016 stood at GH¢122,263.01 million (US$29,227.15 million). This was made up of GH¢68,859.62 million (US$16,460.99 million) for external debt and GH¢53,403.39 million (US$12,766.16 million) for domestic debt, representing 40.8 per cent and 31.6 per cent of GDP respectively.
Government’s public debt stock target for 2017 is GH¢144,218.02 million. This is aimed at achieving its fiscal policy objectives and is equivalent to 70.9% of the projected GDP.
Government should adhere to its debt management strategies, as articulated in the 2017 Budget Statement. These include channelling concessional loans and grant to finance social infrastructure; utilising non-concessional borrowing for self-financing capital projects and instituting escrow mechanisms for on-lent facilities.
This will ensure consolidation of potential gains that may be derived from the use of funds raised from the issue of sovereign bonds and ultimately ensuring macroeconomic stability in the short to medium-term. Government should consider diversifying the sources of long-term financing to help improve the fiscal situation as well as a strict enforcement of the Public Financial Management Act 2016, (Act 921).