Danquah Institute on 2010 Budget

GHANA'S ECONOMY SHRUNK BY $2BN IN 2009 - DANQUAH INSTITUTE REVEALS

The policy think tank, Danquah Institute, has revealed that Ghana's economy shrunk by nearly US$2 billion this year. The first time this has happened in dollar terms since 2000.

In its preliminary comments on the 2010 budget read by the Minister of Finance last Wednesday, DI comments that "based on Government's own projection of a Gross Domestic Product figure of Gh¢21 billion, in dollar terms, Ghana's GDP would be 12.27% lower in 2009 than it was in 2008. Using the prevailing rate of 1$ to Gh¢1.45, this values the Ghanaian economy of 2009 at US$14.6 billion, about $1.8 billion lower than 2008, when the GDP was valued at US$16.4 billion."

According to the Executive Director of the liberal think tank, Gabby Asare Otchere-Darko, "for nearly a decade, Ghana's economy witnessed significant consistent nominal growth in both cedi and dollar terms. What we are witnessing this year is a worrying departure from that trend to a reversal of the situation that prevailed before 2001. It makes it difficult to fully appreciate whether indeed our economy actually grew last year or shrunk, as it is shown in dollar terms, even though the economy might have grown in real terms by 4.7% (per GSS figure) or 6.3% as targeted by Government."

A table prepared by the Danquah Institute illustrates the point that from 1999 to 2000, while Ghana's GDP grew by 4.4% and 3.7% respectively, with the cedi fast depreciating against all major currencies at the time, in dollar terms, using even the end of year exchange rate, Ghana's economy shrunk from US$7.7 billion in 1999 to US$4.9 billion in 2000. Helped by a relatively stable cedi, Ghana's GDP began enjoying a consistent growth in dollar terms from US$5.3 billion in 2001 to US$15.2 billion in 2007, before the 30-year record growth rate in 2008.

Real GDP is inflation adjusted GDP, when inflation is taken away from GDP.

The think tank is also worried that Government is continuing to play politics on petroleum by saying it is reviewing the impact of the 5% reduction it made on petroleum levies last year. "There can no clearer indication of impact than the fact that revenue from petroleum taxes are already 32.3% lower this year than the September target of Gh¢320 million," the head of DI notes.

As predicted by the Danquah Institute, Government is to restore duties on imported rice, wheat, yellow maize and vegetable oil that were removed in 2008 during the global food crisis.

But, head of the liberal think tank is not persuaded by the explanation given by Dr Kwabena Duffuor that the decision "is to encourage local production."

Mr Otchere-Darko argues, "To say so is to attribute uncompetitive local production to the removal of the duties last year. But, how competitive were our rice producers before 2008? Government has to do better than that. It should either admit this reversal policy as a mere revenue-making measure or show us the aligned extra incentives it has in mind to boost local production."

Government themed the 2010 budget as a budget for "Growth and Stability", which it says puts it firmly on course to create a "Better Ghana" for growth, equity and sustainable development for all.

But, DI is not convinced. "It rather confirms the perception that the Mills of a Better Ghana are grinding all too slowly."

Quoting figures to illustrate his point, Mr Otchere-Darko says, most of Government's targets for 2009, however modest they were, could neither be met nor projected to be met.

"So far, total revenue and grants are 3.5% below target; domestic revenue is 11.3% below target; import revenue is 4.6% lower than anticipated; international trade taxes are 16.3% lower than target; NHIL is 15.5% lower on target; receipts on non-tax revenue are also lower. Domestic VAT is now projected to be 15.2% lower than budget target, and grants and loans targets are also projected to be missed."

In his view, there is no guarantee that the situation will change for the better next year. "Excuses of huge fiscal deficit still do not explain why and how modest targets set for 2009 because of the known size of the inherited fiscal deficit could not even be met."

Total budget for the MDAs for 2010 is a mere 1.9 percentage points higher than what it was in 2009. "What is obvious in the figures is a series of shifting prioritisation. For instance the Ministry of Health will see its spending for 2010 being 21.2% lower than that of 2009; while the Ministry of Tourism and Diasporan Relations will enjoy a 106.5% increase."

Total expenditure is estimated to go up by 22.8% next year. But, with this year's spending programmes enduring a 12 percent shortfall, it is difficult to predict how this increase will be met and how its real value will affected by inflation and exchange rate movements, in spite of Government targeting an annual average inflation rate of 10.5%.

"This government has, unfortunately, continued with the old NDC habit of setting targets and missing them with impunity. It's end-of-year inflation target was revised from 12.5% to 14.5% and now it is telling us that 'good harvest and continuation of Government's tight fiscal stance is expected to reduce the inflation rate to below the upper boundary of 17.5% by December 2009.' This is a clear admission of a target practice gone wrong," says Mr Otchere-Darko.

The Danquah Institute has also criticised the lack of details in both cuts and spending.

"For example, which 20 percent of tax exemptions are going to be sacrificed? Which selected commodities are to see a shift from specific to ad-valorem excise duties? Which rates, fees and user charges are to be revised upwards? All these details must be before the House before Parliament can vote on the Budget Statement and Economic Policy for 2010," Mr Otchere-Darko states.

The think tank says the only two areas where Government appears to have hit its target in 2009 were Agriculture and fiscal deficit. The growth target for Agriculture was 5.7%, but Government is on course to hit 6.2%. Targets for both Industry and Service would not be met. Industry's growth target was 5.9% but likely to hit 3.8%; Service was 6.6% but not likely to go beyond 4.6%.

Di points out that Government had predicted construction growing by 8%, yet it was the worst performed area in 2009, registering -1% growth, followed by hotels and restaurants, registering a mere 2%.

"These areas with the lowest performance this year are the very areas with the capacity to create hundreds of thousands of jobs, both directly and otherwise," Mr Otchere-Darko notes.

He argues that the positive performance of Agriculture "actually supports those who argued that our government of Social Democrats should have followed the global recovery trend and go the Keynesian highway of investing heavily and wisely to stimulate economic growth."

Danquah Institute has, however, commended the government for the bold initiative to increase the minimum mineral royalties to 6%. "What is required, as we suggested on Sunday, is a whole new look at the fiscal regime of the mining sector," Mr Otchere-Darko stresses.