Inflation in Ghana

Hon Baffour Awuah vrs Mr Fiifi Kwetey

By Dr Kwei Ofei

Hon Baffour Awuah, MP, Sunyani West (left), Mr. Fiifi Kwetey, Dep Minister, Finance (right)

On Tuesday, 23rd November 2010, Good Evening Ghana, a Metro TV programme discussed the 2011 Budget Statement. It was supposed to be an interesting discussion, and in many respects, it was.

The panellists were Hon Baffour Awuah, (MP for Sunyani West, and former Brong-Ahafo Regional Minister) and Mr Fiifi Kwetey (Deputy Minister, Finance & Economic Planning). The host, as usual, was Mr Paul Adom Otchere. All three were dressed in suit.

They discussed many things. They discussed the growth projections of the budget statement; they discussed the real sector, that is, Services, Agriculture and Industry; they discussed the taxes; they discussed the single spine salary arrangements, etc, etc.
As was expected, the Deputy Minister painted a good picture of the NDC government’s economic performance.

He went on to suggest that as a result of the sound management of the economy, inflation, among other indicators, had improved. But the reference to inflation was to define the high point of the show.

In reaction, Baffour Awuah pointed out that the drop in inflation and what appeared to be an improvement in the macroeconomic situation were artificial. Artificial because government has refused to spend and has been postponing its payments. And these are payments that would have to be made sooner or later.

Fiifi Kwetey quickly retorted that government expenditure was higher in 2009 than 2008, and also, higher in 2010 than in 2009. It was a tensed moment in the discussion, because the credibility of each of the gentlemen was at stake.

To substantiate his point, Baffour Awuah quoted from paragraphs 71 of the 2009 Budget Statement and paragraphs 48 and 80 of the 2011 Budget Statement. Fiifi Kwetey also tried to quote something from page 389 of the 2010 Budget Statement.

Let’s examine the information the two men presented. I have before me the 2009, 2010 and 2011 Budget Statements. In paragraph 71 of the 2009 Budget Statement, the following is stated:

“Madam Speaker, total payments for 2008, comprising discretionary and statutory payments, amounted to GH¢9,538.2 million, significantly higher than the budget estimate of GH¢7,107.2 million.”

So, from the 2009 Budget Statement presented by the NDC administration in March 2009, total government expenditure in 2008 was GH¢9.5 billion.

In paragraph 48 of the 2011 Budget Statement presented by Dr Kwabena Dufour, the following is stated:

“Total expenditure for the 2009 fiscal year amounted to GH¢9,074.4 million, equivalent to 41.7 percent of GDP. This was against a budget target of GH¢9,508.0 million, equivalent to 43.7 percent of GDP.”

Thus, total government expenditure for 2009 was GH¢9.1 billion. This is less than the expenditure for 2008 by GH¢400 million.

From paragraph 80 of the same 2011 Budget Statement, the following information is reported:

“Total expenditure, including payments made for the clearance of arrears and commitments for the first nine months of 2010, amounted to GH¢8,494.0 million, equivalent to 32.8 percent of GDP.

The outturn was 8.0 percent higher than the budget target of GH¢7,863.6 million.”

So, for the first three quarters of 2010, government expenditure has only come to GH¢8.5 billion. We can summarise the information we have as follows:

It is clear that, indeed, government’s yearly spending has been below what the previous NPP government spent in 2008. The thing to note is that, because of inflation, yearly spending should increase in order to do the same things as was done in the previous year.

Therefore, a case such as this in which the figures (as they are) are declining signifies a substantial reduction in government spending in real terms. Obviously, this is largely why inflation has been dropping.

Now, back to our two gentlemen in the studio. Baffour Awuah seems to have done his homework well. Actually, it was evident during the show that his figures were more accurate. Our Deputy Minister, Fiifi Kwetey attempted to quote from page 389 of the 2010 Budget Statement. I have checked it. The information there is the Economic Classification of Central Government Expenditure. It was of no direct relevance to the topic they were discussing.

But the Deputy Minister can be pardoned. He was appointed to the Finance Ministry just about a year and half ago. And he had not had any previous exposure or training in economics or budget management before his appointment. So far, I even think his courage in discussing some of the economic issues has been commendable.

We thank the two gentlemen and Metro TV for the show.

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