2003 BUDGET STATEMENT (Part Four)

The Hon.Minister of Finance, Mr. Yaw Osafo-Maafo has presented the 2003 Budget Statement to Parliament(full text).

SECTION SEVEN: POLICY INITIATIVES FOR 2003

526. Mr. Speaker, among other objectives, the 2003 budget aims at reducing the reliance on net domestic financing and minimizing the dependence on donor inflows. As noted earlier, despite the promising prospects of the emerging multi-donor budgetary support arrangements with development partners, our firm belief is that a government that mobilises its revenue through a well-developed domestic tax system and manages its expenditure efficiently is able to respond to the needs of its citizens even in the face of adverse external shocks.

527. Major policy initiatives that address the concerns of Ghanaians, especially people in the lower income brackets for this year will include:

* implementation of the National Health Insurance Scheme (NHIS);
* revenue enhancement measures; and
* support to local industries. National Health Insurance Scheme

528. Mr. Speaker, you may recall that during his State of the Nation’s address to Parliament, His Excellency the President, mentioned the need to fashion out a policy that will guarantee basic medical care for all Ghanaians. That is, a policy that will abolish the cash and carry system in this country.

529. To this end, Mr. Speaker, the Government has decided to establish the “National Health Insurance Scheme”. The Ministries of Health and Finance are working out the details with the National Insurance Commission and other Insurance Companies to ensure its smooth operation. It is expected that this National Health Insurance Scheme will be operational by May, 2003.

530. Apart from its fiscal benefits, we expect the National Health Insurance scheme when fully operational, to have a positive distributional impact.

531. Mr. Speaker, forty-two (42) districts in this country have already introduced such schemes. Experience has, however, shown that, there has to be state intervention to ensure a basic uniform standard and quality nationwide. This will guarantee affordability and sustainability of the scheme in the medium term. In this regard, a contribution to the health insurance premium of 2? per cent on expenditures and transactions is proposed to provide part of the funding necessary to establish the scheme.

532. The direct burden on the lower income group will be limited because a high proportion of their expenditures and transactions falls outside the applicable premium base. At the same time, the poor will derive maximum benefit from extra poverty reducing expenditures to be financed by the additional budget resources that will become available.

533. Mr. Speaker, it is further proposed that the existing Social Security Pensions Scheme, which provides for workers welfare after retirement has to be revisited, so that the scheme contributes a minimum of 2? per cent of each worker’s contribution of 17? per cent towards the National Health Insurance Scheme. Workers must benefit from the scheme during their working life and the SSNIT Scheme should contribute to the health needs of workers. This will call for an amendment of Regulation 37 of SSNIT’s existing scheme.

534. Mr. Speaker, it is expected that SSNIT will manage its resources such that overall pension benefits are not adversely affected.

Revenue Enhancement Measures

535. Mr. Speaker, a substantial proportion of our budgetary requirement is funded from donor sources. Government intends to reverse this trend through increased domestic resource mobilisation. This budget introduces new measures to enhance domestic resource mobilisation.

Debt Recovery Levy on Petroleum Products

536. Mr. Speaker, to ensure the achievement of full cost recovery as well as to help pay of the accumulated debt of TOR over time, a Debt Recovery Levy on petroleum products, at the rate not exceeding ?640 per litre across board will soon be laid before Parliament.

Service Charge on Re-export of Warehoused Goods

537. A service charge of 5 per cent will be levied by Customs Excise and Preventive Service (CEPS) for the processing of warehoused goods to be re-exported.

Road Maintenance Levy

538. It is proposed to increase the fuel levy now designated as the Road Maintenance Levy be adjusted from ?230 to ?400 per litre of petroleum product.

Revision of First Schedule of Stamp Act 1965 (Act 311)

539. Mr. Speaker, it is proposed to review the charges and rates for stamp duty under the stamp Duty Act 1965 (Act 311). This revision will be presented to Parliament for consideration in due course.

Amendment of Airport Tax Act

540. The Airport Tax Act will be amended to enable the airlines collect the taxes through the ticket system as usual from passengers and pay over the monies collected direct to the Commissioner of Internal Revenue.

541. The Minister of Finance will subsequently pay the 40.0 per cent of the amount collected to the Ghana Civil Aviation Authority (GCAA) upon the certification of the Commissioner of Internal Revenue.

542. This is to ensure that there is regular flow of revenue to Government thus avoiding the delay associated with the remittance of the monies collected to the IRS after the monies have been paid to the GCAA by the various airlines.

Treatment of Bad Debt by Financial Institutions

543. Some financial institutions are capitalising on the concession granted in Section 7 of L.I. 1675 to write off specific standard bad debts. To streamline the assessment of tax liability, it is proposed to repeal Section 7 of L.I. 1675. All organisations should, therefore, comply with provisions of Section 18 of Act 592 (2000), which limits bad debt provisions to debt claims which cannot be satisfied having taken all reasonable and necessary steps to pursue payment.

Introduction of Sticker System

544. In view of the poor performance of the transport unions in the collection of income taxes from commercial operations, the Internal Revenue Service (IRS) has agreed with the Transport Council, to introduce a sticker system that will be based on standard assessment. These stickers would be procured quarterly and will be administered by the IRS.

Review of Rent Law

545. It has become increasingly clear that, the practise of landlords/landladies demanding two to three years rent advance is a problem for ordinary workers as well as prospective foreign investors.

546. Government has, therefore, decided that the Rent Law should be updated and enforced to protect workers and also to promote business in this country. In this regard, proposals will soon be presented to this House for consideration.

Operational Enhancement Measures

Monitoring of Temporary Importation of Vehicles

547. Mr. Speaker, a number of vehicles, particularly of ECOWAS origin, are brought into the country under temporary license but such vehicles sometime get registered under fake licenses. In order to check this fraud in vehicle registration, Customs, Excise and Preventive Service CEPS will acquire the software for the monitoring of temporary importation of vehicles to ensure that such vehicles some of which eventually get registered in the country pay the required duties and taxes.

Labelling of Products to Minimise Smuggling of Excisable Commodities

548. The level of smuggling of excisable commodities, especially, cigarettes and hard liquor, constitute a very serious revenue leakage. It is estimated that about 10 per cent of cigarettes consumed in the country is smuggled from other countries. To help improve revenue generation from this source, CEPS will introduce labelling of legally imported tobacco products and bottled spirits to distinguish them from local products.

Abuse of the Free Zones Facilities

549. To stem the abuse of the Free Zones system and reduce leakages under the programme the following measures will be implemented to ensure compliance with the Free Zones regulations:

* formation of a Technical Monitoring Committee (TMC) comprising representatives of IRS, CEPS, VAT and the Ghana Free Zones Board (GFZB); and
* periodic audit visits to the Free Zone companies will be made by the (TMC).

Disengagement of CEPS from Warehousing Activities

550. Mr. Speaker, CEPS will disengage itself from warehousing activities and rather concentrate on monitoring the warehouses. This will lead to self-policing on the part of warehouse providers.

Open-Ended Exemptions

551. Some exemptions have been identified to be open-ended. It is proposed to make all exemptions for any form of taxation time-bound. The Ministry of Finance will liaise with the Ghana Investment Promotion Centre (GIPC), Minerals Commission and all other relevant MDAs to streamline all such exemptions.

Refund Account for Duty Drawback

552. Duty drawback procedures are slow and cumbersome. Producers report that the minimum time required to realize draw back claims is between 3 and 6 months. To speed up the processing of claims, a refund account is to be established by CEPS to finance refunds for duty drawbacks in order to eliminate long delays.

Computerised Clearance System

553. The first phase of the implementation of the automation programme to enhance clearance of goods and revenue collection which took off at the Kotoka International Airport in November, 2002 is to continue during the year. It is expected that by the end of June 2003, the Tema Port would be on stream while Takoradi Port would be operational by August, 2003. The other frontiers, Aflao and Elubo, would be automated before the end of the year.

Destination Inspection Companies

554. Mr. Speaker, the operations of destination inspection companies impact greatly on import revenue. Inspection fees charged on transactions through land frontier stations are deemed as revenue and must be paid into the Consolidated Fund. To enhance valuation at these frontier stations, the destination inspection companies would be required to provide regular update of the price database to guide custom officers at frontier stations.

Establishment of IRS Refund Account

555. A Refund Account is to be opened at the Bank of Ghana into which a realistic percentage of quarterly collections will be paid for the purpose of settling over- payments resulting from withholding taxes, provisional assessments, capital allowances, losses carried forward etc.

Returns in Foreign Currency

556. The IRS, with the prior approval of the Bank of Ghana, will allow companies desirous of submitting their financial statements in the denomination of their parent companies to do so. In this connection, it is being proposed that Section 123 of the Internal Revenue Act 2000 (Act 592) be amended to incorporate the requisite guidelines for companies who wish to submit returns in foreign currency.

Exchange of Information with the MDAs

557. The IRS will liaise with the various MDAs to enable it capture data on consultants, professionals and other service providers to ensure access to information regarding potential tax payers and to promote the TIN programme.

558. All service providers, including consultants, providing services to any MDA are expected to provide a Tax Clearance Certificate to contract awarding agencies, before the final award of any contract.

559. Mr. Speaker, specific measures to improve operational efficiency of the VAT Service include:-

* GCNET connectivity to provide access to trade import transactions, input tax verification identification, tracking and registration of non-registered importers and their customers; as well as; and

* effective management of receivables

Large Taxpayers Unit

560. As part of measures to further improve tax administration. A Large Taxpayers Unit (LTU) will be launched by mid-June 2003, and will initially cover about 350 tax-paying entities. In support of the LTU and other initiatives, a Taxpayers Identification Number (TIN) Law was passed in 2002, and during 2003 it is intended to build the TIN database and enforce TIN implementation in all revenue agencies.

Department of National Lotteries (DNL)

561. Mr. Speaker, the Lotteries and Betting Act 1960, Act 31 was promulgated in 1960 to give the necessary legal backing to the operation of lotteries in the country with a view to generating additional sources of revenue for government.

562. Soon thereafter, the National Weekly Lotto Act, 1961 was enacted to give the state the monopoly to operate lotto in the country.

563. However, as a result of the Department’s logistical constraints coupled with operational difficulties, illegal private lotto houses, emerged to compete and fill in the gap created by the Departments inability to operate nationwide.

564. In 1989, the National Weekly Lotto Amendment Law, PNDCL 223, was passed to end the state monopoly and legitimise private participation in the lotteries business, to generate additional revenue for the district assemblies and bring illegal private lotto operators into the tax net.

565. The revenue expected to be paid to the District Assemblies and the State from the operations of the private lotto operators never materialised. In addition to this, the private lotto operators were involved in massive tax evasion.

566. The contribution of lotteries to total domestic revenue has fallen drastically over time since 1975.

567. Mr. Speaker, the problems associated with lotteries in Ghana have rendered the industry unproductive. This situation must be reversed as a matter of national priority. Consequently it is proposed to repeal PNDCL 233.

568. Mr. Speaker, the repeal of PNDCL 223 will outlaw the activities of private operators. Government is aware of the number of people employed by private lotto operators and wishes to assure the public that the restructured and well resourced DNL will be able to absorb lotto agents formerly employed by private lotto operators. Already numerous applications have been submitted by agents of the private operators because of the impending abolition of the law.

Supervision of the Department of National Lotteries

569. Mr. Speaker, the activities of the DNL have been brought under the direct supervision of the Revenue Agencies Governing Board (RAGB) while steps are being taken to amend the law and restructure the DNL.

Non-Tax Revenue (NTR)

Revenue Enhancement Measures

570. Mr. Speaker, revenue leakages have been reported in the NTR collections of almost all MDAs. In 2003 all MDAs would be required to design and implement specific programmes to curtail these leakages. The Ministry of Finance will provide specific support to facilitate this endeavour.

571. To ensure compliance with the payment of statutory fees and charges, all MDAs would be required to embark on special collection drives. These activities would be supported by the Non-Tax Revenue Unit within the Ministry of Finance.

572. Accounting for NTR collections has been a problem. To address the issue, NTR accounts have been opened for all Ministries, Departments and Agencies at the Bank of Ghana. Consequently, all MDAs are to ensure that their collections including those from the regions and districts are transferred into these accounts on a regular basis. All banks that receive NTR proceeds from MDAs are requested to cooperate in this exercise.

573. Ghana Immigration Service will introduce a fast track window at extra cost to quicken the processing of passports.

574. The Ghana Police Service will from this year introduce on-the-spot fines for some minor motor offences.

575. Mr. Speaker, to further improve the collection of non-tax revenue, the Ministry of Finance will work with MDAs to explore the possibility of introducing private sector participation in the collection of revenue.

Review of Rates

576. Mr. Speaker, in 2003, some of the rates currently being charged by the following agencies will be reviewed to ensure cost recovery: -

* Ministry of Works and Housing
* Registrar General’s Department
* Ministry of Foreign Affairs
* Ghana Immigration Service
* Driver and Vehicle Licensing Authority
* Department of Parks and Gardens
* Department of Factories Inspectorate
* Ministry of Trade and Industry
* Mines Department
* Environmental Protection Agency

577. The necessary proposals will be submitted to parliament in due course.

Retained Non-Tax Revenue/Internally Generated Funds (NTR/IGF)

578. The enabling Acts setting up some organizations allow them to retain all or part of the revenue they generate. This sometimes results in a situation where some organisations keep resources far in excess of their allowable retention.

579. Again, a number of MDAs retain NTR for use on the basis of administrative approval issued to them in the past, while others do so with no form of approval at all.

580. To address the situation we will ensure that NTR/IGF is retained with legislative approval and used with prudence and in accordance with Financial Administration Regulations.

581. Mr. Speaker, to this effect, the Ministry of Finance on the recommendation of the Attorney General and the Minister of Justice has introduced amendments to the Financial Administration Bill which is now before Parliament.

Additional Funding for NTR Generation Effort

582. Mr. Speaker, to support and encourage NTR generation by MDAs, an amount of ?25.0 billion will be set aside from NTR collections to provide additional assistance to deserving MDAs. The Ministry is finalising guidelines for the disbursement of funds to MDAs under this initiative.




Registrar General’s Department

583. Mr. Speaker, the role of the Registrar General’s Department in facilitating business registration and commencement and compliance with the Companies Code has, over the years, not been properly exercised. The result is that a sizeable number of companies do not bother to file annual returns, while others ignore the requirement to renew the registration of their business names annually. This, in turn, seriously undermines the Department’s revenue generating capacity and its role in facilitating good corporate governance.

584. To properly fulfil its mandate and facilitate the Golden Age of Business, the Registrar General’s Department will implement the following measures: -

* improve monitoring and enforcement of the provisions of the Companies Code;
* open offices in all the regional capitals, starting with Kumasi, Takoradi and
* Tamale in 2003;
* complete the modernization and restructuring of its operations;
* complete the construction of its office complex and computerisation programme;
* embark on sensitisation of business community on their obligations under the Companies Code;
* work with IRS to ensure enforcement of the regulation on annual renewal of business names and partnerships and filing of returns; and
* amend the law governing the Registrar Generals Department to allow differential fees for the filing of annual returns based on turnover.

Driver & Vehicle Licensing Authority (DVLA)

585. Mr. Speaker, the Driver & Vehicle Licensing Authority (DVLA) experienced serious operational and management challenges that led to a declining trend in its revenue collection between 1999 and 2001.

586. Operational bottlenecks allowed some staff and vehicle dealers to siphon off revenue, while private people set up parallel structures to duplicate the operations of the Authority and virtually took over a large chunk of the Authority’s responsibilities.

587. Although some success has been achieved in reversing this trend, additional measures are being introduced in 2003 to: -

* increase compliance with existing regulations; and
* expand scope of services including introduction of Trade Plates for unregistered vehicles, proficiency tests, registration of driving schools etc.

Forestry Management

Stumpage Fee

588. Mr. Speaker, the Timber Resources Management Act 1997 (Act 547) Section 13 provides for the payment of stumpage fee in respect of timber operations.

589. Similarly, Section 22 of the Timber Resources Management Regulation, 1993 (LI 1649) provides for the quarterly review of stumpage fees. Stumpage fees have, however, not been revised since 1999, despite the fluctuations in foreign exchange rate and the increases in FOB value of timber. As a result proceeds from stumpage fees as a percentage of FOB have fallen by 70 per cent since 1999.

590. On the basis of adjustment to current F.O.B prices and exchange rates, the average weighted stumpage fee for 2003 has been varied from US$10.10 to US$11.10 per cubic metre.

591. In order to implement the adjusted fees without impacting negatively on the timber industry, it is proposed that a 3-step implementation approach, to be completed by 1st June, 2003 be adopted. At each step, the stumpage fee will be adjusted by 33 1/3 per cent until the full economic value is attained.

Competitive Bidding for Grant of Timber Rights

592. Mr. Speaker, in order to make the timber industry pay the economic value of timber resources which hitherto had been undervalued, and introduce transparency and equity in the grant of timber concessions, Parliament has passed an amendment to the Timber Resource Management Regulation (2003) LI 1721. The new amendment introduces competitive bidding as the basis of allocation of timber rights to be conducted serially through two stages, namely, a pre-qualification process and a bidding for timber rights process.

State Owned Enterprises (SOEs)

593. Mr. Speaker, in 2003, Government will: -

* safeguard its interests in both SOEs and Joint Venture Companies by working with its partners, the Ghana Stock Exchange and other relevant stakeholders, to come out with a technical dividend policy based on the returns in the industry to guide the declaration of dividends.

* to further improve corporate governance and in accordance with the Companies Code, all SOEs that have been converted into Limited Liability Companies will henceforth be required to hold Annual General Meetings. Support to Local Industries.

594. Mr. Speaker, Government is immediately taking steps to give practical effect to its commitment to support local industry and business in line with its objective of promoting a Golden Age of Business for the private sector and thereby creating the environment for to attract foreign direct investment. To this end, the following measures will be implemented: -

Removal of Value Added Tax on Computers

595. Currently, computers are exempt from the payment of import duty. As part of the Government’s initiative to provide appropriate Information and Communication Technology environment for the development of education and to support the assembling of computers locally, these tax relief measures are proposed: - * removal of VAT on fully assembled computers imported or procured locally by educational institutions recognised by the Ministry of Education;

* removal of import duty on imported components for locally assembled computers. Private Equity Funds.

596. Mr. Speaker, private equity funding for the Small and Medium Enterprises (SMEs) is critical, the capital structure of businesses in Ghana is unevenly skewed towards debt, there is very little scope for companies to respond effectively to growth and economic stimulus programmes due to lack of equity.

597. In order to address these problems, the Government intends to extend the implementation of the National Reconstruction Levy for three years and apply 25 per cent of the proceeds to support venture capital development for selected projects in priority sectors.

Micro and Small Enterprise Development

598. Mr. Speaker, to encourage the growth and development of micro and small enterprises, Government will initiate a project to start and support 40 enterprises within the next five years. The selected micro and small enterprises will be given financial and technical support. This enterprise development initiative will be launched in March 2003.

Import Duty on Finished Goods

599. Mr. Speaker, in 2002, import duty on inputs for manufactured items admissible at a zero concessionary duty rate under Part A Chapter 98 of the Harmonised Systems (HS) Code was revised upwards to 5 per cent concessionary duty rate with the exception of a selected number of materials. However, this was to the disadvantage of certain local industries whose raw materials were affected by this upward revision without a corresponding increase in import duty on finished goods. To enhance the competitiveness of local industry, it is proposed to raise the duty from 10 per cent to 15 per cent on imported finished products similar to those affected by the 5 per cent upward adjustment in 2002.

Rice

600. Mr. Speaker, Ghana currently imports about 120,000 metric tonnes of rice annually, accounting for about 58 per cent of total national consumption. The country, however, has the natural resources for the production of rice. Government, therefore, intends is to increase domestic production of rice in order to reduce reliance on imports and thereby conserve foreign exchange. To support and make domestic production more competitive, it is proposed that the duty on rice imports be increased by 5.0 per cent to 25.0 per cent.

Poultry Products

601. The poultry industry is another area in the agricultural sector which requires Government’s support to increase local production with the view to enhancing the nutritional requirements of the country. The sub-sector is, however, facing intensive competition from subsidized imports.

602. Given the high level of subsidies and other Government support that poultry industries in other countries from which we import the bulk of our poultry products receive, it is proposed that an additional duty of 20 per cent be charged on imports of finished poultry products into the country.

Rationalisation of Value System for Frozen Meat Products

603. In 2002 measures were put in place to rationalise the values for frozen meat products. To eliminate valuation malpractices and improve the quality of imported frozen meat products, a specific tax based on weight is to be introduced in order to minimize the perennial problem of under invoicing.

Textiles

604. To make local production of textiles more competitive compared to imported products, it is recommended that duty on the inputs for textile production such as dyestuff, chemicals, grey baft be reduced from 10 per cent to 5 per cent. Tax Relief Measures

Removal of Value Added Tax on Essential Drugs

605. Mr. Speaker, there are diseases for which treatment and control are considered to be of public health importance and, therefore, must be seriously addressed. Drugs for the control of such diseases, therefore, have to be special consideration and given tax exempt status.

606. In selecting drugs for tax exemption, due consideration is given to those drugs that are widely used for treating the ten top causes of morbidity and mortality in Ghana.

607. To this end, it is intended to expand the Imported Special Drugs list as determined by the Minister of Health to cater for drugs for diseases such as malaria, T.B. Guinea Worm, leprosy, HIV Aids, life-saving drugs such as anti-snake serum among other. This measure will remove VAT on additional 66 drugs.

608. Imported special drugs for which same are produced locally will continue to attract VAT.

Elimination of Duties and VAT on Compact Fluorescent Lamps (CFL)

609. Mr. Speaker, the Government notes and appreciates the significant reduction in electricity consumption that could be achieved with the use of Compact Fluorescent Lamps (CFL). More importantly, for the electricity consumer, the use of the lamps will reduce the electricity bills that he pays and consequently lower the burden that the upward adjustment of electricity tariffs will have on household expenditure and minimise energy consumption in the country.

610. In order to promote the widespread use of the lamps and to make their prices affordable, the Government is proposing that Parliament waives duty on imported fluorescent lamps.

Removal of Import Duty on Cash Registers

611. To encourage the use of cash registers by traders to improve the recording and accounting of transactions, it is proposed to remove the duty of 10 per cent on cash registers.

Removal of Import Duty on Buses

612. Mr. Speaker, in support of the mass transportation programme of the NPP Government, it is proposed to remove the import duty of 5 per cent on buses with capacity in excess of 30 passengers.

SECTION EIGHT: INSTITUTIONAL AND STRUCTURAL REFORMS

Public Financial Management

613. Mr. Speaker, in 2002, Government reprioritised reforms in the Public Financial Management System, in order to make the reform process more focused and capable of achieving the intended results within the shortest possible time at minimal cost.

614. This has been developed into a prioritised Medium Term Action Plan (MTAP) to be implemented between 2003-2005.

615. Government also implemented measures to:

* bring the National Accounts up to date;
* improve the accuracy of financial reporting by instituting reconciliation procedures;
* start HIPC/Poverty tracking and reporting system;
* reduce payroll leakages;
* review and reprogramme the plan for BPEMS implementation; and
* Increase capacity building.

616. In 2003, the focus of Public Financial Management System will include the following:

Budget Preparation and Monitoring

617. Mr. Speaker, Further improvement in budget preparation and monitoring will be achieved through:

* review of Medium Term Expenditure Framework process;
* institution of monthly tracking of all expenditures and commitments;
* full disaggregation of the General Government Services item in the budget.

Cash Management/Monitoring

618. Mr. Speaker, cash management and monitoring will be improved through:

* establishment of a Cash Management Unit in Ministry of Finance; and

* carrying out of further restructuring of Government accounts at Bank of Ghana and commercial banks while developing specific guidelines for opening Government accounts.

Poverty Monitoring/Tracking

619. Mr. Speaker, the HIPC/Poverty tracking reporting system will be rolled out to all treasuries nationwide to improve monitoring and tracking.

Payroll Management

620. In 2003 payroll management will be strengthened through the underlisted measures:

* standardisation of payroll processing procedures;
* development of guidelines and manual for processing payrolls at MDAs and CAGD;
* production of regular monitoring reports on payroll certification; and
* completion of implementation of IPPD 2.

Accounting and Reporting Practices

621. There will be further reform of accounting and reporting practices by:

* addressing existing bottlenecks in the accounting system; and

* adequately resourcing the Reconciliation Unit of CAGD to enable it carry out reconciliation of all treasury and Bank of Ghana accounts, as well as all treasury and MDA accounts.

Financial Administration Reforms

622. Mr. Speaker, to complement our efforts to reform financial administration, Government will:

* facilitate the passage of Financial Administration Bill by Parliament;
* enforce sanctions for non-compliance with rules established by Financial Administration Act (FAA); and
* finalise the Financial Administration Regulations (FAR), monitor application and enforce measures in case of non-compliance.

Internal Audit

623. Mr. Speaker, a new oversight body to strengthen the internal audit function shall be established subsequent to this audit committees in all MDAs will be established

Budget And Public Expenditure Management System (BPEMS)

624. Mr. Speaker, several activities were carried out in 2002 towards the implementation of BPEMS. Among these activities are:

* re-engineering of selected financial management processes which are currently being implemented on a pilot basis starting with MoF and Controller and Accountant-General’s Department (CAGD);

* re-design of accounting and budgeting forms for use by the remaining MDA sites for subsequent entry into the system at designated sites;
* customisation of the Public Sector Budgeting Module to enable it perform activity based budgeting; and

* completion of an Interim Data Centre to cater for the day-to-day operations of the servers until the Financial Information Centre is completed.

625. Mr. Speaker, from January, this year, the implementation of the BPEMS began with MOF and CAGD. The new chart of accounts and new procedures for accessing funds have also been deployed in all MDAs.

626. Later this year, the following activities will be undertaken in the process of implementing the BPEMS: -

* computer hardware would be deployed to all the 67 Pilot BPEMS Sites including Office of the President and Parliament;
* BPEMS system will be operational at Ministries of Health, Roads & Transport and Education by the end 2003;
* Comprehensive Capacity Building exercise will be carried out for staff of MOF and CAGD by the end of 2003; and
* the Information Systems Strategy document will be finalised and aligned with the National Information Communication and Technology Policy.

627. Mr. Speaker, Government will continue with and strengthen the implementation of the Expenditure Control measures that were introduced last year in order to consolidate the gains made. In addition, Government will improve and facilitate the following:

* commitment control across all MDAs, with the issue of warrants to initiate commitments;
* better tracking of expenditures for items 1-IV;
* improved accounting and reporting of budget outcomes; and
* Control of the use of telephones, mobile phones and other utilities by public officers. Directors of Finance and Administration of all MDAs will monitor and submit returns to Ministry of Finance.

628. To improve control over expenditure commitments while enhancing flexibility at the MDA level, the cash management system underpinned by quarterly expenditure ceilings will be fully implemented. The objective is to reduce public borrowings to the level of actual requirement by MDAs and other statutory bodies, so as to reduce the domestic debt and the related large interest payment.

629. Mr. Speaker, further efforts will be made to tighten up controls on the validation of payroll lists, and implementation of additions, deletions, and changes to payroll rosters in the two main payroll databases.

630. To ensure effective and continuous monitoring of budget implementation, the MOF will submit monthly “fiscal early warning” reports to the Economic Management Team though the Economic Policy Coordinating Committee (EPCC). Cabinet will be briefed on fiscal developments on a quarterly basis.

631. To supplement the Financial Administration law and regulations, Government embarked upon a public procurement reform as an integral part of the wider Public Financial Management Reform Programme (PUFMARP). The new procurement bill has been approved by Cabinet and submitted to Parliament.

632. Poverty-related expenditures, as defined in the GPRS, will be closely monitored using the poverty expenditure tracking system, which has been made compatible with the BPEMS and will generate monthly reports. MDAs and donors will be asked to improve the reporting of donor-financed expenditures and internally-generated funds, so that the coverage of data on poverty-related spending can be broadened to include these resources.

Public Enterprise Reform

633. Mr. Speaker, the Public Sector Management reform being implemented by the National Institution Reform Programme (NIRP) and the Office of he Head of Civil Service (OHCS) have been refocused on three (3) priority areas consistent with the Ghana Poverty Reduction Strategy (GPRS) and the development agenda of the Government. They are: -

* restructuring of key public institutions to improve efficiency, improve implementation of Government Policy and Service delivery to the public;
* removal of systemic constraints to increase efficiency, effectiveness, discipline and motivation; and
* capacity building towards the professionalisation and depoliticisation of the services.

634. Mr. Speaker, a sector-wide approach to restructuring, which ensures comprehensiveness, institutional cohesion and improved targeting for execution of Government’s priority programmes is to be implemented this year.

635. Consequently, the Civil Service Performance Improvement Programme (CSPIP) is being merged with NIRP to enhance coordinating and implementation capacity.

636. Additionally, the design phase of the reorganisation of MDAs will be completed while the re-engineering plan will start this year.

637. As part of the public sector reform, the NIRP has developed a pay policy reform framework for consideration by cabinet.

638. In 2003, work on a comprehensive pay reform strategy including a selective Accelerated Salary Enhancement Scheme in support of the implementation of Government priority programme in critical sectors including health, education and agriculture will be completed and submitted to Government for further action.

639. The ongoing staff rationalisation exercise within the Police Service will provide additional impetus to creating professionalism in the service and reduce the number of retired persons in executive management positions.

Tema Oil Refinery (TOR)

640. Mr. Speaker, the delay in implementing the automatic adjustment formula for petroleum prices was a setback for the 2002 programme as it further worsened the debt of TOR which was already at an unsustainable level. Government believes that a durable solution is required and has, therefore, adopted the following two broad objectives:

* to enhance the efficiency of the petroleum sector and avert the financial collapse of TOR which could have severe implications for the banking system and the whole economy, the petroleum sector must be restructured in terms of the mechanisms, the institutions and the principles for the pricing of petroleum products; and

* Government will open up the refinery business to private sector participation and competition to supplement the role of TOR.

641. Consequently, Mr. Speaker, the following policy initiatives have been adopted for implementation:

* as a first step, on 17th January, 2003, petroleum prices were raised by about 95 per cent on average to bring them in line with world market levels. To mitigate the impact on the poorer segments of the population (and as envisaged in the pricing formula) the cross subsidization of Kerosene and LPG was maintained;
* government also announced that the National Petroleum Tender Board will henceforth have the mandate and independent responsibility to make periodic adjustments in the maximum allowable ex-refinery price for TOR prices in accordance with the automatic adjustment formula without further approval by the Ministry of Energy. The ex-refinery price that will be determined will take into account “import parity prices” and the principle of full cost recovery.
* a Debt Recovery Levy will be imposed on the use of petroleum products. The proceeds from the levy will be placed in a Sinking Fund and used to repay the accumulated debt of TOR incurred from selling petroleum products below cost in the past. This is urgent in order to reduce the systemic risk posed by the large debt of TOR to the Banking Sector and the economy.

Financial Sector Reform

642. Mr. Speaker, Ghana’s vision in the financial sector is to be that is efficient in the mobilization and allocation of funds, fully integrated with the global financial system supported by a regulatory system that promotes a high degree of confidence. A financial sector consistent with this vision will be a powerful driver of economic development, achieved through higher levels of employment, savings, investment and tax revenues.

643. Mr. Speaker, to realize this vision six key objectives have been identified to be attained within the medium term. Each objective drives a set of strategic initiatives designed to facilitate the achievement of these objectives. The key objectives are to:

* be the preferred source of finance for domestic companies;
* promote efficient savings mobilization;
* establish Ghana as the financial gateway to the ECOWAS region;
* enhance the competitiveness of Ghana’s financial institutions within a regional and global setting;
* ensure stronger and more facilitative regulatory regime; and
* achieve a diversified domestic financial sector within a competitive environment.

644. Significant progress has been made in financial sector reform over the past 12 months. Key elements include:

* the finalization of a new Banking Bill, that reinforces the central bank’s powers to conduct effective supervision of the banking system;
* the finalisation of other bills to modernize the legal framework for the payments system;
* the preparation of an Insurance Bill that will strengthen the regulatory framework and level the playing field for insurance companies operating in Ghana; and
* the preparation of an improved corporate investment plan for SSNIT.

645. Mr. Speaker, in the course of 2003, Government will submit for Parliamentary approval the draft bills on Banking, Payments System, Money Laundering, Insolvency (Bankruptcy), Financial Institutions (Non-Banking) and Insurance, as well as the new Companies Code. In addition, Government will initiate the process to move forward the infrastructure and institutional framework for the capital market take off. Long Term Savings Plan

646. A critical problem facing businesses of all types is the lack of long term capital. To alleviate this problem to some extent, Cabinet has approved to support the introduction of long term savings in the course of the year.

Outsourcing of Capital from International Market by Banks

647. Mr. Speaker, it has become necessary to look at the capital base of the banks to establish its adequacy or otherwise to support long-term funding to the private sector.

648. There is the need therefore to facilitate and encourage the banking sector to outsource long term capital needs from the international market to specifically support our local industries and private businesses.

649. The Government in this direction will facilitate the process for banks that initiate such funding arrangements.

Ghana Stock Exchange – Review of 2002

650. Mr. Speaker, the Ghana Stock Exchange recorded one of its best market performances in the year 2002. The year witnessed the historic event of the first ever cross border listing on the Exchange namely, the listing of the Trust Bank Ltd (the Gambia) and the market was bullish throughout the year.

651. The decision of Government to sell part of the CPC shares on the GSE was to enhance trading volumes in order to deepen the liquidity of the Stock Market operations. It was also to support the GSE to play its financial intermediation role in the economy, which would enable it to be used as a barometer for measuring the performance of the private sector.

652. These objectives clearly demonstrate Government vision for an efficient and transparent financial sector which will enable the GSE become the financial hub and preferred destination for private long-term capital so badly needed for the private sector in the sub region.

653. Mr. Speaker, the Exchange will focus much attention this year on the following:

* aggressive pursuit of listings, including the fast track divestiture of some ten identified companies on the Ghana Government Divestiture list;
* to press much harder, the positioning of the Exchange as an attractive investment avenue, particularly, for domestic investors; and
* improvement in the efficiency of the market particularly trading and settlement. The Exchange will, therefore, be assisted to undertake automation of trading, clearing and settlement and the establishment of a national depository. A national depository is needed not only for shares, but also Government securities including the GGILBS and other government instruments.

National Insurance Commission (NIC)

654. Mr. Speaker, in 2002 the NIC undertook a number of activities to strengthen the Insurance Industry and enhance service delivery. These include:

* drafting of a new Insurance Bill which accords with International standards; and
* launching of the new Motor policy with more customer friendly policy wordings.

655. In 2003, the NIC will work to install greater discipline in Insurance Organisations and improve public confidence in the Insurance Industry. Activities planned for the year include:

* increase public awareness of the existence and role of the NIC;
* open complaints units in the regions to make service more accessible to the public;
* promote manpower development in the insurance industry;
* encourage good corporate governance practices in insurance companies; and
* complete work on the new insurance regulations.

Good Governance and Statistical Transparency

656. Mr. Speaker, the NPP Government came into office with a pledge of zero-tolerance for all acts of corruption and, in 2003, will strive to continue to improve good governance in Ghana. Envisaged policies consistent with the GPRS include:

* an increase in the operational efficiency of the Auditor General’s office, and assurance of full staffing of internal audit positions;
* implementation of the Anti-Corruption Action Plan, including through the passage of a Freedom of Information Act and whistle-blower legislation;
* the definition of clear roles and responsibilities for the Office of Accountability, the Commissioner for Human Rights and Administrative Justice, and the Serious Fraud Office; and

* the provision of regular government reports to Parliament on the implementation of the GPRS, and a strengthening of Parliament’s capacity to exercise oversight functions.

657. The Bank of Ghana has conducted an external audit of its 2001 financial statements, and plans to conduct a similar audit for 2002 in conformity with International Accounting Standards.

658. The NPP Government is committed to the production of more timely and accurate statistics, in support of transparency and allow a better assessment of developments in the economy. To this end, work is underway to review the calculation of the Consumer Price Index (CPI) from 1999 onwards and, related to it, the series on nominal GDP.

National Identification System (NIS)

659. A National Identification System (NIS) will be introduced in the country in year 2003.

660. The objectives of the NIS are to:

* capture, maintain and update personal details of all citizens of Ghana and other legally resident foreigners on a national register or central database; and
* enhance service delivery to people through effective and efficient targeting and communication.

661. Among many others, the benefits of introducing NIS include:

* enhanced public administration and mobilisation of revenue;
* facilitation of the delivery of essential services such as health and education to the people;
* efficient administration of the proposed National Heath Insurance Scheme; and
* compilation of a reliable electoral register for free and fair elections to enhance democratic processes.



Cocoa Industry

662. Mr. Speaker, to sustain the continued improvement of the cocoa industry, the NPP Government has pursued a consistent policy of increased farmer income, improved agronomic practices, diseases and pests control and increased value addition. Specific initiatives undertaken towards the implementation of this policy to achieve the desired objectives include the following: -

663. In 2002, the Government continued for the second year running, the Cocoa Diseases and Pests Control Programme, which involves the control of black pod and capsid diseases. The exercise covered about 80 per cent of the total land area under cocoa cultivation and created 24,000 jobs for unemployed youths in the local communities of the traditional cocoa growing areas in Ashanti, Brong Ahafo, Central, Eastern, Volta and Western Regions.

664. Mr. Speaker, initial indications from cocoa purchases returns, give a positive outlook for the 2002/2003 season with clear signs of improved yields for our cocoa farmers attributed to the diseases and pests control initiative. A number of farmers have been encouraged by this exercise to revive abandoned farms.

665. In recognition of this, Government has earmarked ?242.0 billion to continue with the diseases and pests control programme in 2003 to cover 1.6 million hectares of cocoa farms.

666. The exercise is expected to start from May and end in October, 2003 and will employ almost 41,000 youths from the local communities of cocoa growing areas.

Improved Method of Cocoa Production

667. Mr. Speaker, over the years, the Cocoa Research Institute of Ghana (CRIG) has been carrying out research and field trials to improve yields on cocoa farms. Results of these trials have been very encouraging. From the current average yield levels, application of this improved method of cocoa cultivation has been found to increase yields by as much as ten times from 3-4 bags per hectare to 30-40 bags per hectare at peak production.

668. Mr. Speaker, to increase volumes through improved yields, Government will initiate a project on a pilot basis in selected districts to apply this method of improved farming. Under the pilot project, financial and technical assistance will be given to farmers to rehabilitate and replant their farms with high yielding hybrid varieties, planting materials and fertilisers. The diseases and pest control exercise will be an integral part of the project. Under the supervision of the Cocoa Research Institute of Ghana, the pilot project will cover an area of 40,000 hectares of cocoa farms and will involve 50,000 cocoa farmers selected throughout the cocoa growing districts. An initial amount of approximately ?57.3 billion has been set aside to facilitate this project.

669. Further to this, as part of the measures to improve the cocoa industry, Government has set up a committee to review the provision of extension services to cocoa farmers to determine the most efficient and cost effective delivery system.

Cocoa Processing

670. Mr. Speaker, Government will continue to support private sector participation in the domestic cocoa processing of cocoa beans. This will help to achieve its objective of raising the volume of cocoa beans processed locally. Government has already stated its policy to raise domestic cocoa processing from the current 20.0 per cent to 40.0 per cent of national output in the medium term. This measure is intended to ensure that Ghana reaps maximum benefit from cocoa through value addition to the beans processed.

671. In response to this, a number of companies have declared their intention to set up companies to process cocoa beans. It is expected that a new cocoa processing company will begin operations this year bringing the number of processors to four.

672. Mr. Speaker, increased domestic processing will be profitable if there is more emphasis on downstream secondary and tertiary processing where value added is between 30 per cent to 114.0 per cent compared with 21.6 per cent to 46.3 per cent for primary processing. Government, therefore, intends to pursue a policy of encouraging investment in this area.

Cocoa Board Scholarship Fund

673. In the year 2002, Government increased the Cocoa Board Scholarship Fund by ?5.0 billion to make more scholarship awards available to cocoa farmers’ wards. This year Government has increased the support to the Scholarship Fund by ?10.0 billion.

Increase In The Producer Price Of Cocoa

674. Mr. Speaker, Government remains committed to increasing the farmers’ share of the f.o.b. price of cocoa to reach the target of 70 per cent by the year 2004/2005 season. At the beginning of the 2002/2003 season, Government increased the producer price by 37 per cent from ?6.2 million to ?8.5 million per tonne which, together with the payment of bonuses, will represent 68.11 per cent of the achieved f.o.b. price per tonne.

Sustainability Of Producer Prices

675. Mr. Speaker, in raising the producer price of cocoa, Government was mindful of the unstable developments in the market which has forced the world prices of cocoa to soar to levels analysts describe as not sustainable due to the market perception of uncertainty.

676. The current high level of prices on the world market has been influenced by developments in the sub-region and, therefore, the price of cocoa is reflecting uncertainty and anxiety. Thus, any projected producer prices should take into account this temporary situation in the sub-region. Government will pursue a pricing policy which would guarantee and protect farmers’ incomes through sustainable prices. Rewards to farmers in line with unusual upward movement in prices would thus take the form of bonus payments while maintaining steady improvements in producer prices based on market fundamentals. To this end, a Special Equalising Account for bonus payments has been opened.

Payment of Bonus

677. Mr. Speaker, Government authorised the payment of a pre-season bonus of over ?41.0 billion to cocoa farmers in October 2002, in appreciation of the dedication and commitment shown by cocoa farmers during the 2001/2002 season at the rate of ?8,000.00 per bag. It is relevant to mention that prices on the world market have strengthened and Government has been watching and reviewing, on a constant basis, the variables in the determination of producer prices. As promised, Government would pass on any benefits realised from price appreciation to farmers.

678. To this end, Government wishes to announce that an interim bonus of ?16,000 per bag or ?256,000 per metric tonne is to be paid to farmers for purchases as at 31st December, 2002. The total amount to be paid is ?80.0 billion.

Contribution to Road Fund

679. In the year 2002, the cocoa industry contributed ?8.9 billion to improve feeder roads in the cocoa growing areas. This year, an amount of ?15.0 billion has been allocated for the improvement of feeder roads in these areas.

External Marketing of Cocoa

680. Mr. Speaker, a review of the policy on the partial liberalisation of external marketing of cocoa is to be carried out. It is aimed at assessment of maximum revenue to be derived from cocoa exports, the macroeconomic impact of the sales and funding arrangements and the benefits to the farmer within the context of partial liberalisation.

Issue of Cocoa Bills

681. Mr. Speaker, Ghana Cocoa Board has, over the years, successfully raised pre-export financing from the international syndicated loans market and has, as a result, managed to generate significant interest from lenders. Last year, Government encouraged the Board to also explore the opportunities of raising part of its funding requirements from the local financial markets. Towards this objective, at the beginning of the 2002/2003 season in October, Bank of Ghana issued 182 – Day Cocoa Bills on behalf of Ghana Cocoa Board for cocoa purchases. The total amount realised at the end of December 2002, was ?353.5 billion. Given the interest raised and to help diversify its investor base as well as support the Ghanaian financial sector, Ghana Cocoa Board will continue to raise funds from the local market to support its purchasing operations. The Multi Donor Budgetary Support

682. Mr. Speaker, for Ghana, aid inflows have long been an important external resource, providing significant support for our development expenditures. However, aid inflows have dwindled and have also become less predictable since the 1990s. We have realized that Ghana is not short of donor goodwill and pledges of assistance to help our development efforts. Rather, Ghana faces a peculiar problem: much of the support sits in different boxes and we are often unable to meet the different donor requirements and conditionalities that will trigger disbursement.

683. Delays and shortfalls in donor inflows have often forced government to cut back on development expenditures. Sometimes, the shortfalls in budgetary aid have resulted in unprogrammed domestic financing (which adds to the build-up of the domestic debt) and recourse to non-concessional external borrowing. This obviously imposes additional burden on future budgeting.

684. Mr. Speaker, the Government of Ghana (GOG) and her Development Partners (DPs) introduced the Multi-Donor Budgetary Support (MDBS) initiative in 2002 as general budget support. Under this arrangement, development partners will disburse funds directly into the Consolidated Fund to support government’s implementation of the GPRS through the budget. This year the release of funds will be based on ongoing assessment of national public accounts and performance on agreed macro-economic and social indicators identified and jointly agreed upon by GOG and DPs, using the GPRS as the key reference source.

685. The MDBS mechanism, Mr. Speaker, will represent a major improvement in GOG-DPs relationships as far as aid policy and coordination are concerned. Among other things, it will:

* simplify disbursement procedures and practices;
* improve the predictability of the size of the resource envelope;
* obviate the need for matching funds; and
* improve on the timing of disbursement.

686. All these will have direct impact on the preparation of the budget and on the implementation of the programmes and projects as indicated in the GPRS. The multi donor group currently comprises the World Bank, African Development Bank, European Union, United Kingdom, Canada, Netherlands, and United States. Other key development partners want to assess the efficiency and effectiveness of the approach before deciding whether or not to join.