Economy has made significant strides: Minister

Accra, July 13, GNA - The Minister of Finance and Economic Planning, Mr Kwadwo Baah-Wiredu said on Thursday said since the 2006 Budget was approved by Parliament, there had been significant developments on the macroeconomic front.

Presenting the Supplementary Budget for 2006 to Parliament, he said Ghana was one of the 18 countries to benefit from the Multilateral Debt Relief Initiative (MDRI) involving irrevocable debt stock cancellation of outstanding obligations to the IMF, World Bank and the African Development Bank.

"The relief, effective this year, will be used to augment the current level of public investment to accelerate the achievement of the Millennium Development Goals (MDGs) and thereby reduce poverty. "These developments require some adjustments in our agreed programme for the year and a redirection in our efforts to achieve the objectives of our national development agenda."

Mr Baah-Wiredu said these when the Budget Statement and Economic Policy of the Government of Ghana for 2006 financial year was presented in November 2005, the information on the economy's performance for the entire year was not available.

"We were, therefore, compelled to provide an assessment of the economy based on provisional data through the third quarter and our "best" projections for the rest of that fiscal year. Mr Baah-Wiredu said bearing in mind the direction of the approved 2006 Budget and with regard to the new inflows coming in from the MDRI, the Government was seeking approval to provide resources to priority sectors and sub-sectors, to enable the achievement of the growth targets set for 2006.

The Minister said according to World Bank projections, the oil price increases in 2005 and early 2006 were expected to slow growth in high income countries by about 1/4 of a percentage point in 2006 compared with what it would have been had prices remained stable. Updating figures for the performance of the economy in 2005, Mr Baah-Wiredu said Ghana's economy recorded a strong performance amidst the volatile international oil prices and met most of the key macroeconomic objectives under the Growth and Poverty Reduction Strategy (GPRS) II framework.

"The economy recorded a relatively high real Gross Domestic Product (GDP) growth rate; significant moderation in inflation despite the liberalization of domestic petroleum prices and a considerable strengthening of the external position in the face of adverse shocks emanating from volatile crude oil prices.

"The consistent implementation of the fiscal and monetary framework crafted to focus on reduction in the domestic debt to GDP ratio provided an anchor for fiscal policy and contributed in large to the strong economic performance in 2005."

Mr Baah-Wiredu said the year saw a rise in real GDP growth rate to 5.9 per cent, and a decline in point-to-point inflation to 14.8 per cent.

"The macroeconomic policies continued to strengthen the external position by building up gross international reserves to cover four months of import.

"An overall Budget deficit equivalent to 2.0 per cent of GDP was achieved and this policy stance provided room for the "crowding in" of private investment.

He said Industry and Services Sectors performed strongly in 2005 offsetting a slower growth in Agriculture owing to a lower growth in crops and livestock; and cocoa production and marketing. Mr Baah-Wiredu said the strong growth of the two sectors outweighed the relatively low growth in Agriculture to push the overall growth in GDP from a projected figure of 5.8 per cent to 5.9 per cent. The Minister said in the Agriculture Sector, growth declined by 2.4 percentage points from the projected target of 6.5 per cent with the overall growth being 4.1 per cent, largely driven by crops and livestock sub-sector which grew by 3.3 per cent instead of the targeted 6.0 per cent.

Fishing had a negative growth (-1.2 per cent), and the major contributors to this decline were canoe fishing and industrial vessels. On Industry, he said the Sector performed creditably by growing at 7.7 per cent, 1.9 percentage points above target. The projected growth for mining and quarrying sub-sector was 3.0 per cent.

The actual growth recorded was 3.3 percentage points above the target. The contribution of gold to this growth was (0.5 per cent); diamond (16.6 per cent); bauxite (21.8 per cent) and manganese (7.7 per cent) contributed heavily to the growth.

The electricity sub-sector exceeded growth target, from a projected 6.7 per cent to 12.4 per cent driven by the reopening of VALCO. Construction also exceeded target by 3.0 percentage points while manufacturing went down from a projected growth of 5.5 per cent to 5.0 per cent.

The overall growth of the services sector went up from a projected 5.4 per cent to 6.9 per cent. The activities which contributed immensely to this increase were Transport, Storage and Communication that moved from 6.0 per cent to 7.9 per cent; Wholesale and Retail Trade, Hotels and Restaurants also moved from 6.1 per cent to 10.0 per cent; while Finance, Insurance, Real Estate and Business Services went up from 5.6 per cent to 7.6 per cent.

Mr Baah-Wiredu said some structural reforms in the financial sector were undertaken by the Bank of Ghana to remove key impediments in the Sector to enhance the release of resources to the productive sectors of the economy.

These reforms, he said, resulted in bringing the financial institutions to focus on their intermediation function as compared to the situation where the banks used to find refuge in investing more in Government bonds and bills.

The Minister said the desire to strengthen the legal and regulatory frameworks of the financial institutions in 2005 resulted in the drafting of the foreign exchange payments system and the anti-money laundering bills.

These respective bills seek to provide a new statutory framework for the management of foreign transactions to enhance free flow of capital and to prevent money laundering.

Mr Baah-Wiredu noted that the relative stability in the local currency against the major currencies continued in 2005. The cedi appreciated by 11.1 per cent and 13.8 per cent on year-on-year basis against the Pound Sterling and the Euro, respectively, while a moderate depreciation of 0.9 per cent was recorded against the dollar. "This was on account of continued foreign exchange inflows, due partly to improved private remittances through formal channels; improved foreign exchange liquidity on the forex market; sound fiscal and monetary policies as well as a continued build up in external reserves."

He said another development worthy to mention was the appreciable improvement in the volume of transactions in foreign exchange in 2005, which expanded by 24.4 per cent from 4,978.87 million dollars in 2004 to 6,192.10 million dollars in 2005.

He said private inward transfers - received by nongovernmental organisations (NGOs), religious groups, individuals, service providers and others through the banks and finance companies for January to December 2005 amounted to 4.8 billion dollars, which represented a 58.3 per cent increase over the corresponding period in 2004. The Minister said of the total transfers in 2005, 1,391.1 million dollars (29.2 per cent) accrued to individuals.