Finance Minister backs calls for stronger buffers

Finance and Economic Planning Minister Seth Terkper says the country must scale its gross international reserves to at least four months import cover in order to withstand the volatility in prices of commodities on the world market.

Ghana's gross international reserves as at September 2013 [sufficient for 2.9 months import cover] decreased by US$ 136.9million to US$5,212.1 million from a stock position of US$ 5,349 million at the end of December 2012.

While it is expected that the country will end the year with a reserve cover of not less than 3 months of imports, Mr. Terkper speaking at the Citi FM's Budget Review Roundtable on Tuesday, said the country needs a much higher cover.

“A country moving from a lower-middle income to a middle- income status, like Ghana, needs to have a stronger buffer and the goal is to have a 4-6months of imports cover - particularly as we continue to benefit from oil resources.

“Given what we have been through with gold and cocoa prices recently - that is, volatility in world prices -but for petroleum revenues which came to balance it, we would have been through a lot of difficulties.

Dr. J.K. Kwakye, a Senior Fellow at the Institute of Economic Affairs (IEA) said government's gross international reserves target of not less than 3 months of import cover of goods and services is not “ambitious enough”

Unambitious target

Dr. Kwakye, who was also speaking at the event, challenged other macroeconomic targets set by government as being overly-modest. “The inflation target does not seem ambitious enough.

The targetted deficit does not seem ambitious enough, and raising the tax efforts from 17.3% in 2013 to 19.3% in 2014 is un- ambitiously feasible. According to Dr. Kwakye, “globally, inflation has been subdued; so as a country we seem to be disconnected from the rest of the world with a very high rate of inflation”.

Dr. Kwakye said the satisfactory level for the inflation target should be 7 percent and 6.5 percent of GDP for the budget deficit.

“The deficit is also not ambitious and we should bring the deficit down faster than is now envisaged, because if we maintain this high deficit it will entail a high level of borrowing and further escalate the public debt and interest payments.

“As for our tax-to-GDP, it is nothing to write home about. It is below international standards and middle-income standards, so we can do a lot on the revenue side by roping in the informal sector rather than burdening existing taxpayers with more taxes,” he said.

The government has projected GDP growth to rise to 8 percent next year from an estimated 7.4 percent this year, with the budget deficit shrinking to 8.5 percent of GDP from a projected 10.2 percent in the same period.