Dr. Kwabena Dufuor, Minister of Finance and Economic Planning, has taken a swipe at critics who say decline in inflation rate indicated that government was not spending stressing that expenditure figures indicated otherwise.
He said in 2009, government spent GH¢9.1 billion, an amount which represented 11 per cent increase over the GH¢8.2 billion spent in 2008.
Dr. Dufuor made the comments in a speech read on his behalf on Wednesday at the 10th Annual working luncheon of the Ghana Association of Bankers (GAB) in Accra. He said: “government capital expenditure in 2008 was GH¢1.9 billion. The corresponding figure for 2009 was 2.1 billion. Government capital spending in the first half of 2008 amounted to GH¢855.7 million. The expenditure for the corresponding period in 2009 was GH¢1.0 billion and in this year, it is also GH¢1.0 billion.”
“Spending on goods and services totalled GH¢648 million in 2008 compared to the GH¢621 million in 2009. For the first half of this year, a total of GH¢428 million has been spent on goods and services”, he added.
Dr. Dufuor said the government had been ingenious “by front loading some expenditures not only to alleviate the hardships of creditors but also to expedite the growth process” adding, arrears of GH¢160 million owed to road contractors dating back in 2008 were paid in bulk in January 2010.
“Similarly, GH¢445 million out of the total GH¢848.4 million of the Tema Oil Refinery debt owed to Ghana Commercial Bank was also paid in April this year”, he said.
Dr. Dufuor pointed to the steady decline in inflation rate from 20.7 per cent in June 2009 to 9.5 per cent in June 2010 largely to the prudent fiscal management by the government, continued monetary restraint, declining world oil and food prices supported by a good food harvest.
“Food inflation has declined from 15.4 per cent in June 2009 to 6.1 per cent in June this year. Over the same period, non-food inflation dropped from 24.7 per cent to 11.9 per cent. The appreciation of the cedi has also contributed significantly to the lowering inflation in the country”, he said.
Dr. Dufuor said steady decline in the inflation rate provided concrete evidence of an economy that was recovering at a faster rate from the deep crisis that it found itself at the end of 2008 adding, government critics must ‘stop downplaying the laudable achievements of government’ but rather embrace the positive impact of price stability.
On fiscal deficit target for 2010, he said, “for the first half of the year, the deficit target was 4.6 per cent of gross domestic product (GDP). The outturn was 0.8 of GDP more than the target. Comparing these to the 2008 situation where the budget deficit target was 5.3 per cent of GDP and the outturn was 14.5 per cent of GDP show the extent to which the government has instilled discipline in the management of the country’s financial resources.”
Dr. Dufuor said on the net domestic financing front, the target set for 2009 was 4.8 of GDP and the outturn was exactly 4.8 of GDP adding “for the first half of this year, the net domestic financing front target was 4.8 per cent of GDP and the outturn was 4.4 per cent, implying that government is borrowing less from the domestic market.”
He described as mischievous and complete misrepresentation, the notion peddled by critics that government was withholding payments to creditors which has caused the inflation rate to decline as well as the idea that the political administration was starving commercial banks of cash inflow, a situation that made it difficult for the banks to reduce their lending rates. “The fact is that, budgeting is about making choices in the face of scarce resources. Budget execution should therefore recognise the need to link spending to prioritised choices based on approved and available resources”, he said. Dr. Kwabena Dufuor expressed worry that average base and lending rates of commercial banks remained “stubbornly high” notwithstanding the drop in the Central Bank’s policy rate from 18.5 per cent in February 2009 to 13.5 per cent in July 2010.
He said the argument put across by banks that high risk associated with lending to small and medium size businesses, was the major cause of the inability to reduce the lending rates, was hard to accept.
Dr. Dufuor said: “Ghanaian households and businesses are becoming agitated about the deposit money banks’ refusal to respond positively to the favourable macroeconomic indicators currently prevailing in the country. Indeed, government is gradually losing its patience on this matter.”
He appealed to the banks to reduce the rates in response to the falling Central Bank’s policy rate, falling treasury bills discount rates and inflation rate. Dr. Dufuor expressed gratitude to management of the Agricultural Development Bank for taking the lead in reducing its base rate.
He said government would focus on diversifying the country’s export base from primary commodities towards value addition that were less vulnerable to international price volatilities.
“Fiscal management will continue to be strengthened and be made more efficient through a number of interventions, while public expectations regarding oil revenue will be carefully managed”, he said.
Earlier, the BAG held its 29th Annual General Meeting (AGM) to elect new executive members and to discuss current status of the financial sector of the economy.
The executive members include Mr William Asare Akuffo, Managing Director of HFC Bank, who is now the President of GAB, the new Vice President of the Association, Mr. Samuel Dornu, also Managing Director of Ghana Commercial Bank. Mr. William Asare Akuffo told journalists at a press conference held after the AGM that the banks would soon lower their base rate adding, if the banks reduced the rate so rapidly it could have negative repercussions on their balance sheets.
He cited high risks associated with lending to small medium size businesses, cost of deposits and default and delays in payments for work done by contractors and the granting of bad loans by the banks as factors that caused the corporate financial entities to lag for sometime before lowering their base rates.