The 2013 Budget Statement

Continued from Friday March 8, 2013 issue

MACROECONOMIC PERFORMANCE FOR 2012
33. Mr. Speaker, macroeconomic management in the year was beset with
challenges arising in part from the high wage bill which was the result
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of the implementation of the SSPP as well as the financial sector
instability in early 2012 that stemmed from both domestic and
external sources. These challenges notwithstanding, the economy
posted some significant successes in the areas of economic growth,
and price and exchange rate stability.
Real Sector
34. Mr. Speaker, provisional GDP estimates released by the Ghana
Statistical Service in September 2012 indicate that in real terms, the
economy expanded by 7.1 percent. This compares with a growth
target of 9.4 percent in 2012 and the actual outturn of 14.4 percent in
2011. The 2012 provisional growth rate of 7.1 percent is still high
given that it is on top of the growth rate of 14.4 percent recorded in
2011 when the GDP first reflected the impact of crude oil production
in commercial quantities.
35. It is important to note that provisional data for 2012 shows that
growth in the oil sector was negative, implying that our growth of 7.1
percent was robust despite the slack in the oil and gas sector. The
2012 provisional growth rate compares favourably with the global
growth of 3.2 percent and sub-Saharan Africa growth of 4.8 percent,
according to the IMF’s World Economic Outlook (Jan 23rd 2013).
36. Mr. Speaker, the Agriculture Sector recorded a growth rate of 2.6
percent against a target of 4.8 percent in 2012 and an actual outturn
of 0.8 percent in 2011. With the exception of Forestry and Logging
sub sector, all the other sub-sectors recorded higher growth rates
than those of 2011 with Crops and Fishing sub-sectors making the
largest contribution to agricultural output in terms of shares. The low
growth in Forestry and Logging sub-sector can be attributed largely to
the:
 decline in the reforestation programme which started in 2010;
and
 reduction in the number of permits awarded to timber
contractors and the effective enforcement of the ban on illegal
logging activities in pursuit of environmental sustainability.
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37. Mr. Speaker, the Industry Sector, the second largest sector, recorded
a growth rate of 7.0 percent in 2012 against a target of 15.8 percent
and an actual outturn of 41.1 percent in 2011. The lower performance
in 2012, compared to the actual outturn in 2011, is due largely to the
base effect of crude oil production in 2011. The year 2011 witnessed
significant growth in the output of the Mining and Quarrying subsector
as a result of the introduction of oil production in commercial
quantities.
38. The Mining and Quarrying sub-sector registered a growth rate of 5 per
cent, against a target of 31.9 per cent, due mainly to a contraction in
the oil and gas production occasioned by production difficulties in the
Jubilee Field in the first half of the year. Recent data on oil production,
however, shows a growth of 8.9 percent as at end-December 2012.
39. Mr. Speaker, the Services Sector, the largest sector of the economy,
recorded the highest growth rate in the year under review. The
Sector exceeded its 2012 target of 7.7 per cent by 1.1 percentage
points to register a growth rate of 8.8 percent. The sub-sectors which
contributed to this remarkable performance include Hotels and
Restaurants (13.6 per cent), Transport and Storage (11.4 per cent),
Financial Intermediation (11.4 per cent), Information and
Communication (12.1 per cent), and Business Services (13.5 per
cent).
Fiscal Sector
40. Mr. Speaker, preliminary data on implementation of the Budget for the
2012 fiscal year indicates that, total revenue and grants was below the
budget target. At the same time, expenditures for the period were
higher than the budget estimate. This resulted in an overall fiscal
deficit equivalent to 12.0 percent of GDP, against a target deficit
equivalent to 6.7 percent of GDP. The deficit was financed mostly
from domestic sources, resulting in a net domestic financing
equivalent to 9.8 percent of GDP, against a target of 4.0 percent of
GDP.
41. Mr. Speaker, Total revenue and grants for the period under review
amounted to GH¢16,668.4 million, against a target of GH¢16,927.6
million. This was 1.5 percent lower than target, but 30.2 percent
higher than the outturn for the corresponding period in 2011.
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42. Mr. Speaker, Total expenditure, including payments made for the
clearance of arrears and outstanding commitments, totaled
GH¢25,317.1 million, equivalent to 35.2 percent of GDP. The outturn
was 17.2 percent higher than the budget target of GH¢21,596.6
million and 64.0 percent higher than the outturn for 2011. The strong
growth in expenditure was mainly as a result of higher recurrent
spending and increased clearance of arrears.
43. Mr. Speaker, based on revenue and expenditure outturns for 2012,
the overall budget balance on a cash basis was a deficit of
GH¢8,648.7 million, equivalent to 12.0 percent of GDP. This was
against a deficit target of GH¢4,669.0 million, equivalent to 6.7
percent of GDP. The budget deficit recorded for the corresponding
period in 2011 was equivalent to 4.0 percent of GDP. The domestic
primary balance also registered a deficit of GH¢1,172.1 million,
equivalent to 1.6 percent of GDP, against a targeted surplus of
GH¢1,737.5 million, equivalent to 2.5 percent of GDP.
44. Shortfalls in revenue and grants combined with higher spending were
the sources of the fiscal slippage in 2012.
45. Mr. Speaker, Net Domestic Financing of the budget amounted to
GH¢7,018.0 million (equivalent to 9.8 percent of GDP) against the
budget target of GH¢2,760.6 million (equivalent to 4.0 percent of
GDP). About thirty-two percent of the domestic financing was from the
central bank and the remaining was from deposit money banks and
non-bank public.
46. Foreign financing of the budget was GH¢1,630.6 million (equivalent to
2.2 percent of GDP), against a target of GH¢1,908.4 million
(equivalent to 2.7 percent of GDP).
Oil and Gas
47. Mr. Speaker, the fiscal year 2012 experienced an improvement in
production of crude oil amidst initial production difficulties in the first
two quarters of the year. The total volume of crude oil produced in
2012 was 26,351,278 barrels representing an increase of 8.9 percent
over the 2011 production levels. The GNPC lifted crude oil five times
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on behalf of the State amounting to 4,931,034 barrels yielding
US$541.07 million (GH¢978.27 million).
48. Mr. Speaker, of the total oil lifting receipts of US$541.07 million
(GH¢978.27 million), Royalties amounted to US$150.64 million
(GH¢272.37 million) and the remaining US$390.43 million (GH¢705.91
million) represented the State’s Carried and Participating Interest.
Other sources of petroleum receipts, namely, surface rentals and
SOPCL royalties amounted to US$552,418 (GH¢1,044,290) bringing
the total petroleum receipts to US$541.62million (GH¢979.32 million).
Distribution of 2012 Petroleum Receipts
49. Mr. Speaker, petroleum revenues received in 2012 were allocated to
the various allowable sources in accordance with the PRMA. Of the
2012 petroleum receipts of US$541.62 million (GH¢979.32 million), an
amount of US$230.95 million (GH¢416.89 million) was transferred to
GNPC comprising Equity Financing Cost of US$124.63 million
(GH¢224.21 million), and GNPC’s 40 percent share of net Carried and
Participating Interest of US$106.32 million (GH¢192.68 million) in line
with Section 7 of the PRMA.
50. Mr. Speaker, the remaining amount of US$310.67 million (GH¢562.43
million) representing the Benchmark Revenue was distributed to the
ABFA and the GPFs in line with sections 11, 18, 19, and 23 of the
PRMA.
Utilization of 2012 Annual Budget Funding Amount
51. Mr. Speaker, an analysis of the allocation to ABFA in 2012 shows that
a total amount of US$286.55 million (GH¢516.83 million) was
allocated to ABFA in accordance with the PRMA against a projected
ABFA of US$383.52 million (GH¢614.55million) for the year resulting in
a shortfall of US$96.96 million (GH¢97.71 million). The main reasons
for the shortfall in the 2012 ABFA allocation were the shortfall in
production targets as well as the non-realization of corporate tax in
2012.
52. Mr. Speaker, of the total ABFA amount of GH¢516.83, an amount of
GH¢273.07 million representing 52.8 per cent was spent on oil and
gas infrastructure and amortization of loans in respect of such
infrastructure whilst GH¢176.73million, representing 34.2 per cent was
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spent on Road and Other Infrastructure. The remaining GH¢67.03
million (13 per cent) was spent on Agricultural Modernisation
(GH¢42.09 million or 8.1 per cent) and Capacity Building (GH¢ 24.94
million or 4.8 per cent). Consistent with Section 21(4) of the PRMA
which requires that a minimum of seventy per cent of the ABFA be
used for public investments, 76 per cent of the 2012 ABFA was spent
on public investments and the remaining 24 per cent was spent on
goods and services.
Monetary Developments
53. Mr. Speaker, provisional monetary data indicated a slower pace of
growth in broad money supply including foreign currency deposits
(M2+). Broad money supply grew by 24.3 percent in 2012 compared
with 33.2 percent in 2011. By the end of December 2012, M2+ stood
at GH¢22,620.5 million, compared with GH¢18,195.1 million in 2011.
Inflation
54. Mr. Speaker, headline inflation went up marginally from 8.6 percent in
2011 to 8.8 percent in 2012, continuing the record single digit inflation
for more than two years. Although the end year inflation missed the
target of 8.5 percent, it remained within the target band of 8.5±2
percent. During the year, inflationary pressures remained largely
subdued by low food price increases explained by seasonal factors.
Food inflation peaked at 5.5 percent in July 2012 but declined to end
the year at 3.9 percent. Partly reflecting the exchange rate passthrough,
non-food inflation also increased to 12.5 percent in August
2012 and steadily declined to 11.6 percent in December 2012.
Exchange Rates
55. The Ghana cedi traded weak in the first five months of 2012 due to
intense demand pressure for foreign exchange partly reflecting a
surge in import demand that accompanied the strong GDP growth in
2011 and the premature redemption of portfolio investments by nonresident.
However, the introduction of policy measures by the Bank of
Ghana helped to moderate the volatility in the foreign exchange
market. The policy measures included policy rate hikes, introduction of
new bills to mop up excess liquidity and monitoring of foreign
exchange market activities. On a cumulative basis, the Ghana cedi
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depreciated at the interbank market by 17.5 percent against the US
dollar in 2012 compared to 4.97 percent in 2011.
Developments in Interest Rates
56. Mr. Speaker, in response to the pressures in the foreign exchange
market and its possible pass-through to prices, the Monetary Policy
Committee (MPC) of the Bank of Ghana raised the Monetary Policy
Rate (MPR) by cumulative 250 basis points from 12.5 percent in
December 2011 to end December 2012 at 15 percent. As a
consequence, interest rates trended up but the pace moderated
during the second half of the year.
57. In the money market, interest rates on 91-day and 182-day bills went
up from 10.7 and 11.3 to 22.9 and 22.88 percent, respectively, in
December 2011 and December 2012. Similarly, rates on 1-year and 2-
year fixed notes increased from 11.3 and 12.4 percent in December
2011 to 22.9 and 23 percent in December 2012, respectively. The
long-dated instruments such as 3-year and 5-year bonds also rose
from 14 and 14.3 percent in 2011 to 24 and 23 percent, respectively,
during the period.
External Sector
58. Mr. Speaker, provisional estimates indicate that the trade balance
recorded a deficit of US$4,249 million in 2012, pointing to further
deterioration in comparison to a deficit of US$3,057.3 million in 2011.
This was on account of increased imports relative to marginal gains in
export earnings.
59. The worsening trade balance, as well as increased outflows from
services, income and current transfers, resulted in a current account
deficit of US$4,928 million in 2012 compared to US$3,546.4 million
recorded in 2011. The capital and financial account stood at US$3,305
million in 2012, compared with US$4,479.3 million in 2011, and was
explained by higher short-term capital and net official capital outflows.
60. These developments resulted in an overall balance of payments deficit
of US$1,210.9 million in 2012, compared to a deficit of US$546.5
million in 2011. By end 2012, gross international reserves stood at
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US$5,348.9 million, compared to US$5,474.6 million in 2011 and
equivalent to 3 months of import cover.
Financial Stability in 2012
61. Mr. Speaker, Ghana’s financial system faced significant risks to
stability in early 2012, emanating from both external and domestic
sources. Threats to stability from external sources were mainly from
the sovereign debt crisis in the euro area that spilled into the euro
zone banking. Domestic threats to stability emanated mainly from
rapid depreciation of the cedi, which constituted the major risk to
macroeconomic stability in early 2012. Measures taken to contain
threats to the system included three-consecutive hikes of the
monetary policy rate that culminated in 250bps increase in the first
half of the year and re-introduction of Bank of Ghana bills.
62. Mr. Speaker, by the end of 2012, the financial stability indicators
pointed to steady improvement. Generally, the banking system
remained strong in 2012 on account of increased capital levels of
banks and reduced non-performing loans. Other sectors of the
financial system comprising the insurance sector, the securities market
and the Ghana Stock Exchange also registered improved performance.
Public Debt
63. Mr. Speaker, the public debt (including government guaranteed debt)
increased by 23 per cent from US$15,350.08 million in 2011 to
US$18,832.77 million by end-December 2012. This represents 40.8
per cent of GDP in 2011 and 49.4 per cent of GDP by end December
2012. In terms of debt type, domestic debt grew by 30 percent
(between 2011 and 2012) to constitute 53 percent of the total public
debt, compared to 47 percent for external debt.
64. A combination of factors, including the reduction in the availability of
concessional funds as a result of the Euro financial crises, contributed
to the increase in non-concessional borrowing to finance infrastructure
projects. The increased public debt was also due to issuance of
longer-dated domestic debt instruments (3-year and 5-year bond).
Although the rise in total debt has sent some shivers in sections of
Ghanaians because of the fear of its medium to long term
sustainability implications, we wish to assure Ghanaians that the debts
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were issued for priority and self-financing projects, including Eastern
the Corridor Roads, Gas Processing Plant, Wa and other hospitals
project, rehabilitation of the Western railway line, retooling of the
Ghana Police and the provision of essential equipment to the military.
They will, therefore, not pose threat to debt sustainability of the
country.
New Loan Commitments
65. Mr. Speaker, Government in 2012, raised loans to the tune of about
US$2,286.24 million (of which US$1,089.75million was concessional
and US$1,196.49million non-concessional), to implement various
infrastructural projects in an effort to help bridge the gap in
development, consistent with our middle income status.
Debt sustainability Analysis
66. Mr. Speaker, the Ministry of Finance in conjunction with the World
Bank recently undertook a debt simulation exercise for the end of year
2012, to ascertain our country’s debt sustainability levels. This
assessment revealed that Ghana remains within the category of
moderate risk of debt distress – the same rating the joint World Bank/
IMF mission assessed in November 2011. The assessment, though,
showed that public external debt burden indicators remained below
their respective thresholds; it also showed an increasing trend in the
liquidity ratios, especially the debt service-to-revenue ratio which is
projected to average about 9.1 percent of GDP between 2013-2018
from the current 7.5 percent.
67. Mr. Speaker, projects under the CDB financing arrangement are
progressing smoothly. Works are far advanced on the Western
Corridor Gas Infrastructure Project, and application made for the
supply and installation of ICT enhanced surveillance under the
Integrated National Security Communication Project. Ministry of
Finance is working diligently with the beneficiary MDAs to finalize
relevant project preparation documents to ensure timely completion of
projects. The completion of these projects will significantly reduce the
infrastructural deficit in critical areas of the economy.
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Petroleum Hedging Programme
68. Mr. Speaker, Government in the 2012 Budget mentioned the hedge
programme put in place to contain the phenomenon of crude oil price
escalation, with the view to achieving price stability and guarantee the
availability of petroleum products on the Ghanaian market at all times.
The hedging programme has largely been successful. The key benefit
has been a stabilization of the prices of finished petroleum products
which were partially protected by the hedge when crude oil prices
soared from $78 per barrel in September 2010 to $128 per barrel in
April 2011 and from the lowest average price of $95.77/pbl in June
2012 to the highest price of $124.50 / pbl in March, 2013.
69. The impact of the latest (and still on-going) oil crises on the economy
of Ghana would have been very consequential, had the hedging policy
not been put in place. In view of the potential benefits, government
intends to strengthen further the programme in 2013.
Macroeconomic Policies and Targets for 2013
70. Mr. Speaker, the Ghana Shared Growth and Development Agenda
(GSGDA) is expected to end in 2013 and, it is expected to be replaced
by a successor Plan by end of July 2013. The medium-term framework
for this Budget is informed by the policy direction for the remaining
duration of the GSGDA and the Manifesto of the National Democratic
Congress (NDC) as presented to the good people of Ghana.
71. Mr. Speaker, in his Sessional Address to Parliament delivered on
February 21, 2013, H.E. the President indicated that, the vital strength
underpinning our national development programme will focus on four
pillars, namely putting the People First; a Strong and Resilient
Economy; Expanding Infrastructure; and Transparent and Accountable
Governance. These pillars will, therefore, inform our medium-term
economic framework as we formulate our economic policies.
72. Mr. Speaker, the details of macroeconomic targets for 2013 are
outlined below:
 real non-oil GDP growth of 6.5 percent;
 real overall GDP growth including oil of 8.0 percent;
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 average inflation of [8.9] percent;
 end period inflation of [9.0] percent;
 overall budget deficit equivalent to [9.0] percent of GDP; and
 gross International Reserves of not less than three months of
import cover for goods and services.
73. Mr. Speaker, it is projected that economic growth will remain strong
and inflation is also expected to remain in single digit in 2013, in spite
of the fiscal challenges and risks that confront the economy.
74. Measures will be taken to protect the credibility of fiscal policies and
the deficit target. Strong monetary policy stance is expected to be
maintained to ensure the stability of the cedi and support our single
digit inflation target. The fiscal programme will hinge on the
rationalisation of expenditure and strengthened revenue collection.
75. Public Financial Management will be strengthened within the context
of our macroeconomic policies and fiscal discipline to prevent
overspending and avoid new arrears accumulation.
76. Mr. Speaker, implementation of the Ghana Integrated Financial
Management Information System (GIFMIS) is expected to reduce the
occurrence of outstanding payments and help with implementation of
the realignment of the Budget that was mentioned by H.E. the
President in his Sessional Address.
Real Sector
77. Mr. Speaker, based on the policies and strategies to be pursued in the
medium term, the economy is projected to grow at no less than 8
percent from 2013 to 2015. On annual basis, it is projected that real
GDP will grow at 8 per cent in 2013, 8.7 per cent in 2014 and 8.9 per
cent in 2015.
78. Mr. Speaker, consistent with our policy of ensuring that adequate
attention is given to the non-oil sector to prevent the Dutch Disease,
the non-oil GDP is projected to grow at an average of 8 percent in the
medium term. On annual basis, it is projected that the non-oil GDP will
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grow by 6.5 percent in 2013 and increase further to 8.9 percent in
2014 and 9.4 percent in 2015.
2013 Petroleum Receipts and Distribution
79. Mr. Speaker, based on an estimated average crude oil price of
US$94.36 per barrel and daily production of 83,341 barrels, the total
petroleum receipts projected for the 2013 fiscal year is US$581.72
million (GH₵1,122.72 million).
80. Mr. Speaker, in line with Section 18 of the PRMA, a maximum of 70
percent of the Benchmark Revenue is allocated as the ABFA and the
remaining sum is allocated to the GPFs.
81. Mr. Speaker, it is, therefore, proposed that out of the Benchmark
Revenue of US$390.28 million (GH¢753.24 million), an amount of
US$273.20 million (GH¢527.27 million) be allocated as ABFA and the
remaining US$117.08 million (GH¢225.97 million) as the GPF. The 70
percent allocation of the GPF to the GSF will amount to US$81.96
million (GH¢158.18 million) whilst the 30 percent allocation to the GHF
will amount to US$35.13 million (GH¢67.79 million)
82. Mr. Speaker, in line with Section 21(5) of the PRMA, the ABFA would
be spent in the following four priority areas:
 Expenditure and Amortization of Loans for Oil and Gas
Infrastructure;
 Road and Other Infrastructure;
 Agricultural Modernization; and
 Capacity Building (including Oil and Gas).
83. The four priority areas which were approved by this august House in
the 2011 Supplementary Budget, will be reviewed for the 2014 fiscal
year in accordance with Section 21(6) of the PRMA.

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