BUDGET: External current account in the red

Accra, July 13, GNA - The external current account for 2005 showed a deficit position of 1,378.5.0 million dollars, almost double the size of deficit registered in 2004, the Minister of Finance and Economic Planning, Mr Kwadwo Baah-Wiredu said on Thursday.

Presenting the 2006 Supplementary Budget to Parliament in Accra, he said this trend was on account of a strong growth in investment imports associated with ongoing mega projects (mining and West African Gas Pipeline), increased imports associated with donor loan inflows and the impact of higher world oil prices.

"The current account deficit was more than financed from large capital inflows - reflecting a pick up foreign direct investment in mining, energy, and services sectors- and increased concessional loans." Consequently, Mr Baah-Wiredu noted gross international reserves reached 1.894 million dollars, equivalent of 3.8 months of imports, deepening the country's resilience against external shocks. The Minister said by the end of 2005, the medium and long-term external debt stood at 6.35 billion dollars, representing a 2.4 per cent increase over the 2004 debt stock of 6.2 billion dollars.

In terms of composition, multilateral institutions accounted for 88.0 per cent notably the World Bank, 68 per cent; bilateral Paris Club and Non-Paris Club debt representing 8.2 per cent and commercial creditors accounting for 4.2 per cent.

Mr Baah-Wiredu said total external inflows into the economy in 2005, was 997.7 million dollars made up of loan inflows of 535.6 million dollars and grant inflows of 462.16 million dollars. This is an increase of 279.1 million dollars (39 per cent) over the 2004 inflows of 718.6 million dollars.

"This indicates some measure of success in Government and Development Partner's efforts to improve external aid utilization through the harmonization of policies, procedures, practices and minimising of conditionalities. It also brings to light, the improvement in aid reporting by Donors. Mr Baah-Wiredu said project inflows of 715.9 million dollars accounted for about 73.7 per cent of the total external inflows. Of this, 373.0 million dollars and 342.9 million dollars were from loans and grants, respectively.

A total programme inflow to support the Budget was 281.88 million dollars as against a projected inflow 285.3 million dollars. The difference was as a result of exchange rate variations of the dollar vis-=E0-vis the Special Drawing Rights (SDR) and the Euro. The loan component accounted for 162.62 million dollars, 58 per Cent, and grant disbursements of 119.3 million dollars, 42 per cent. "This indicates 100 per cent disbursements of pledged funds made by Development Partners under the MDBS, which we have experienced since its inception in 2003.

Mr Baah-Wiredu said Government's projected debt service payment for the year 2005 was 406.0 million dollars, representing 292.6 million dollars for principal and 113.4 million dollars for interest and other charges.

He said actual debt service payment paid up to the end of 2005 was 140.6 million dollars. This represented 90.9 million dollars and 49.7 million dollars for principal and interest, respectively.

The Minister said the savings represented debt relief funds under the Enhanced Highly Indebted Poor Countries (HIPC) Initiative. Mr Baah-Wiredu said up to the end of 2005, 16 new concessional loans were contracted to support projects that were directly linked to the Growth and Poverty reduction Strategy (GPRS) II.

The main sectors that benefited from the new loans contracted included Roads; Water; Agriculture and Energy Sectors and the total amount committed was 610.7 million dollars, representing a slight increase of about four per cent over the last year's committed amount of 587.7 million dollars.

"The increase clearly demonstrates government's commitment to borrow prudently to ensure long-term debt sustainability while achieving our growth and development objectives."

On creditor categorization basis, 60.0 per cent of the total amount contracted came from multilateral institutions mainly from the International Development Association (IDA) and African Development Fund, EIB and OPEC Fund and 40 per cent from bilateral sources such as France, Netherlands, China and India.

Mr Baah-Wiredu said the Government continued to pursue the strategy of contracting new borrowings on very concessionary terms. Thus, the policy to contract loans with a minimum grant element of 35 per cent had been adhered to.

He said total number of grants signed in 2005 was 22 with a total committed amount of 273.8 million dollars to support the Water, Education, Agriculture, Health and Private Sector development.