Finance Ministry disagrees with Fitch Rating

The Ministry of Finance says it disagrees with a Fitch Rating publication suggesting that consolidation measures in Ghana’s 2014 budget may not address fiscal challenges of the last two years.

The Ministry said the publication focused on headline numbers without commenting on policies outlined by the economic plan to achieve macroeconomic objectives, as the fiscal policy drawn in the budget aims at fiscal consolidation through improved revenue mobilization, rationalization of public expenditures and review of financing methods.

A statement issued by the Ministry in Accra on Thursday said measures announced in the budget are credible to ensure that the country’s fiscal deficit is reduced to a substantial level over the medium term.

The Ministry stated that Ghana would not adopt abrupt measures that will affect the medium term growth prospects of the economy.

It said though a fiscal deficit higher than what was estimated for 2013 is projected for 2014, significant progress has been made in addressing the issues that led to deficit in 2012.

The statement said two areas that remained a challenge are wages and interest cost and that addressing those bottlenecks must be viewed with a medium term perspective as structural measures are needed to correct them, and the 2014 budget outlines clear measures to deal with those setbacks.

It said the major cause of the fiscal slippage in 2013 is the significant shortfall in non-oil tax revenue, attributed to the decline in volume of imports and slowdown in economic activity during the first half of the year as a result of the energy crisis and the falling world market prices of gold and cocoa that affected industry, the service sector, economic growth and created significant shortfalls in corporate income taxes.

The Ministry said the 2.5 per cent increase in the VAT rate coupled with other tax administrative measures would improve revenue generation and significantly expands the revenue base to ensure fiscal sustainability; contrary to the view by Fitch Rating that government’s capacity to expand revenue as a percentage of GDP is questionable.

It said with government’s commitment to addressing the short-term fiscal drawbacks, Ghana’s medium term prospects for fiscal sustainability and macroeconomic stability remain very strong.

“Indeed, Ghana has bright medium term prospects exemplified by oil and gas production, political stability, increased investor confidence, and diversified economy with growing non-oil sector”, the ministry said.