Government moves to fix economy; Re-intoduces stabilisation fees
The government has re-introduced the fiscal stabilisation levy in a move to deal with the challenges facing the economy.
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The policy imposes specified levies on selected sectors of the economy and companies, including the financial services sector, mining companies and breweries, to raise more revenue.
The levy was first introduced in 2009 but abolished in 2011.
Its re-introduction is part of measures outlined by the government to deal with revenue collection shortfalls which are posing challenges to the economy and the financing of this year’s budget.
The policy also imposes levies on certain imports and increases excise duties.
The Finance and Economic Planning Minister, Mr Seth Terkper, who announced this at a news conference in Accra yesterday, said the government had also planned a review of fees and charges, especially those pertaining to facility use.
There would also be special audits and administrative measures meant to either stop revenue leakages or collect concealed revenues.
The measures come on the heels of the upward adjustment in the Bank of Ghana (BOG) policy rate from 15 to 16 per cent, representing an increase of 100 basis points. The increase will affect the cost of funds from commercial banks and other financial institutions to businesses and other loan seekers nationwide.
At a press briefing on Wednesday, May 22, the Governor of the BoG and Chairman of the Monetary Policy Committee (MPC), Dr Henry Kofi Wampah, explained that the rise in the policy rate was to help contain the current risks associated with inflation.
"On balance, the committee held the view that risks to inflation were elevated and outweighed the risks to growth and, therefore, decided to increase the policy rate from 15 to 16 per cent," he said.
While admitting a slowdown in credit to the private sector in the first quarter of this year, Dr Wampah said risks associated with inflation — heightened exchange rate expectations, lingering fiscal pressures, the likelihood of full cost recovery in the energy sector, among others — necessitated the decision to hike the rate to help ease the pressures.
Mr Terkper said provisional data for January to April this year indicated that on cash basis, both revenue and expenditure fell below their respective targets, with a corresponding fiscal deficit not only exceeding its target but also going beyond the levels recorded in the same period last year.
“Most of the fiscal measures will have sunset clauses because they are only meant to fix fiscal pressures,” Mr Terkper explained.
This means that the measures with sunset clauses will have definite end periods and not continue forever.
The minister said total revenue and grants stood at GH¢6.28 billion or 8.0 per cent of the total value of goods and services produced within the country, also known as Gross Domestic Product (GDP).
The domestic revenue component, which came to GH¢5.85 billion, was 8.9 per cent lower than the target of GH¢6.43 billion.
The revenue of GHC6.28 billion, compared with total expenditure of GH¢9.67 billion, including clearance of arrears and outstanding commitments, means that expenditure exceeded revenue by GH¢3.39 billion or 3.8 per cent of GDP, as against a target of 3.0 per cent GDP deficit.
Mr Terkper said although total debt stock increased by seven per cent over the figure for 2012, from $18.83 billion to $20.12 billion as of the end of March 2013, the nominal increases were as a result of disbursements in existing loan arrangements and not new ones.
“Following the decision by the Cabinet for the Ministry of Finance to review the current status of Ghana’s public debt, no new loans have been processed by Cabinet for parliamentary approval since the beginning of the year,” the Finance Minister explained.
Besides those fiscal challenges, he said, the ministry had also identified a number of risks to the budget execution that needed to be addressed decisively, hence the new fiscal measures.
The risks include the continuing implementation of the Single Spine Salary Structure and its impact on wage negotiation for 2013, the low revenue performance for the first four months of the year — reflecting administration, domestic outcomes and global trends — and rising domestic interest or debt service costs.
The domestic debt component of public debt amounted to $10.65 billion, up by 6.6 per cent from $9.99 billion.
Another risk is the non-adjustment of utility prices, which led to high subsidies, as well as falling international commodity prices.
Mr Terkper also announced plans by the government to adjust utility prices regularly, while taking steps to refinance portions of the public debt to reduce high cost of interest repayments.
“One way of doing this is through the flotation of up to $1 billion Eurobond issue by July this year,” he said.
Story: Samuel Doe Ablordeppey