2016 Budget Statement and Economic Policy

SECTION ONE: INTRODUCTION

Rt. Hon. Speaker and Honourable Members of Parliament, on the authority of His Excellency John Dramani Mahama, President of the Republic of Ghana, I beg to move that this Honourable House approves the Financial Policy of the Government of Ghana for the year ending 31st December, 2016.

Again, Rt. Hon. Speaker, on the authority of His Excellency and in accordance with Article 179 of the 1992 Constitution, permit me to present the Budget Statement and Economic Policy for the year 2016 to this august House.

 

Mr Speaker, in accordance with Section 48 of the Petroleum Revenue Management Act, 2011 (Act 815), I also submit the 2015 Annual Report on the utilisation of the Petroleum Funds to this august House.

Mr Speaker, in 2012, H. E John Dramani Mahama was elected for his first four-year mandate to lead our dear country. Under his able leadership, the Government has been working tirelessly to transform the economy. We are focused on improving the well-being of Ghanaians by honouring the pledges made to the good people of Ghana in the 2012 Manifesto of the National Democratic Congress.

Mr Speaker, notwithstanding the major shocks to the economy in the last three years, the government remained steadfast in pursuing the economic vision of leading the country through a transformational agenda to consolidate our Middle Income Country (MIC) status. The shocks include disruption in gas supply for two-and-a-half years and the simultaneous fall in cocoa, gold and crude oil prices.

We have also remained resolute in our commitment to correcting the major budget overruns which occurred at the end of the 2012 fiscal year. We are implementing several programmes to secure the bright medium-term prospects for the economy, notably through substantial investments in the oil and gas sector, among others.

Mr Speaker, 2016 is significant in many respects. The country will go through Presidential and Parliamentary elections. Let me assure this House that the Electoral Commission and other governance institutions will be adequately resourced to ensure the conduct of free, fair and transparent elections. Despite being an election year, let me also reiterate President Mahama’s assurance of sustaining fiscal discipline whilst investing prudently in infrastructure and social development. We will resist the temptation of election year overspending.

Mr Speaker, the Post-Ho Forum held in Takoradi was successful. For the first time in decades, the government and its social partners, notably Organised Labour/Association and the Ghana Employers Association, led by their Secretary-General and President, respectively, concluded in September, the national minimum wage and public sector wage negotiations for the 2016 fiscal year ahead of the Budget. The essence of this remarkable achievement is to avoid any compensation related slippages or overruns, that could compromise our fiscal consolidation programme. It is also to shift focus of the Single Spine Pay Policy to aspects of productivity, in the context of the Public Financial Management (PFM) reforms related to payroll and human resource management.

Mr Speaker, permit me, on behalf of the President and the Government, to express our profound appreciation to this august House for its cooperation and support in the management of the economy. The House demonstrated true partnership in the discharge of its legislative, and oversight functions, including admitting several critical and urgent statements on this floor.

Mr Speaker, the vision and commitment of Government over the medium term is to build a sustainable, prosperous and equitable society, in line with our social democratic agenda. This vision is anchored on the thematic areas of the Ghana Shared Growth and Development Agenda (GSGDA) II, 2014-2017 and, particularly, on the Government’s priority of:

Putting People First;

Building a Strong and Resilient Economy;

Expanding Infrastructure; and

Ensuring Transparent and Accountable Governance.

Mr Speaker, in our determination to transform the economy, we draw lessons from past experiences of our country’s economic journey including some paradoxes:

Despite numerous and unexpected setbacks the country has experienced positive growth over the last 30 years;

The declaration of HIPC status generated intense debate and many believed it could have been avoided with bold measures. Yet it provided us with fiscal space to help our path to positive growth;

Contrast with the HIPC experience, it is relieving for this Government to be leading the development agenda that has restored our pride of place among the ‟African rising‟‟ and renaissance nations.

The recent setbacks from commodity price shocks did not make us reverse our course on consolidation even as it reminded us of our vulnerability in transitioning to a MIC status;

We are returning to another growth path and our fiscal performance so far clearly shows that we can plan to manage and reverse periodic setbacks as and when they occur.

Therefore, Mr Speaker, our resolve is to manage the transition setbacks and paradoxes with perseverance and effective planning. Consequently, we now see brighter prospects ahead, mainly from the investments that we have been making in the energy and other sectors of the economy.

Mr Speaker, permit me to recount some of the macroeconomic successes chalked up since we began the programme of fiscal consolidation under our ‟Home-Grown” policies and the IMF programme. In so doing, however, not even the successful first and second reviews under an IMF programme will make us complacent:

There is a clear sign that our fiscal consolidation efforts are yielding positive results, making the economy more efficient. Accordingly, the GSS estimates that GDP will grow at 4.1 per cent at the end of 2015 compared to the 3.5 per cent initially projected;

As a result of good revenue performance (including GRA’s Compliance efforts), containment of overruns in the wage bill and other spending; as well as withdrawal of energy-related subsidies, our fiscal consolidation programme is on course with the deficit set to be on target at 7.3 per cent;

For the first time in many years, the domestic primary balance in the first half of 2015 achieved a surplus equivalent to 2.8 per cent of GDP, whilst the budget deficit was down to 2.3 per cent of GDP, same as the level attained a decade ago;

The current account deficit as a percentage of GDP has stabilised whilst the foreign reserve position has significantly improved;

In line with the government’s Medium Term Debt Strategy and Debt Management policies, the pace at which we have been accumulating public debt as a percentage of GDP has slowed down in the first half of the year;

In October this year, we issued our fourth sovereign bond which was over-subscribed by US$1 billion, the 15-year tenor of the bond is the first by any Sub-Saharan African country besides South Africa;

In this instance, Ghana is also leading its contemporaries in using a guarantee instrument that the World Bank wants to use to create an asset class for market assets by middle income countries;

After some initial implementation difficulties, we are now on course to making the proceeds from commercial and quasi commercial projects, pay fully or partially for the loans that finance them; this will stop the unsustainable habit of relying on the taxpayer to pay for all the nation’s debt service commitments; and

Mr Speaker, against this background, Ghana successfully went through the first performance review in August 2015 under the three-year Extended Credit Facility (ECF) with the IMF. All performance criteria under the programme for the second review were also successfully met and documentations are being prepared for the IMF Board to complete the review in December 2015. Hence, Ghana continues to win the confidence of the business community, Development Partners and the international financial markets with our efficient management of the economy.

Mr Speaker, the achievements so far, are not just macroeconomic. We have made far-reaching and significant investments in all sectors of the economy and these have led to considerable improvements in the lives of our people. These include:

Education: After the success of the „‟Schools Under Trees Programme”, we began the construction of 123 Community Day Senior High Schools (SHS) to provide space for hundreds of thousands of JHS graduates. We have added to the stock, two new functioning universities and implemented many other social interventions in education.

Health: The health sector has witnessed massive infrastructure development and retooling in the last few years. Work is ongoing on the construction of new hospitals, including the nearly completed University of Ghana Teaching Hospital and the Ridge Hospital. These will deliver about 6,000 hospital beds by 2017 which will guarantee access to improved healthcare for our people.

Water: Following the huge investments made in the sector, 77.5 million gallons of water per day was added to the generation capacity as at the end of July 2015. By end of 2016, this should increase to 109.7 million gallons per day and will result in a coverage of 76 percent for both urban and rural communities.

Roads: We made significant progress in funding and completing many of the ‟Gang of six” roads and launched the GH¢3 billion Cocoa Road Improvement Project; we have constructed thousands of kilometres of roads across the country. These include the Suhum-Apedwa and Kyebi town roads. Recent additions include the Kwame Nkrumah Interchange, the Fufulso-Sawla road, the Kasoa interchange and the Eastern corridor road.

Transport: We are investing in the modernisation and expansion of the aviation and maritime infrastructure. These include the expansion of the Kotoka and Tamale International airports, the aerodrome in Ho, the expansion of the Tema harbour and provision of 116 buses for public road transport. Permit me to note that in line with our new debt management policies, the airport and harbour project are designed on self-financing basis.

Communications: We have successfully deployed 800 kilometres optic fibre infrastructure which runs through 126 communities along the eastern corridor from Ho to Bawku with a link from Yendi to Tamale. The fixed and mobile telephony and Internet subscriptions as at August 2015 stood at over 33 million and 17 million, respectively.

Housing: Through a combination of direct government investments and public private partnerships, an aggressive housing programme has been rolled out to provide more Ghanaian families in the lower to middle-income brackets with decent homes. About 18,000 housing units are at different stages of completion; and

Energy: We are bringing on stream 845 MW of power to add to the generation capacity by the close of the year and providing the necessary investments and guarantees to permanently address our perennial power generation shortfall.

Mr Speaker, these investments have not only provided critical social services to improve the lives of our people, they have resulted in the creation of tens of thousands of jobs for the youth

Notwithstanding these successes, we are mindful of the fact that some risks to the budget and medium-term macroeconomic projections persist and new ones could emerge. The major global and domestic setbacks include:

The tumbling of crude oil prices to a low of US$45.0 per barrel compared to a bench mark revenue projection of US$99.38 per barrel in the 2015 Budget. Mr Speaker, it will be recalled that this prompted the government to revise its revenue targets and related expenditures that were to be funded from the Annual Budget Funding Amount (ABFA);

Gold spot price is yet to recover and even though cocoa prices are now recovering, prices and output keep fluctuating on the global markets. We have had to sacrifice government revenue in some years to fulfil our commitment to improve the welfare of farmers;

The US economic recovery and appreciation of the dollar, coupled with pressures on our foreign exchange reserves from declining commodity prices, continue to weaken the Cedi, thus making imports more expensive; this is fuelling inflationary pressures and increasing the external debt service burden in Cedi terms;

The global financial uncertainty that hit emerging and peripheral economies, including Ghana, pushed us into headwinds at the time of issuing the 2015 sovereign bond. We managed to navigate the turbulence, and in the process, added to our store of experience. As a middle-income Country, we will be in the capital and financial markets in both good and bad times;

Concessional terms of some facilities from Bilateral and Multilateral Partners including the WB and AfDB have hardened. The WB, AfDB and other lenders also changed the repayment period of facilities to Ghana whilst interest payments and financial costs have increased (e.g. the repayment period has reduced from 40 to 25 years). The basis for calculating loan concessionality to include commitments and risks of floating exchange rates has also changed;

The disruption in gas supply and the low level of water in the Bui, Akosombo and Kpong dams due to climate change continues to pose power supply challenges, reduction in generation capacity and recurring power outages. However, it is now clear that investments in the sector is rapidly changing the situation; and

Finally, the recommended overall budget deficit target of 5.3 per cent of GDP, under the IMF Extended Credit Facility (ECF) programme , provides a tighter fiscal space than anticipated in the original programme. It is against this background that we must even be more prudent in 2016 and avoid the consequential cycle of huge election year budget overruns and deficit. And in this regard, we call on all social partners especially, organised labour, to support the Government.

Mr. Speaker, we will focus on these risks and adopt appropriate measures to minimise their likely adverse impacts on the economy. Our approach is not to bemoan our challenges, offer excuses or fail to act decisively. Instead, over the years we have come to this august House with several structural initiatives and strategies to change the way we manage the economy.

In particular, the national debt and consequent burden of debt service will continue to rise only if we do not emulate the success with which many Middle Income and Advanced countries finance infrastructural, economic and social development on a sustainable basis. To this end, the Government will continue to implement the debt management measures that were approved by this House. As noted earlier, as a result of these measures, the public debt is now increasing at a slower pace.

Secondly, Mr Speaker, we have always bemoaned our narrow export base and the resultant depreciation of the Cedi when we lose reserves from falling commodity prices. As part of our transformational agenda to achieve an export-led economy, the Ghana Export and Import Bank (EXIM) Bill has been laid before Parliament. The primary purpose is to finance export (notably high industrial and agricultural products); guarantee loans; provide export insurance, support SMEs and other businesses, and strengthen economic cooperation. The operations of the Bank will support the nurturing and growth of the private sector in Ghana to address the longstanding problem of access to credit for expanded exports.

Rt. Hon. Speaker, the 2016 Budget will build on the foundation laid to restructure and transform the economy towards sustained and inclusive growth; minimise our exposure to volatilities; and position Ghana to consolidate its status as a Middle Income Country.

Thirdly, it is our expectation that the investments by the public and private sectors including the emergency power; World Bank PRG for Sankofa field; commissioning of FPSO J.E.A Mills for the TEN fields; and onset of Jubilee Gas will contribute to the positive outlook embodied in the theme for the 2016 Budget Statement and Economic Policy: “Consolidating Progress towards a Brighter Medium Term“.

Mr Speaker, I will now proceed to present additional key highlights of the 2016 Budget.

SECTION TWO:

GLOBAL ECONOMIC DEVELOPMENTS

Growth

Mr Speaker, according to the IMF‟s October 2015 World Economic Outlook (WEO), global growth in the first half of 2015 was 2.9 per cent, 0.3 percentage point lower than projected in April of this year. This reflects lower than expected recovery in advanced countries and further slowdown in emerging market economies for the fifth consecutive year. The declines suggest that medium-term and long-term challenges including low productivity growth since the previous financial crisis; and the current financial sector weakness, low investment, growth realignment in China and the downturn in commodity prices still exist.

Global growth is projected at 3.1 per cent for 2015, which is 0.3 of a percentage point lower than the outturn in 2014 and 0.3 percentage point below the April 2015 forecast. In 2016, global growth is expected to strengthen at 3.6 percent reflecting a rebound in economic activity in a number of distressed economies. Advanced economies are expected to grow at 2.2 per cent while developing and emerging economies are projected to grow at 4.5 per cent.

Mr Speaker, Sub-Saharan Africa experienced a robust economic growth of 5.0 per cent in 2014 driven by strong investment in mining and infrastructure as well as strong private consumption, especially in low-income countries. Economic growth is, however, expected to decelerate in 2015 to 3.8 per cent according to the 2015 October WEO, compared to the 4.5 per cent forecasted in July 2015. The slowdown mainly reflects the impact of declining oil prices on the economies of oil exporting countries, as well as lower demand from China (the largest single trade partner of sub-Saharan Africa), and the impact of Ebola on affected countries. Growth is expected to pick up in 2016 to 4.3 per cent.

Inflation

Mr Speaker, inflation remained largely subdued in advanced economies, mostly reflecting the decline in oil prices and softer prices for other commodities. Average inflation is projected to decline to 0.3 percent in 2015, down from 1.4 per cent in 2014, and thereafter rise to 1.2 per cent in 2016 in advanced economies. In emerging markets and developing countries, lower commodity prices including oil and food, have generally contributed to lowering headline inflation, except in countries where large currency depreciations offset the impact of lower commodity prices. In Sub-Saharan Africa, average inflation is projected to inch up marginally to 6.9 percent in 2015, up from 6.4 per cent in 2014 and further to 7.3 per cent in 2016.

Commodity prices

Mr Speaker, oil prices have declined significantly, after experiencing large swings in the second quarter of 2015. The decline is on account of strong supply from members of the Organization of the Petroleum Exporting Countries (OPEC) and the Islamic Republic of Iran’s nuclear deal. Global excess supply of oil has continued to increase in 2015, in spite of the fall in investment in the oil sector.

Crude oil prices reached US$59.82 a barrel in June 2015 and fell further to US$42.46 a barrel in September 2015 compared to Ghana’s annual benchmark revenue projection of US$99.38 a barrel for 2015 which was later revised to US$57 per barrel. However, the IMF’s October 2015 WEO projects an average1 crude oil price of US$51.62 a barrel in 2015, US$50.36 in 2016, and US$55.42 in 2017.

Mr Speaker, Cocoa prices rose in the second quarter of 2015 as a result of weather-related supply shortfalls in Ghana, but demand remains strong. According to the Business Monitor International report of October 2015, cocoa prices are expected to peak in 2015 before lowering in the beginning of 2016 to the end of the forecast period in 2019. The market is projected to register a small surplus in the 2015/16 season, on account of: (1) a rebound of production in Ghana, due to greater use of inputs and expectations for better weather and (2) weak growth in global demand in 2016, as grinding margins remain poor.

According to the ICBC Standard Bank estimates, gold prices are generally expected to trend downwards peaking around $1,160 per ounce in 2016 as the Federal Open Market Committee (FOMC) normalises US monetary policy.

ECOWAS Activities and Protocols

31. Mr Speaker, on May 19, 2015, H.E President John Dramani Mahama, successfully ended his term as the ECOWAS Chairman of the Authority of Heads of State and Government after exhibiting visionary leadership and handed over to President Macky Sall of Senegal.
32. As Chair, President Mahama worked diligently with the support of member states to ensure peace and security in the sub-region, thereby overseeing successful elections in Nigeria and Togo. Other successes chalked under President Mahama’s term include: establishment of a common border between Ghana and Togo at Noepe; implementation of the ECOWAS Common External Tariff (CET); Fight against EBOLA virus and terrorism (Boko Haram); and the signing of peace and reconciliation agreement in Mali.

ECOWAS Trade Liberalization Scheme (ETLS)

Mr Speaker, the ECOWAS Trade Liberalisation Scheme (ETLS) seeks to provide impetus to the process of economic integration and development in the West African sub-region. It is expected to provide easier access to markets in other ECOWAS countries and thereby encourage local manufacturing outfits to compete favourably with cheap imported products. The scheme is also expected to encourage entrepreneurial development through the provision of preferential treatment in specific areas among member states.

Ghana’s export to the sub-region, under the ETLS, has seen a steady increase over the years. The ETLS has offered Ghanaian export manufacturers the opportunity to expand their market share in the Community. For example, the number of ECOWAS certificates of origin issued increased from a little over 3,000 in 2012 to 4,286 in 2013 and 5,951 in 2014. Trade between Ghana and Nigeria has improved over the period. Export to Nigeria stood at GH¢365.6 million as at June 2015 compared to an estimate of GH¢210.7 million as at June 2014. The scheme has also introduced competition among community industries leading to reasonable product price to the consumer.

However, Mr Speaker, in spite of the regional backing and benefits that accrue to member countries, its objectives to a large extent have not been achieved. Both tariff and non-tariff barriers to trade between member states still persist. While some progress has been made in reducing tariffs, they have not been fully eliminated. Progress towards removing non-tariff barriers, such as seasonal import and export bans, has been slower. The failure to implement the instruments on the ECOWAS Trade Liberalization Scheme (ETLS) is affecting economic growth in the sub-region. There is the urgent need for the removal of bottlenecks impeding the implementation of ECOWAS protocols.

The screening and updating of the current database of Ghanaian companies with ETLS status is ongoing and is expected to be completed by June 30, 2016. Since the beginning of 2015, about 18 Ghanaian industrial companies have been given approval to benefit from the scheme. Ghana will continue to vigorously pursue the implementation of the ETLS.

Implementation of ECOWAS Community Development Programme (CDP)

Mr Speaker, the Authority of Heads of State and Government enjoined the ECOWAS Commission to take all necessary measures for the mobilization of resources for financing of the ECOWAS Community Development Programme (CDP), adopted at its 45th Session in July 2014, Accra. In this regard, the Commission initiated preparatory work for the organisation of a high level conference and a round table for the financing of the CDP.

Mr Speaker Ghana has submitted four priority projects to the ECOWAS Commission to be included in the CDP for consideration. The projects are in the area of:

The creation of sustainable tsetse-free areas as part of six countries in support of the eradication of tsetse and Trypanosomiasis in sub-Saharan Africa;

Raising the level of science, technology and innovation in industry as well as establishment of science and technology parks;

Rehabilitation of western railway line; and

Development of inland valleys for rice production.

Mr. Speaker, Ghana is actively cooperating with the ECOWAS Commission and its institutions to expedite actions on the implementation of the CDP.

Revised Road map for the Second Single Monetary Zone

Mr Speaker, the Authority of Heads of State and Government in June 2007 directed the Commission to re-examine the monetary integration process and expedite the process of creating a common currency for ECOWAS. The implementation of this directive led to the development of the roadmap for the ECOWAS Single Currency Programme by the ECOWAS Convergence Council on 25th May 2009. The roadmap had two major milestones: West African Monetary Zone (WAMZ) in 2015, and a Common Currency in 2020 for the ECOWAS single currency.

However, a one-track approach has been adopted for the achievement of a single currency by 2020 and a related costed roadmap has been developed. One key component of the roadmap is the establishment of an ECOWAS Monetary Institute (EMI) by January 2018.

Rationalised Macroeconomic Convergence Criteria

Mr Speaker, the ECOWAS Authority of Heads of State and Government at its 17th Ordinary Session on May 19, 2015, in Accra revised the existing convergence criteria and adopted a new set of rationalised macroeconomic convergence criteria for effective implementation of the ECOWAS Multilateral Surveillance mechanism. The rationalised convergence criteria, which are outlined in Table 1, constitute the basis for assessment of the macroeconomic convergence, from the beginning of 2015 in all member states. A draft Supplementary Bill on the newly adopted rationalised criteria has been prepared for the consideration of council members.

Implications of Global Developments for Ghana’s Economy

Mr Speaker, a sustained decline in commodity prices, triggered by deceleration of global demand and medium-term excess capacity poses a risk to the Ghanaian economy. Commodity exports account for about 75 per cent of total merchandise exports. The further fall in commodity prices, in particular oil and gold, in the fourth quarter of 2015, could result in a sharp contraction of exports and a further widening of the current account deficit. An increase in the current account deficit would therefore reduce the already low reserve buffer, triggering increased exchange rate pressures, which could raise inflationary pressures and the cost of foreign debt service. Additionally, the drop in gold and crude oil prices could reduce production thereby causing decline in fiscal revenue.

Mr Speaker, surges in global financial market volatility, triggered by a deterioration of market confidence and/or market expectations on Federal Reserve’s tightening may also weigh down on macroeconomic stability.

Mr Speaker, the government is already implementing measures to control possible impacts of the commodity price shocks. The three-year Extended Credit Facility Programme with the IMF, which is based on Government’s Home-Grown Programme is one of such measures to ensure macroeconomic stability in the short to medium term. Government’s focus on fiscal consolidation is intended to achieve macroeconomic stability which will significantly support our shared growth and development agenda.

SECTION THREE: MACROECONOMIC PERFORMANCE FOR 2015

Mr Speaker, permit me to present to this august house, the macroeconomic performance of the domestic economy for 2015, based on provisional data for January to end-September 2015.

REAL SECTOR PERFORMANCE

Mr Speaker, provisional data from the Ghana Statistical Service (GSS) show real GDP is expected to grow by 4.1 per cent in 2015, representing a slight increase from the revised figure of 4.0 per cent recorded in 2014 and the revised 2015 Mid-Year GDP growth target of 3.5 per cent.

Sector Growth Performance

The GSS data pegs Industry Sector growth at 9.1 percent, followed by the Services Sector (4.7%) and Agriculture Sector (0.04%).

Agriculture Sector

Mr Speaker, all subsectors in the Agriculture Sector, apart from the Crops subsector, are expected to record positive growth rates in 2015, led by the Livestock and Fishing subsectors. Agriculture, however, is expected to register a growth of 0.04 per cent, a decline from the revised target of 3.6 per cent recorded, as shown in Table 2. The Crops subsector, in spite of being the only subsector that is expected to record a negative growth, will be the source of this decline on account of the subsector‟s large weight.

Industry Sector

Growth in the Industry Sector is expected to be driven by strong growth performances in the Construction and Water and Sewerage sub-sectors, as shown in Table 3. These sub-sectors are expected to record growth rates of 30.6 per cent and 15.6 per cent, respectively. This is in stark contrast to their performances in 2014 when Construction stagnated, and Water and Sewerage contracted. Manufacturing and Mining and Quarrying, are both expected to record negative growth rates. However, petroleum, which is a part of the latter, is expected to record a growth of 2.0 percent.

Services Sector

51. Mr Speaker, the provisional data indicate that seven out of 10 service sub-sectors are expected to record positive growth rates. The Public Administration & Defence, Social Security sub-sector is expected to record a growth rate of 20.3 per cent, the highest among all the sub-sectors. The next highest growth performers will be Financial Intermediation and Information and Communication subsectors. Transport and Storage is expected to record the highest contraction of -6.3 per cent, in contrast to the modest positive growth of 0.3 per cent it recorded in 2014.

Structure of the Economy

Mr Speaker, the Services sector is expected to increase its share of GDP from 51.9 per cent in 2014, to 54.1 per cent in 2015, according to the provisional data. Industry will have a share of 26.9 percent, which represents a slight increase from the 26.6 per cent recorded in 2014. The expansion in the shares of Services and Industry will be at the expense of Agriculture, which is expected to record a share of 19.0 per cent in 2015, as compared with the 21.5 per cent it recorded in 2014. Recent historical shares are shown in Figure 2.

Inflation

Mr Speaker, inflationary pressures remained elevated over the first nine months of 2015. After declining from 17.0 per cent at the end of December 2014 to 16.4 per cent at the end of January 2015, headline inflation recorded a 7-month successive increases to 17.9 per cent in July 2015 as a result of exchange rate pressures and utility price adjustments before moderating to 17.4 per cent in October 2015. Over the review period, food inflation increased from 6.8 per cent in December 2014 to 7.8 percent in October 2015 while non-food inflation experienced a decline from 23.9 percent in December 2014 to 23.0 per cent in October 2015, as shown in Figure 3.

Given the challenges in the exchange rate market coupled with base effects of utility price adjustments during the year, the rate of inflation is expected to peak during the beginning of the fourth quarter and moderate towards target at the end of 2015. The upside risks to inflation include exchange rate depreciation and energy supply challenges.

MONETARY SECTOR DEVELOPMENTS

Broad Money

Mr Speaker, developments in the monetary sector showed slower growth in monetary aggregates during the first-nine months of 2015. Broad money supply (M2+), made up of currency in circulation, demand deposits, and foreign currency deposits grew at 23.3 per cent (GH¢7,473.9 million) year-on-year in September 2015 compared to a growth of 33.6 per cent (GH¢8,054.3 million) in September 2014. The performance of M2+ was driven largely by the growth in the Net Domestic Assets (NDA), which went up by 38.7 per cent (GH¢9,969.1 million) at the end of September, 2015. The Net Foreign Assets (NFA) however, decreased by 39.7 per cent (GH¢2,495.2 million). At the end of September 2015, M2+ stood at GH¢39,526.2 million, compared with GH¢32,052.3 million in September 2014.

Going forward, monetary growth is projected to be moderate in 2015 compared to 2014. M2+ is projected to grow at 22.3 per cent at the end of 2015 compared to a growth of 36.8 per cent in 2014. Similarly, reserve money growth is projected to moderate to 18.6 per cent year on year compared to a growth of 30.1 per cent in 2014. The expected moderation in monetary growth is expected to exert a dampening effect on inflation.