Press Release

NPP

December 08, 2015

RESPONSE OF THE MINORITY NPP TO THE 2015 BUDGET STATEMENT AND ECONOMIC POLICY OF THE GOVERNMENT AND CURRENT EVENTS – JANUARY 8, 2015

Fellow Ghanaians, on Wednesday, November 19, 2014 His Excellency John Dramani Mahama, in line with article 179 of the 1992 constitution, caused to be laid in Parliament the Budget Statement and Economic Policy of the Government of Ghana for the 2015 financial year. The Minister for Finance Mr. Seth E. Terkper performed the act on behalf of the President.

Countrymen and women, the theme for the 2015 Budget Statement and Economic Policy is “Transformational Agenda: Securing the Bright medium Term Prospects of the Economy”. The word “secure” means “to be free from danger, trouble, worry or uncertainty”. That is according to the Chambers 21st Century Dictionary. This theme that the President chose for the budget derives from the President’s attempt to buttress his own assertion in his 2014 State of the Nation Address that “our economic fundamentals remain sound and the mid-term prospects are bright”. The President emphasized his bold declaration with statistics on economic growth. If one were to assume rather erroneously, as the President did, that economic growth rate alone make up economic fundamentals, then it becomes relevant to analyse the facts to enable one to properly judge the President’s descriptions of the state of our economy which this budget statement borrows a leaf from.

ECONOMIC FUNDAMENTALS

1. GDP GROWTH INDEX
The GDP growth rate which was inherited by President Kufuor, i.e. in 2000, was 3.7%. In 2001 the GDP grew at 4.2%; in 2002 it grew at 4.5% rising to 5.2% in 2003 and to 5.6% in 2004. It rose to 5.9% in 2005; 6.4% in 2006; 6.3% in 2007 and to 7.3% in 2008 which was later reviewed to 8.4% after the rebasing of the economy. This is steady growth which occurred without the benefit of crude oil exports. This is how a really sound economic growth aggregate looks like.

Now compare with the rather convulsive growth rates achieved under the Mills-Mahama administration. In 2009 GDP growth rate swung down to 4.0%; in 2010 it grew at 8.0% and upped to 14.4% in 2011 when, for the first, time oil output was added to the GDP. It is important to underscore that for 2011 the non-oil sector registered a 7.8% growth. The provisional GDP growth for 2011 was 13.6% (see pg 4 of the 2011 budget). That was later reviewed to 14.4%. The 2015 budget document indicates that GDP growth for 2011 was 15%. The basis for these multiple reviews must be questioned (ref to Pg 158 of the 2015 budget).

We were told the GDP (with oil) grew at 7.6% in 2013. The figure was later reviewed downwards to 5.8% with the non-oil sector registering 4.1%. In the 2015 budget the GDP growth rate of 2013 has been revised again to 7.2%. The 2014 growth rate is 6.9% (ref. page 11 of the 2015 budget). This figure is according to the Ghana Statistical Service. Ironically, the Ministry of Finance itself has projected the 2014 GDP growth to be 4.6%. The differences between these estimates of GSS and MoFEC shows the uncoordinated nature of the management of the country’s economy under President John Mahama. Notwithstanding, it is important to stress that all these rebased figures since 2011 have oil components. What is crystal clear is that the non-oil sector of the economy has never managed to grow at 8.4% since 2009 under the Mills-Mahama administration inspite of the pontifical high mass that they have every year organized to celebrate what they deem as “bright economic prospects”.

2. OTHER ECONOMIC INDICATORS

Ladies and gentlemen, let us consider the other economic indicators: Exchange Rate: The cedi depreciated by 17.6% in the first quarter alone in 2014. As at the end of August 2014 the cedi had depreciated by over 75% since December 2013. As we speak now the cedi has made some recovery from ¢3.85 to $1 to ¢3.30 and that represents a depreciation of over 50% from the December 2013 level even though we are told that officially it is about 31%. The Bank of Ghana may have to explain to us what the basis of their calculation is. For in December 2013 the exchange rate was GH¢2.20 to US$1 and the 2014 budget projected that the cedi will get to GH¢2.35 to US$1 in December 2014. Today, it is GH¢3.30 to US$1.

In the 8-year administration under President Kufuor, the cedi moved from GH¢0.72 to US$1.0 to GH¢1.1 to US$1. Thus the cedi depreciated by 53%. Six years into the NDC administration the cedi has depreciated by 200.0% and we are still counting.

Interest rates now hover around 30%. Kufuor brought it down to 25% from the 42% that it was in December 2000. Our gross international reserves, we are told, have since August 2014 recovered from 2.2 months of import cover to 3.3 months but the net international reserves covers less than three weeks. But again, there are questions to ask: what is the quantum of our international reserves? In Paragraph 74 of the 2014 Budget the Minister of Finance stated that it decreased from $5.35billion as at December 2012 to $5.2billion as at September 2013 which provided for 2.9months of import cover. The projection then was that it would go further down. Indeed, the Governor of the Bank of Ghana reported in March 2014 that the reserves had decreased further to $4.88billion as at February 2014. Clearly, therefore when the Minister of Finance now states that the stock position of our gross international reserve as at December 2013 was $5.6billion (par 62 of 2015 budget) it must be taken with a pinch of salt. The Minister and his Governor of the Bank of Ghana must be truthful to Ghanaians with figures. Our trade deficit was US$1.3billion. The country’s fiscal deficit and current account deficit have all escalated since 2008. The public debt stock is over GH¢70billion from GH¢9.5billion in December 2008.

Even at GH¢70billion it means each Ghanaian, including the child delivered as I speak now, owes GH¢2,800.ØØ. Last year at this time the burden for every Ghanaian was GH¢2,000. One year on, the debt per capita has increased by 40%, no thanks to “y1ntie obi ara” government.
Fellow Ghanaians, the 2008 debt stock of GH¢9.5billion represented 33% of GDP. Today, 6 years into the Mills-Mahama administration the GH¢70billion debt stock is almost 7½ times or indeed 636% increase in the debt stock. The GH¢70billion figure means our debt stock has risen to 60.8% of GDP as at September 2014.

3. INFLATION

Inflation, meanwhile, has risen to 17%. The NDC propagandists have their tails in between their legs. There is no more talk about single digit.
The country is over borrowing and astronomically increasing our debt pile up which has crossed the 60% threshold and that should be extremely worrying as it shall, before long, plunge us into the league of countries with high risk of debt distress.
These represent the gory circumstances of our economic fundamentals and if these in the eyes of President Mahama, represent bright medium-term prospects of the economy which must be secured, then we need God Almighty to rescue us.

4. WAMZ COUNTRIES

Countrymen and women, the 2013 economic growth in countries in the West African Monetary Zone (WAMZ) most of which are non-oil producing averaged 6.7%. The countries in that league are The Gambia, Guinea, Sierra Leone, Liberia, Ghana and Nigeria. In the third-time revision of the GDP growth rate for 2013 Ghana’s non oil sector grew at 5.8% or 6.5%? (ref paragraph 43 of 2014 Budget and pg 158 of 2015 Budget). Either of the figure was less than the average growth in the sub-region. In 2013 Ghana placed last in the WAMZ league as it was the only country to have met only 3 out of the 10 primary and secondary criteria as at September, 2013. Indeed, by December 2013 the country had slipped also on “exchange rate stability, “real interest rate” and the “Central Bank (BoG) financing of the country’s deficit for 2013 must be less than 10% of the previous year’s tax revenue”. Hence at the close of 2013 the country met none of the 10 criteria. Ghana’s abysmal record of fiscal year 2013 was the worst performance by Ghana in 20 years. Accordingly, the N.P.P in our “True State of the Nation Address” took the NDC government to task on this. For 2014 the provisional GDP growth rate for the WAMZ countries in the sub-region is over 6%. Non-oil producing countries!!

For the first time in over, 21 years the Minister for Finance refused to present the table of performance of the country in the WAMZ league in the 2015 Budget document. The reason is simple. The picture will represent a bitter truth to government and the country and hence, for them, it is better not to show it at all. Truth is like cork and a responsible government which purports to be committed to transparency, probity and accountability must not hide anything from the citizens. One cardinal principle of good budgeting is transparency. All relevant information for sound budgeting should be available in an accessible format. Budget information must be accurate, reliable and comprehensive. What is the government afraid of? Let the people know the truth. The truth is that for the second year running Ghana could not achieve even one of the 10 convergence criteria.

BACKGROUND AND EXPECTATIONS ON THE 2015 BUDGET STATEMENT:

Fellow Ghanaians, it is abundantly clear from the preceding paragraphs that the 2015 Budget Statement was presented against the background of weak and deteriorating economic fundamentals, including:

• Declining Real GDP Growth
• Increasing Inflation and cost of living
• Double digit fiscal deficits for two years in a row,
• Large and increasing central bank financing of government
• Double digit current account deficits for two years in a row,
• Massive increase in the public debt stock,
• Net international reserves at a precarious level
• Government unable to meet its statutory obligations
• Declining consumer and investor confidence
• Exchange Rate Depreciation
• Rising Corruption
• Rising Cost of Doing Business – taxes, lack of access to credit, high utility tariffs, Incessant Power outages – “Adumdumadumdum”, high interest rates, etc.
• Very High cost of petroleum products
• Rising Youth Unemployment
• IMF bailout talks

The expectation of Ghanaians was therefore of a budget that would set out to address these issues and alleviate their suffering. However, Ghanaians have been terribly disappointed. The 2015 budget provided no relief to the suffering of Ghanaians after six years of NDC government. Indeed, the 2015 budget rather actually increased the suffering of Ghanaians by implementing some rather harsh tax measures and failing to address the fundamental issues of concern. After six years in office, Ghanaians are now being asked to pay dearly for the economic mismanagement and corruption of this NDC government which has resulted in economic decline, high debt levels taking Ghana again towards debt unsustainability, rising levels of unemployment, rising cost of living, rising cost of doing business, depreciating currency, rising interest rates and an inability to meet statutory payments including pensions.
In a bid to raise revenue to cover the mess they have created, the NDC government has resorted to taxing everything in sight. The budget has demonstrated very little appreciation of the problems Ghanaian workers and businesses are going through at the moment. Ghanaians would like to know when the “dums4” will be over for example.

Now to some of the specifics:

The Projected Sharp Decline In Growth In 2015 Is Puzzling Given The Estimated Growth Performance In 2014”

The 2015 budget shows an economy in decline. After six years in government, during which the NDC claimed “unprecedented economic growth” in 2011, the harsh truth is that real GDP growth is in decline. Real GDP growth has declined from 15% in 2011 (with the onset of oil production) to a projected 3.9% in 2015 (including oil). The budget is projecting non-oil growth of 2.7% in 2015. These facts are as revealing as they are disturbing. The government is claiming that the economy is recovering. If indeed the economy is recovering as indicated by the government, and we have “turned the curve”, what will be explaining the further decline in growth in a year that claims to be focused on sealing up the bright prospects of the economy? What sort of recovery sees real GDP growth decline from a purported 6.9% in 2014 to 3.9% in 2015?
The growth rate in 2015 would be just about what it was in the year 2000 and less than one-half the rate of the 8.4% achieved in 2008 without oil!. Non-oil growth in 2015 will be below the growth rates attained in 2000! The decline in real GDP growth is reflected in all the sectors, (Agriculture, Industry and Services). In the midst of this deep decline in economic activity we wonder what scope exists for the Minister for Finance to rake in revenues to support infrastructure development and meet Government’s statutory obligations.

Ladies and gentlemen, something is not quite right with the real GDP numbers. They lack credibility. How can an economy which went through so much turmoil in 2014, with a colossal 75% depreciation or even if we take the official figure, 69% depreciation of the currency and massive load shedding register real GDP growth of 6.9% only to decline sharply to 3.9% when the government claims the economy is transforming or recovering. Is the recovery in reverse gear? Our view is that the 6.9% real GDP growth reported by the Ghana Statistical Service needs to be re-examined. Otherwise, the government should explain the reason for this sharp decline in real GDP growth in 2015. This is important because if the real GDP numbers for 2014 are overstated, it would have implications for the 2015 projections and policies.

This notwithstanding, the fact remains that the economy that was inherited by the NDC government in 2009 was growing at 8.4% without oil. Having become an oil producer, the government has superintended over a precipitous decline in real GDP growth from the supposed 15% or 14% (depending on which lense one uses) in 2011 to a projected 3.9% in 2015. Let us put this into perspective — the economy has lost steam equivalent to 11% of GDP since 2011 suggesting that for a $50.0 billion dollar economy, almost $5.0 billion dollars worth of economic activity has disappeared, and this is worrying. Slow growth means higher unemployment, higher prices and declining revenues. In this respect, the NDC administration has woefully failed Ghanaians and one is deeply worried about the depth to which the economy is sinking.

GHANA’S DEBT SUSTAINABILITY IS IN QUESTION

The 2015 budget revealed that at the same time that Ghana’s economic growth has been in sharp decline, Ghana’s Debt/GDP ratio has sharply risen to 60.8% of GDP as at September 2014. Ghana’s debt stock has crossed the 60% of GDP level that developing countries with limited access to capital flows should worry about in terms of debt sustainability.
As of 2008, Ghana’s total public debt stood at GH¢9.5 billion (33% of GDP). In the last six years however, the stock of public debt has risen dramatically to GH¢70 billion (60.8% of GDP) at September 2014. This is an increase in the stock of debt by GH¢60.5billion or the equivalent of some $27 billion using the average exchange rate for 2009-2014 or $17.5 billion at current exchange rates . This also represents an increase in the stock of debt by 636% over a six year period (i.e. an average increase in the stock of debt by 106.14% a year). This is a frightening rate of accumulation of debt by any standard or measure. On this track, Ghana is clearly on the way back to the unsustainable debt levels that pushed us to HIPC.

This is a worrying development because Ghana received HIPC relief just 10 years ago after a similar debt binge by the previous NDC Government. If the current borrowing binge continues, it will only be a matter of time before the international rating agencies will classify Ghana as a country with high risk of debt distress. The consequences of this classification would compromise Ghana’s ability to raise further financing from the international capital market and, worse still, disable the country from servicing and paying our debts.

The accumulation of debt by this NDC government over the last six years has quite frankly been reckless. The interest payments on this debt in 2014 alone is four times Ghana’s oil revenue in 2014! In 2015, Interest payments alone on the debt would amount to GHC9.5 billion. This figure is equivalent to the total debt stock of GH¢9.5billion in 2008 at the end of President Kufuor’s administration for which debt stock both President Mills and John Mahama lampooned the NPP government. This, indeed, is reality check.

The increase in interest payments by 4.3% of GDP between 2008 and 2015 (i.e. from 2.8% in 2008 to 7.1% in 2015) has taken away critical fiscal space that was available to government. In the 2014 budget, the entire allocations to the Ministry of Roads and Highways (GH¢779 million), Trade and Industry (GH¢256.5 million), Ministry of Fisheries (GH¢279 million), Ministry of Food and Agriculture (GH¢128 million), Ministry of Water Resources and Housing (GH¢531 million) and Ministry of Transport (GH¢89 million) amounted to a total of (GH¢2062 million). Interest payments in 2014 is more than three times what was allocated to these six key ministries combined! The story is no different for 2015.
Given the precarious nature of Ghana’s debt situation, one would have expected some bold measures to fundamentally reduce the increasing debt overhang which, if not dealt with would push Ghana into the high debt/low growth trap. The budget basically dodged the issue.
WHAT HAS THE BORROWED MONEY BEEN USED FOR?
As stated earlier the NDC government has borrowed an amount equivalent, at the time of borrowing, to some $27 billion over the last six years. This is besides oil and tax revenue. No government in Ghana’s history has been so lucky as to have had access to this volume of resources for development. What is shocking about this borrowing-spree is that it has happened at the same time as capital expenditure as a percentage of GDP has unbelievably declined.

In his media encounter to commemorate the second year of his coronation President Mahama said if Ghanaians want to know what development projects and programmes his government has committed the resources that have come the way of his government to, they should relate to parliament. Well, the evidence is that 94% of the increase in government spending has been for recurrent expenditure! The increase in government debt over the past five years is an amount that could have built at least 15,000 km of tarred roads for example. It is an amount that could have solved Ghana’s energy, water, and sanitation problems. However, the increase in oil revenues notwithstanding, capital expenditure as a percentage of GDP has actually been on the decline from 7.1% of GDP in 2009 to 5.2% by 2015. It is in fact a travesty that Ghana before the discovery of oil was spending a higher proportion of its income on infrastructure investment than after the discovery of oil.

In the 2015 budget the Minister of Finance mentioned a number of star projects that have been financed by the borrowing. When the Minority leader started listing these projects in his contribution to the budget debate the chorus from the NDC Parliamentarians that greeted him was “investment”, “investment”. What was meant by the chorus was that the monies had been used for investment. The signature projects include:

PROJECT COST $ MILLION

i. Ghana National Gas Processing Plant to help solve the energy crisis, 850
ii. Refurbishment and Expansion of the Ridge Hospital 306
iii. University of Ghana Teaching Hospital 217
iv. Expansion of the Kpong Water Pumping Station 273
v. Kwame Nkrumah Interchange 95
vi. Sofoline Interchange in Kumasi 52
vii. Tetteh-Quarshie – Madina road project 38.7
viii. Achimota-Ofankor road project 46
ix. Construction of Affordable Housing Units by OAS Construction 200
x. Kumasi Central Market 172.5
xi. Kasoa Interchange 172
xii. 200 Buses for the Metro Mass Transit, and an additional 40
xiii. 295 Scania Buses for the Rapid Transport System 94
xiv. Parliament House- Job 600 Offices and reconfiguration of Parliament 102
xv. The 500-bed Military Hospital Project in Kumasi; 180
xvi. First and Second phase of the Tamale Teaching Hospital 110
xvii. The Police Hospital Project; 68.4
xviii. The Ashanti Regional Hospital at Sewua-Kumasi; 339
xix. The Upper West Regional Hospital 21.5
xx. Kpong Intake Rehabilitation Project 21.1
xxi. Accra-Tema Metro Area Water Supply Project 20.8
TOTAL GH¢3,419.00

Reality check reveals that all these projects sum up to some $3.42 billion out of the increase in total debt by the equivalent, at the time of borrowing, of some $27 billion, and oil revenues. In an apparent attempt by the Minister for Finance to respond to this query he enumerated a couple of water and road projects all of which added up to $450million thus bringing the total sum to $3.87billion. So where is the rest of the money? Mr. Minister, how do you account for the difference between $27billion and $3.87billion? For the sake of transparency, the Government should list all the projects financed by domestic and external borrowing and the amounts involved since 2009 to enable proper accounting for the increase in the stock of debt and oil receipts. We are indeed happy that a member from the NPP minority caucus in Parliament has filed an urgent question requesting the Minister of Finance to do just this.

SPECIAL TAX ON PETROLEUM

The budget has unleashed more hardships on Ghanaians by hurriedly passing into law a 17.5% Special Tax on petroleum products. The alacrity and manner of the passage of this tax in itself shows that the government is aware of the high pitch of ill feeling against this tax and did not want the public to debate it before passage. We should recall that this is the same ruling party who at the time oil prices hit $147 per barrel complained that domestic fuel prices were too high. They went on demonstrations using the Committee for Joint Action (CJA) to protest the high price of petroleum products. At the time, they argued that the taxes on petroleum products should be reduced and promised to reduce petroleum prices “drastically” when elected. Six years down the road, many of the CJA demonstrators are now ministers in or apologists and cheer leaders for this NDC government and they have forgotten all their pledges to the Ghanaian people. The NDC and their praise singers have demonstrated in so doing that they do not care and they cannot be trusted.

In 2008, the price of a litre of kerosene (which is largely used in rural areas) was Ghp70. At that time it represented 31% of the daily minimum wage. The NDC said the price was too high. Before the 2015 budget the price of the same litre of kerosene had increased to GHC3.23, representing 53.8% of the daily minimum wage. It is clear that an additional special tax of 17.5% will only further increase the burden on Ghanaians. The Government through the NPA, in applying the Automatic Price Adjustment Formula should have reduced the price of petroleum products following the recent global reduction in oil prices. Rather than doing this, the NPA, with the tacit support of government, for a long period adamantly refused to do so. The Automatic Price Adjustment Formula has apparently now become an ‘Automatic Upward Price Adjustment Formula’ under this NDC government. While consumers were still trying to figure out what has been going on, they were hit by a Special Tax. Hon. Minister of Finance, should Ghanaians expect a Special Wage Increase to compensate workers?

The Special Tax on petroleum products will further increase the already high cost of doing business in the country. At the time when many businesses are having to pay for diesel to run generators as a result of load-shedding, they are being asked to pay more taxes on fuel. This will escalate the cost of production.

It is instructive to state that government has since December 31, 2014 decreased the price of petroleum products by 10%. That is a mere pinprick. From the price of $95 per barrel that crude oil averaged for a greater portion of the year to the current prices of below $50 per barrel, petrol should be selling at GH¢9.39 per gallon instead of the current reduction price of GH¢13.85 using the Automatic price Adjustment formula.

If government moves swiftly to deal with the deep seated waste and reported corruption in payroll administration, enough savings would accrue to the budget and this tax measure would have been rendered unnecessary. If the leakages are not plugged, then no amount of tax increases would solve the problem. We have reached a point in our developmental trajectory where value for money should be demanded by all stakeholders and partners.

VAT ON FINANCIAL SERVICES AND REAL ESTATE

In the 2014 budget the Government pushed through, against sound arguments to the contrary, a VAT on fee-based financial services. The confusion surrounding its implementation resulted in the withdrawal of the policy measure. In their desperation to raise tax revenues, the 2015 budget states that this VAT on fee-based financial services will be implemented. This is a bad policy for the economy. Ghana’s financial system is underdeveloped with only some 20% of the population having a Bank account. What the government should rather be doing is providing some incentives for financial inclusion. The introduction of VAT on fee-based financial services would only serve to drive people away from the banking system with the attendant reduction in financial savings. It will also increase the cost of doing business for the business community. For example, a manufacturer who imports raw materials has to pay VAT on imports. If he transfers money through the Bank to pay for the imports, the manufacturer would pay an additional VAT for the banking service. The argument is similar for cost of doing business in the real estate industry.
Some statistics on the property market in Ghana would be instructive in placing this increased tax on real estate transactions in context. First, Ghana currently has the highest mortgage to income ratio (at 605%) in the world. In terms of House Price to Income ratio, Ghana is the 10th highest in the world. In terms of housing affordability, Ghana ranks as the least affordable property market in the world . Given these facts, it is clear that the real estate industry in Ghana needs help. Government should rather be trying to encourage the development of the mortgage market through tax incentives for real estate developers and better land administration. A 5% increase in the tax on real estate transactions is the wrong way to go.

THE FOCUS ON TAXATION RATHER THAN EXPENDITURE CONTROL IS WRONG

The 2015 budget demonstrates that the NDC government has created a fiscal mess after 6 years in office but has no clue how to deal with it. The government’s focus now is on raising revenue to hide the fiscal indiscipline. However, the major problem is expenditure mismanagement. The budget does not address expenditure review and re-composition and measures to ensure fiscal discipline, but rather focuses on the revenue side (raising more taxes), thus clearly being insensitive to the population and taxing them to hide inefficiencies. There is a saying that “if all you have is a hammer everything begins to look like a nail!” This is so appropriate in the case of this NDC Government.

PROPAGANDA ACHIEVEMENTS

In search for tangible achievements by this Government, the Minister of finance included the following as achievements:

• “virtually eliminating the spectre of long queues for fuel as well as the huge budget overruns of about GH¢339 million in 2012 and GH¢135 million in 2013 that resulted from past failures to adjust prices through the “automatic adjustment” pricing formula;
Who created the long queues for fuel in the first place and budget overruns? How can you create a problem and then consider it an achievement to revert to the status quo ante?
• “a demonstration of our ability to raise both domestic and external funds to complete several projects that were put on Government budget without adequate source of funds”.

How can this be an achievement? Even as a HIPC economy, Ghana was able to raise funds domestically and externally.

• we achieved another important and significant success in launching our third Sovereign Bond of US$1 billion in early September 2014. Similarly, on the same day as the Bond issue, the Ghana COCOBOD also signed an agreement for US$1.7 billion, which was the result of another successful bid to access the international capital markets.

How can COCOBOD’s regular annual raising of funds for the purchase of cocoa suddenly become an achievement by this Government?
 

Cont'd 1/2