Contractors, private businesses look up to first IMF-free budget
The 2019 national budget, due to be presented to Parliament next week by Finance Minister Ken Ofori-Atta, will be the first presented by the incumbent President Nana Akufo-Addo administration which will be free of direct and heavy influence from the International Monetary Fund.
Consequently, government contractors and suppliers as well as other enterprises, institutions and individuals who rely heavily on government spending for their economic fortunes are hopeful that public expenditure will be increased in 2019 as the IMF departs with its laser focus on demand management.
The incumbent government came to power on the promise that it would replace demand management with supply side economics aimed at increasing national production.
The country will, early next year, exit the IMF’s Extended Credit Facility programme under which an estimated $918 million has been sought over three years from the programme with attached conditions.
This means government can present a 2019 budget not tied to policies, strategies and targets as contained in the ECF programme, which focuses heavily on cutting back demand in the face of supply constraints. However, the incumbent government has said it wants to approach the imbalance differently, by increasing slagging supply to meet demand
Ghana has over the last two years, battled to correct slippages from set targets under the programme which occurred during the run up to the 2016 general elections as the Mahama administration overran its budgeted expenditure targets in an effort to win over the electorate. In that year, the fiscal deficit reached 9.6 percent of Gross Domestic Product, one and a half times the target of 5.4 percent.
Corrective measures have meant a tight lid on public spending and consequent tight liquidity in the economy and expectations are high that a successful exit from the programme will allow space for increased spending and thus more liquidity.
Indeed, Ghana’s business community is eagerly anticipating a budget that would increase liquidity and consequently, consumer demand.
In 2017, the fiscal deficit was 5.9 percent, which was even lower than the 6.3 percent target for the year, although this was achieved by draconian spending cuts during the second half of the year, especially on the capital budget for development projects.
Although government has been clearing payment arrears owed to its contractors and other suppliers, a tighter fiscal deficit by government adversely affected consumer demand to the chagrin of the business community.
Instructively though, the fiscal deficit target for 2018, of 4.5 percent, is higher than the 3.9 percent target originally envisaged by the IMF, indicating that government believes the Fund’s pace of fiscal consolidation is too fast and the cost, with regards to illiquidity and public spending cut backs on public infrastructure, too steep.
Added to comments from top Akufo-Addo administration officials over the past two years, particularly Senior Minister Yaw Osafo-Marfo, there are expectations that when let off the IMF’s leash, government will step up spending, even at the cost of a wider fiscal deficit than originally envisaged.
Government has declared a medium-term fiscal deficit target of 3.5 percent but administration officials say the 2019 target will be somewhere between four percent and five percent.
However, government is looking to finance most of its increased public expenditure from significantly increased tax revenues – improved tax administration has been a major policy target since 2017 – rather than increased net borrowing.
Meanwhile, fiscal consolidation over the past two years has improved key macro-economic performance indicators such as a reduced monetary policy rate, lower inflation, improved gross foreign reserves and most recently an upgrade in Ghana’s credit rating by Standard & Poors.
Information Minister, Kojo Oppong Nkrumah, briefing the press on expectations of the 2019 national budget, said: “it is designed to bring more relief, hope and improvement in the standard of living of our people.”
Finance Minister Ken Ofori Atta, is expected to demonstrate to all citizens, how government will expand on existing initiatives to trigger further improvement in the economy.
The Information Minister indicated that, the budget will maintain the fiscal discipline which the incumbent government has restored after the slippages of 2016, but will seek to increase liquidity in the economy. It aims to sustain the heightened rate of economic growth, facilitate investment in infrastructure without compromising on debt sustainability and ensure the expansion of credit to small and medium scale enterprises so as to increase job opportunities.
“…We do not claim to have finished solving all the country’s challenges, however, our work in the first two years has been a good foundation which should enable us to do more in the coming years,” Oppong Nkrumah reiterated.
He disclosed that government is as well on the verge of completing works on a nationwide rural development policy to be implemented by the Local Government and Rural Development Ministry.
The new policy will provide a framework for addressing prevailing issues in the country’s rural development landscape.
The policy’s focus is to achieve economic and social development of rural residents through the provision of opportunities.
It will provide a roadmap for systematically tackling issues such as high incidence of poverty, unemployment, illiteracy, and the non-functioning of sub-district structures.
“Stakeholder consultation has been concluded and the policy is expected to receive cabinet approval and later be presented to Parliament for national consensus,’ the Minister said.