The credibility of the Gross Domestic Product (GDP) figures presented in the 2015 Budget, as well as the revised data published by the Ghana Statistical Service in January, has been called into question.
In its review of the 2015 Budget, policy think tank, Institute for Fiscal Studies (IFS), said “there are serious questions about the credibility of the real GDP growth figures presented in the budget.”
“According to the budget, agriculture is expected to expand by 5.3 per cent in 2014, while industry and services each grow at 4.6 per cent. If these sectoral growth rates are true, then how can the whole economy expand by 6.9 per cent as projected by the Ghana Statistical Service (GSS)?’’ it asked.
The IFS thinks that finding the average growth rate of the real sector – agriculture, services and industry – should result in the overall economic growth rate, which in this case does not tally unless the indirect tax component is overstated.
“Furthermore, the Ministry of Finance projected a slower growth rate of 4.6 per cent for the economy in 2014. The question that arises is: which of the two real GDP growth figures is correct, and why did the Ministry of Finance publish two different GDP growth figures with such a wide margin?”, it asked.
The Institute’s report was completed at end-December 2014, and since then the GSS has revised its 6.9 per cent growth projection for 2014 to a lower estimate of 4.2 per cent. But the GSS did not correct some of the discrepancies in the data, such as the bloated estimate for 2014 nominal indirect taxes, an economist with the Institute, Mr Leslie Dwight Mensah, said.
“The GSS previously overestimated the real net indirect taxes to be 30.9 per cent, but that estimate has now been lowered. However, its 2014 nominal net indirect tax estimate remains outrageously high and is not consistent with the historical trend or the 2014 revenue situation. The figure is projected to have grown at 50.6 per cent in 2014. But this jump is puzzling as it diverges significantly from growth rates of 26.8 per cent in 2013, -13.5 per cent in 2012 and 30.1 per cent in 2011,” he said.
“There are other problems with the recent sweeping revisions of the GDP statistics. For instance, the GSS indicated that in 2009, agriculture grew at 7.2 per cent, industry at 4.5 per cent and services at 5.6 per cent. But then it also said that GDP at basic prices increased by 2.2 per cent and overall GDP went up by 3.4 per cent. This is befuddling, especially the GDP at basic prices, and it may be necessary to re-examine the new methodology that is being used,” Mr Mensah added.
Given the importance of GDP growth in policy formulation and analysis, the data’s lack of credibility is worrying, he further stated.
IFS also expressed concern about the government’s low economic growth target of 3.9 per cent for 2015, saying that the budget lacks “growth orientation” and is short of “transformational ambition.”
“The records show that fiscal consolidation in Ghana does not lead to declines in economic growth but rather the opposite. Between 2001 and 2005 when the government embarked on a fiscal consolidation process which saw a sharp reduction in the fiscal deficit, real GDP growth continued to accelerate in each year.
“Quite recently, between 2009 and 2011, when the government pursued a strong fiscal consolidation process by reducing drastically the fiscal deficit, the real GDP growth did not decline, except for 2009.
Even for 2009, the decline in real GDP growth was not due to the cut in the fiscal deficit; rather, it was caused by the impact of the global financial crisis, which affected all regions of the globe. Indeed, a well-designed fiscal consolidation package should lead to a cut in the fiscal deficit through efficiency in government spending, rebalancing of expenditure in favour of capital investment, and enhancing domestic revenue, which together should foster macroeconomic stability and in turn support economic growth,” IFS said.
The absence of details of the utilisation of the September 2014 Eurobond in the budget was another issue raised by the think tank in its review of the 2015 budget.
Most of the funds, it said, were to be used for capital investment, but there was an allegation that the money had been used to pay debts owed to the central bank.
“This allegation appears to be true, judging from the manner in which the Bank of Ghana financed the budget deficit during the third quarter of 2014. In the interest of transparency and accountability, the government has to provide the public with details of the utilisation of both the 2013 and 2014 Eurobond proceeds, including the specific projects that they have been used to fund,” he added.