Ghana’s mid-year budget review shows slow but steady progress

Ghana’s mid-year budget review shows slow but steady progress

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The Ghana government has revised the country’s 2015 growth projections downwards, citing adverse domestic and external developments with real GDP growth forecast at 3.5 percent instead of 3.9 percent.
In his mid-year review of the budget to parliament late July, finance minister Seth Terkper also revised non-oil real GDP growth down to 2.3 percent from 2.7 percent. End-year inflation is revised up to 13.7 percent from 11.5 percent.
The fiscal deficit target was revised up to 7.3 percent of GDP from 6.5 percent of GDP. Significantly lower oil revenues mean that total revenues and grants were reduced down to GHS30.5bn from GHS32.4 bn. However, the projected revenue and grants outturn for 2015 is expected to be 23 percent higher than what was raised in 2014.
Total expenditure and arrears clearance were also revised down to GHS40.3 bn from GHS41.2 bn due to lower spending caused by lower oil revenues, and lower domestic debt interest payments.
Foreign exchange reserves are expected to remain at around 3 months of imports equivalent, while foreign debt repayments were revised up to GHS4.6 bn from GHS2.8 bn largely due to an exchange rate effect.
Overall, the fiscal consolidation reforms remain on track due to good revenue performance and progress on containing spending on public sector wages and subsidies.
An update on policy initiatives and structural reforms was also provided. This includes various emergency power sector projects that have recently been commissioned will be completed before year-end, which will help alleviate power shortages. The Western Corridor Gas Infrastructure project has been virtually completed, which will also help boost power supply.
Terkper said progress is being made in the development of a Public Financial Management (PFM) law to underpin efforts to strengthen PFM reforms. In addition, efforts continue to be made to contain the public sector wage bill, such as cleaning up the payroll, and introducing electronic payment of wages, which will help reduce fraud.
Development of a Medium Term Debt Strategy is also underway to improve co-ordination of spending requirements with borrowing needs.
Analysts believe the economy, albeit slow, is on an upward trajectory ‘There has been progress achieved in the past three months following the re-engagement with the IMF that resulted in the approval of a $918million Extended Credit Facility [in April],’ analysts at Ecobank said in a research note.
‘However, there is still a significant amount of reform to implement, which suggests that austere conditions will continue to be seen in the remainder of this year and into 2016. Moreover, a slightly large fiscal deficit of around 8.0 percent of GDP is likely given major spending and arrears challenges that remain to be addressed.
‘Nonetheless, this new reality sets up the economy for a strong rebound in 2016, an election year, and beyond, assuming commitment to maintaining responsible fiscal, debt, and financial policies over the medium term,’ they said.

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