Mid-year economic performance and way forward — IMANI’s views
Prior to the commencement of Ghana’s fiscal year 2014, it was evident that challenges lay ahead, given the 56 per cent of Gross Domestic Product (GDP) debt tag that the country had acquired.
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Adopting the budget theme of ‘Rising to the challenge, re-aligning the budget to meet key national priorities’, was, therefore, strategic and a good start for the economy.
However, subsequent implementation of the theme has been nothing short of disappointing.
The Finance Minister, Mr Seth Terkper, rendered a mid-year review of the fiscal year this month. In it, an assertion was made that medium-term economic prospects were bright.
Sharing in that optimism is tough, against the backdrop of international rating agencies, Fitch and Moody’s, downward revision of Ghana’s economy, mainly on account of the rising debt, worsening debt affordability and a low confidence in the country’s ability to service its debt.
Exacerbating the poor fiscal climate is the depreciation of the cedi by 17.5 per cent this year alone, making it one of the continent’s worst performing currencies against the dollar, depreciating against it by some 30 per cent.
Similarly, since the start of this year, a mere 21 per cent of grant disbursement has been fulfilled, a staggering 72 per cent less than the same period just the past year.
Given the trends in expenditure, it is evident that the government’s grapple with prioritisation as the fiscal practices of the first half are not indicative of a strategic prioritisation plan.
This article attempts to demystify the economic challenges, present the level of compliance to the budget theme and put forth the priority areas that should receive undiluted focus for the second half of the year.
Priority one: Debt sustainability
Stated simply, the unprincipled expenditure of the government comes at very high cost. Proof of that high cost is reflected in the total debt stock of GH¢62,861.72 million, which is 54.8 per cent of GDP (a reduction from the end of 2013 figure of 56 per cent of GDP). At the current rate, the country is steadily inching towards the 60 per cent of GDP limit at which point the economy will be characterised as fiscally unstable.
To avoid this outcome, public expenditure must be contained and, more importantly, high interest borrowing must be curbed.
The high cost of borrowing is due in part to the resistance of the government to strenuously fix the economic challenges, echoed several independent thinkers and civil society organisations and by the people of Ghana through the massive and frequent strikes and finally by virtue of the downward revisions of Moody’s and Fitch ratings.
Interest rates continue to be high, reflecting the poor domestic and international credit confidence in the country. Against this backdrop, the government hopes to gain respite through the cocoa syndicated loan and the issuance of the Eurobond which have an estimated total of $3 billion. An IMF bailout plan is on the books too.
A Business and Financial Times (B&FT) news report on the progress of these loans indicates that not all may share in the Bank of Ghana’s optimism that these loans will revive the failing cedi.
In the report, a key industrialist is quoted as saying that the panacea for the cedi’s depreciation lies in bridging the trade deficit gap (addressed under Priority 3).
The rationale behind the short-term, high interest borrowing is for the servicing of mature debts and for capital investments. However, a simple prioritisation in spending and cutting back on big expenditure items can free up resources and alleviate the need for the costly alternative. Such cuts can be made in expenditure on wages and salaries.
Priority two: Expenditure on wages and salaries
Expenditure on wages and salaries represents the single largest expenditure item on the budget. Baring the risk of stating the obvious, expenditure on wages and salaries need to be cut.
Resources have been invested in public sector reforms to date, yet a modest expectation of a corresponding decline in public sector wages and salaries as a result of increased efficiency has eluded the country.
An article published this month (July 2014) asserted that the Controller and Accountant-General’s Department (CAGD) uncovered and deleted 3,000 ghost names from the payroll of public institutions in Greater Accra between April and June of 2014 .
Arithmetically, a drop in wages and salaries expenditure should accompany this discovery; rather an increase has been recorded for the first half of 2014.
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President John Mahama spares no opportunity to trumpet the 10 per cent cut in pay cheques of the Executive. It is laudable. However, it has not manifested in an aggregate decline in wages and salaries expenditure, even though it has yielded meagre revenue gains of GH¢327,000 generated over a five-month period.
Is it the case that the meagre gains have been negated by the perceived expansion of the size of government? Most recently, 11 new ministers of state were sworn in, presumably to add to existing officials and not to replace them.
On the issue of government size, the President dissolved the Ministry of Information and Media Relations this past month and the speculation is that it was done to rid the government of redundancies. If so, some verification that the ministry, including its staff, is no longer reflected in the payroll of the government is of essence.
We can do with further cuts or mergers. The Ministry of Lands and Forestry should be merged with that of Environment, Science and Technology, while the Food and Agriculture Ministry must merge with the Fisheries Ministry.
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We definitely must merge the Transport Ministry with that of Roads and Highways. The Ministry of Chieftaincy and Culture can be merged with the Tourism Ministry.
Finally, merge the Youth and Sports Ministry with the Employment and Social Welfare Ministry. We will save loads of money and free fuel on government allocated vehicles.
All the dog and pony show aside, the government has missed the salient point that the upward trend in expenditure on wages and salaries must be reversed. In the first half of the year, expenditure was 26.2 per cent higher than the outturn for the same period last year, and 2.2 per cent higher than the target for that period.
To aggravate an already gloomy situation is the introduction of a 10 per cent cost of living allowance (COLA). First and foremost, the idea of single spine was to alleviate the need for unbudgeted, indiscriminate, unregulated and unmerited increases in wages and salaries. The 10 per cent COLA is strongly discouraged, as the economy cannot continue to carry the weight of public sector demands.
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Secondly, the President has encouraged all to bear necessary sacrifices to build the economy. The ordinary Ghanaian has weathered increases in utility tariffs and the cost of petroleum products, among other price adjustments. The public sector can also sacrifice the 10 per cent COLA when it sees demonstrable fiscal prudence in government.
• To be continued
The writer is the president of IMANI Ghana, a policy think tank.