2016 Budget: Why high growth has been postponed
Once again, the budget and economic policy statement of the government has been presented and the economic growth rate target has still been set at a single digit rate, far below the expectation of many.
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For many ordinary citizens, the policy statement and expenditure estimates contain nothing to impact them positively. Economic analysts and the opposition political parties, have criticised the drab outlook of the budget, as a mark of sacrificing growth for an International Monetary Fund (IMF) prescribed stability that is set to make economic conditions harsher as every austere economic outlook brings.
While this represents the stark reality, achieving stability is essential to launch into growth in the future.
The Finance Minister, Mr Seth Terkper, told journalists shortly after the presentation of the budget statement on November 13 that going for a lower deficit meant that the country would cut its level of borrowing to prepare the ground for stronger growth rate.
“If you reduce the deficits, you borrow less, because the deficit has to be financed. So, one of the ways to reduce the public debt is to reduce the deficits,” Mr Terkper said.
He further explained that the steeper the reduction in the deficit for the current year, the lesser the level in subsequent years. Hence, he believes once the fiscal deficits are being closed now, the economy would enjoy fiscal space in subsequent years.
Allow the ‘shake up’
The popular refrain that the budget contains no pragmatic measures could be contextualised in the general notion of a large segment of citizens, who have become used to reaping gains or seeing results immediately a process is initiated.
From the football club supporters who often go berserk when their teams are not producing the desired and expected results, to the political apparatchikis who vandalise party and public installations because they perceive a decision is not in their interest or has no immediate benefit, or workers who will not allow leaders to implement difficult decisions in the interim for them to reap the benefits in future.
From this standpoint, the reactions to the 2016 Budget statement comes as no surprise. However, it is important to allow things to "shake up" so they can settle nicely later. It is time to plant for the seeds to get rotten so they can sprout better.
Going for an ambitious growth-led budget into next year will be counter-productive for the stability the economy requires, going forward. This is why in the discussions under the stability programme, tighter targets had been set.
Programmes and initiatives for 2016
Most of the programmes for the 2016 would be a continuation of initiatives started in previous years. This is in line with the policy to freeze new projects until pipeline ones are completed.
For example, in the road sector, projects earmarked for the year are already at various stages of completion, as indicated in the table;
According to Mr Terkper, initiatives such as the Export Import (EXIM) Bank and the Ghana Infrastructure Investment Fund (GIIF) are programmes that will crystalise from 2016 for the benefits to come on stream from 2017.
Although the public debt has plateaued at GH¢92.2 billion as of September, this year, with interest payments sapping more cash from the budget than goods and services and capital expenditure put together, the government is hoping to finance projects with already committed donor funds.
This will add to the and the newly committed GH¢1.6 billion for 2016, which have come as a result of the return of credibility in government business following the successful meeting of targets under the Extended Credit Facility programme with the International Monetary Fund (IMF).
Already, Switzerland has released its budget support for 2015 and 2016, with Germany postponing its signing to pave the way for the budget presentation last week.
The good news is that other donors are in the queue to sign their releases to support the budget.
Although the satisfactory mark awarded the economic managers by the IMF Missions were not unqualified, that framework to engage impresses upon the government and authorities to give cogent and tangible explanations for their actions and inactions. Previously, such explanations were only owed the President and not even the people’s representative in Parliament.
For every deviation in targets or preference for a certain figure instead of another, the authorities had a tall order to explain, detailing their disagreements and deviations to the IMF team. This became clear recently with the smiles and “chest-beating” posture of the Finance Minister and his two deputies, after the second review showed that the end-August targets had been okay.
This is how the Finance Minister and his lieutenants had to swallow a decision to revise growth targets downwards for the government’s planned 7.3 per cent to 5.3 per cent growth target for 2015.
These measured positions are expected to achieve two results; First, it will further consolidate the stability and pin the cedi volatility. Second, this stability so achieved will become the foundation for an economic rebound into 2017, the period the country is expected to see more oil and gas inflows.
For gas alone, production would have ramped up to 500 million standard cubic feet (scf) per day to feed the country’s power plants and barges as the generation mix would have significantly shifted towards thermal.
Again, a number of public, private partnerships (PPPs), another policy shift to financing infrastructure, will also be up and running by 2017.
These will both help in closing the infrastructure gap to crank the economy to higher growth.
The overall real GDP (including oil) growth rate of 5.4 per cent set for 2016 is, therefore, expected to come from on-going projects and the routine government business as well as a slight contribution from the resumed budget support by donor partners.
It is important that by this budget, the economic managers galvanise every segment of the society and economy and provide administrative, if not financial support, to businesses so that they can produce more and keep the economy on track for the years ahead.