Mid-Year budget review pointers - Fiscal discipline brings relief
Last Monday, the Finance Minister, Mr Ken Ofori-Atta laid before Parliament the 2017 Mid-year Fiscal Policy Review, the first to be done under Section 28 of the Public Financial Management Act, 2016 (Act 921).
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There were a number of positives, especially the macro-economic indicators, which were quite impressive; inflation, treasury bill rates, gross international reserves, exchange rate were all looking northward.
Within the first six months of the year, the government’s real Gross Domestic Product (GDP) growth for first quarter was 6.6 per cent against 4.4 per cent for the same period in 2016.
Agriculture, which has been recognised by the government as a key driver in ensuring food security and creating jobs, grew by 7.8 per cent against five per cent for the same period in 2016. Industry was 11.5 per cent against 1.8 per cent for the same period in 2016.
Unfortunately ,however, services grew by just 3.7 per cent against 6.6 per cent for the same period in 2016, while non-oil GDP growth rate was 3.9 per cent against 6.3 per cent for the same period last year.
Inflation, which is the sustained increase in the general price level of goods and services in an economy over a period of time, dropped to 12.1 per cent at the end of June, down from 15.4 per cent at end of December 2016, while the 91-day Treasury bill (T-bill) rates performed positively as it dropped from 12.08 per cent at end of June, down from 16.4 per cent at the end of 2016, an indication of the government’s reduction in its appetite for domestic funds, a move which often stifles the ability of local business to borrow for expansion.
The country’s gross international reserves reached US$5.9 billion (3.4 months of import cover) in June, up from US$4.9 billion (2.8 months of import cover) at end December 2016.
Provisional fiscal performance
At the beginning of the year, the government demonstrated its commitment towards reviving the ailing private sector by reducing and cutting a number of taxes which it described as ‘nuisance taxes’. It argued that there was the need for the government to free funds for the sector to play its role in expanding the economy and creating jobs for the people.
For instance, the government abolished the one per cent Special Import Levy which was imposed mainly on imported raw materials and machinery; removed the 17.5 per cent VAT/NHIL on financial services; abolished the 17.5 per cent VAT/NHIL imposed on airline tickets; and also removed the excise duty on petroleum to reduce the excess burden on final consumers.
It further went ahead to reduce the special petroleum tax rate from 17.5 per cent to 15 per cent to mitigate the excess burden on final consumers; abolished the five per cent VAT flat rate on the sale of real estate; abolished import duty on spare parts; exempted from tax, the gains from realisation of securities listed on the Ghana Stock Exchange; reviewed the ESLA to reduce the cost of power and reduced the National Electrification Scheme Levy from five per cent to three per cent; and the Public Lighting Levy from five per cent to two per cent; replaced the 17.5 per cent standard rate with the three per cent flat VAT/NHIL rate