Minister: Government sustains stable, durable economy

Accra, Nov. 10, GNA - The Minister of Finance and Economic Planning, Mr Kwadwo Baah-Wiredu on Thursday said the country had continued to sustain the fundamental underpinnings of a stable and durable economy in the face of very difficult turns in the world economy this year.

He said that despite major hikes in oil prices and declining cocoa prices, the economy had remained strong and robust and that the implementation of prudent fiscal and monetary measures by the government since 2001 had helped to maintain a stable macro-economic environment and largely remained on course to achieve the targets set for this year. Mr Baah-Wiredu said this when he presented the 2006 National Budget and Financial statement to Parliament.

He said the country's Gross Domestic Product had been targeted to grow in real terms at a rate of 5.8 per cent this year. The half-year review of the GDP performance indicates that the projections are broadly on course to achieve the target by the end of the year.

"This is the same rate of growth as was achieved in 2004 when the external environment was more favourable and is far ahead of the average GDP growth rates of 3.7 per cent for year 2000 bequeathed to us by our predecessors."

Mr Baah-Wiredu said as at September this year, the rate of inflation stood at 14.9 per cent. While this is slightly higher than the targeted figure of 13.5 per cent, because of the effects of adjustments to petrol prices, it is lower than the inflation rate of 41 per cent of March 2001 when the Government presented its first Budget. He said the country's Gross Official Reserves had grown to US$1.67 billion as at September this year representing 3.5 months of import cover, a markedly healthier position than the less than one month's cover of year 2000.

"Indeed, the already impressive position would have been better still, but for the need to meet higher import bills from the rising price of crude oil" he added.

On the Fiscal Performance Receipts, the Minister said the trends in the first half of the year suggested that "we were heading for a shortfall in the targeted receipts for the year and as such steps were taken to deepen reform procedures and reporting requirements". Mr. Baah-Wiredu said more significantly, the revenue agencies and security personnel increased their vigilance, which led to the plugging of leakages from under-invoicing and smuggling of imports. He said the outcome of the improved measures was that total fiscal receipts for the year would broadly be on target.

The Finance Minister announced that the provisional outturn for total receipts was projected at 35,672.5 billion cedis, which will be 23 per cent more than last year's figure of 29,087.2 billion cedis. Mr Baah-Wiredu said that of the projected total receipts of domestic revenue was estimated to yield 24,116 billion cedis representing 24.5 per cent of GDP, a further improvement on the 2004 figure of 23.8 per cent, and a phenomenal jump from the end March 2000 situation of 17.7 per cent of GDP.

Total tax revenues are expected to reach 21,517 billion cedis by the end of the year, which will be an increase of 2.3 per cent over the targeted figure of 21,028 billion cedis.

Direct taxes are expected to yield 6,442 billion cedis, which is more than 10 per cent increase on the year's target while indirect taxes are projected to bring in 357 billion cedis more than the targeted figure of 10,720 billion cedis with cocoa receipts expected to be 272 billion cedis lower than last year's.

Mr Baah-Wiredu said non-tax revenue was expected to be slightly lower than expected due mainly to a slowdown in the yields from dividend and income surpluses.

The projected receipts are 1,260.0 billion cedis, which is 112.3 billion cedis below target.

On Payments, provisional data available through September and projections to the end of the year indicates that total payments will amount to 35,672.5 billion cedis, which will be 108.2 billion cedis lower than the budgeted estimates.

Statutory payments total 12,217.6 billion cedis (34.7 per cent), with the balance of 22,293 billion cedis (65.8 per cent) going into Discretionary Expenditure.

"By the end of the year, we would have spent 3,610 billion cedis to service our external debt made up of 2,608 billion cedis of amortisation and 1,002 billion cedis in interest payments.

"We expect to save nearly six per cent on domestic interest payments of 2,470.6 billion cedis as a result of falling interest rates from the combination of prudent management of the economy and the continuing fiscal discipline being shown by the Government."

Mr Baah-Wiredu said substantial progress had been made in enhancing Public Expenditure and Financial Management, improving revenue administration and increasing domestic resource mobilisation. He said coupled with the enhanced pace of growth, it was expected that the ratio of Domestic Debt to GDP would fall to 11.4 per cent by the end of the year, better than the target of 13.5 per cent and a markedly significant improvement on the 26 per cent level of 2000. Mr Baah-Wiredu said that in simple terms "we have reduced the domestic debt to GDP ratio by more than half of the level that we inherited."

He said that the Domestic Primary Balance, which measures domestic inflows against domestic expenditure, is expected to achieve a surplus of 2.7 per cent of GDP, against the 2.5 per cent budget target. In spite of this, the overall budget balance is projected to record a deficit of 2.4 per cent of GDP, slightly off the targeted figure of 2.2 per cent.

Mr Baah-Wiredu said that Government had put its fiscal house in order, made the structure of government finances more transparent and accountable and reduced government borrowing substantially. He said all these had resulted in interest rates declining from their strangulating levels of 2000 and releasing more resources for real economic growth and meaningful earnings.

The Minister said last February this year, Government took the bold step to accelerate the deregulation of the country's petroleum sector. The policy of full cost recovery, in an environment of rising oil prices, resulted in a 50 per cent increase in the prices of petroleum products.

Mr Baah-Wiredu said that inflation jumped to a peak rate of 16.7 per cent by the end of March but although the rate had eased down to 14.9 per cent at the end of September, it was expected to continue its downward trend to end the year at 13.5 per cent.

On the Monetary Policy, the Finance Minister said the growth of key monetary aggregates had continued to decline in line with the expectations for the year.

Growth in Reserve Money (RM) to September 2005 has dropped to 19.3 per cent, compared to a targeted figure of 22.1 per cent for the whole year and 37 per cent for similar period in 2004.

Broad money continued to decline in the year up to August 2005 for which figures are available.

Mr Baah-Wiredu said that developments in the money market this year had broadly followed the trend of the continuing cut of the Bank of Ghana's (BoG) prime rate, the consequential decline in market interest rate, reduced government borrowing and the increased liquidity of banks from measures announced by the BoG in July this year.

He said the secondary reserve requirement for banks now stood at 15 per cent, a more than 100 per cent cut from the previous level of 35 per cent while at the same time, the requirement that banks must hold 15 per cent of their deposits in the form of medium term securities (such as Treasury Bills) had been abolished.

This action by the Central Bank had made available more than 3,000 billion cedis to the Banking Sector for their operations, he said. The Finance Minister said interest rates had continued to decline in response to the strict adherence to the established monetary policy. He said this year, the Bank of Ghana had cut its prime lending rate on two occasions, shedding a total of 3.0 percentage points to stand at 15.5 per cent at September 2005.

On Exchange rates, the Minister said the exchange rate of the cedi against the benchmark US dollar had remained fairly stable throughout the year, but had made modest gains against the British pound and the Euro.

He said more significantly, the real effective exchange rate of the cedi had continued to appreciate in 2005.

Mr Baah-Wiredu said the Real Trade Weighted Index (RWTI) and the Foreign Exchange Weighted Index (FXTWI) had both appreciated in the first nine months of the year with the former increasing by 16.6 per cent and the latter by 15.9 per cent over the same period.

He explained that at the beginning of this year, the cedi stood at 9,000 cedis to the US dollar and that as at budget day, the exchange rate was 9,120 cedis to the US dollar.

The Finance Minister said the foreign exchange market had continued to grow at a tremendous pace with Forex transactions by the banks and Forex Bureaux between January and September this year amounting to US4.52 billion dollars, an increase of 46.4 per cent over last year. Private remittances through the banks from January to August 2005 have also gone up by about 58 per cent to US2.76 billion dollars. More than 28 per cent of the total remittances for this year, (US 771 million dollars) came from individuals.

Commenting on Balance of Payments, the Finance Minister said the preliminary estimates in the first three-quarters of this year indicated that the overall position had improved considerably over last year's. "It remains in deficit, largely on account of having to pay so much more for our crude oil imports."

This has resulted in a projected current account deficit of US182.9 million dollars for this year, compared to a small surplus of US21.95 dollars last year.

The Minister said the country earned US 2,110.9 million dollars from merchandise exports in the first nine months with cocoa beans and products contributing US 712.52 million dollars, a drop of US 148.08 million dollars from last year's earnings.

Gold has so far brought in US679.69 million dollars this year, an increase of about 9.5 per cent over last year's figure of US620.7 million dollars.

Receipts from timber totaled US172.18 million dollars, an increase of 9.05 per cent on last year's figure of US157.9 million dollars while export earnings from other sources, including non-traditional goods, amounted to US546.05 million dollars, almost US100 million dollars more than last year.

Total import bill from January to September this year is estimated at US 3,458.3 million dollars, an increase of 35.2 per cent over the same period for last year of US3,071.4 million dollars.

Mr. Baah-Wiredu said the cost of importing crude oil and petroleum products increased by 46.5 per cent from last year's level to reach US697.21 million dollars in spite of a nearly eight per cent drop in the volume of imports.

The value of non-oil imports, estimated at US2,761.09 million dollars, declined by US244.69 million dollars over last year's level. The Services, Income and Transfers account, totaling US1,072.96 million dollars showed a modest surplus of US 68.60 million dollars over last year's level of US1,004.36 million dollars.

Mr Baah-Wiredu said although the balance on official transfers remained in surplus at US 337.70 million dollars at the end of September this year, this was lower than last year's figure of US 391.51 million dollars.

He said as at September this year, the country's medium to long-term external debt stood at US 6.22 billion dollars for government, government-guaranteed and corporate entities with more than 50 per cent government equity.

Eighty-eight per cent of the country's debt is owed to Multi-lateral institutions, with bilateral debt making up a further 8.4 per cent and debt to commercial creditors making up the balance of three per cent.

Mr Baah-Wiredu said with an estimated net flow of resources (loan inflows less amortisation) of US 45 million dollars from October to December 2005, "we project an end of year external debt position of US 6.27 billion dollars."

At the last G-8 Summit in July of this year in Gleneagles, Scotland, Ghana was confirmed as amongst the first group of countries to benefit from 100 per cent, irrevocable cancellation of outstanding debts to the International Monetary Fund, World Bank and African Development Bank.

The G-8 decision was subsequently endorsed by the World Bank and IMF at their recent annual meetings in September. Mr Baah-Wiredu said: "We expect to begin to reap the benefits from the total cancellation of our Multilateral Debts from the beginning of the coming year, 2006. Those who doubt the immense benefits that this country derives from His Excellency's tireless efforts to promote this country abroad must now begin to appreciate the value of the President's endeavours".