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2014 Mid-Year Review and Supplementary Estimates

a

MID-YEAR REVIEW of the

BUDGET STATEMENT AND ECONOMIC POLICYand

SUPPLEMENTARY ESTIMATESof the

GOVERNMENT OF GHANAfor the

2014 FINANCIAL YEARpresented to

PARLIAMENTon

WEDNESDAY, 16TH JULY, 2014by

SETH E. TERKPERMINISTER FOR FINANCE

on the Authority of

H. E. JOHN DRAMANI MAHAMAPRESIDENT OF THE REPUBLIC OF GHANA

i

REPUBLIC OF GHANA


MID-YEAR REVIEW

of the

BUDGET STATEMENT AND ECONOMIC POLICY

and

SUPPLEMENTARY ESTIMATES

ii


For copies of the Mid-Year Review, please contact the Public Relations Office of theMinistry:

Ministry of FinancePublic Relations Office New Building, Ground Floor, Room 001/003P. O. Box MB 40Accra – Ghana

The 2014 Mid-Year Review of the Budget Statement and Economic Policy and Supplementary Estimates of the Government of Ghana is also available on the internet at: www.mofep.gov.gh

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LIST OF ACRONYMS AND ABBREVIATIONS

ABFA Annual Budget Funding AmountAIDS Acquired Immune Deficiency SyndromeBOG Bank of Ghanabps Basis PointsBR Benchmark RevenueCAPI Carried and Participating InterestCOLA Cost of Living AllowanceCPI Consumer Price IndexDACF District Assemblies Common FundE-SPV Electronic Salary Payment VoucherFITAB Free Income Tax Assessment BureauGDP Gross Domestic ProductGES Ghana Education ServiceGETFund Ghana Education Trust FundGHFI Ghana Housing Finance InitiativeGHS Ghana Health Service

GIFMIS Ghana Integrated Financial Management and Information System

GIIF Ghana Infrastructure Investment FundGNPC Ghana National Petroleum CompanyGOG Government of GhanaGPFs Ghana Petroleum FundsGRA Ghana Revenue AuthorityGSE Ghana Stock ExchangeGSE-FI GSE Financial Stock IndexGSF Ghana Stabilisation FundGSS Ghana Statistical ServiceH.E His ExcellencyHIV Human Immunodeficiency VirusHRMIS Human Resource Management Information SystemIBES Integrated Business Establishment SurveyIPPD Integrated Personal Payroll DatabaseLGS Local Government ServiceM2 Domestic Currency ComponentM2+ Broad Money SupplyMDAs Ministries, Departments and AgenciesMDBS Multi-Donor Budget SupportMMDAs Metropolitan, Municipal and District AssembliesMOF Ministry of FinanceMoFA Ministry of Food and AgricultureNDA Net Domestic AssetsNFA Net Foreign Assets

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NIR Net International ReservesNOP Net Open PositionOHCS Office of the Head of Civil ServiceOIN Other Items NetPFM Public Financial ManagementPIAC Public Interest and Accountability CommitteePRMA Petroleum Revenue Management ActPSC Public Services Commission or thePSC Public Services CommissionPSJSNC Public Service Joint Standing Negotiating CommitteeSOEs State-Owned EnterprisesSPVs Special Purpose VehiclesVAT Value Added TaxWAMZ West Africa Monetary Zone

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TABLE OF CONTENTS

SECTION ONE: INTRODUCTION..............................................................................................1

SECTION TWO: MACROECONOMIC PERFORMANCE IN 2013...........................................6

MACROECONOMIC TARGETS FOR 2013.......................................................................6

INFLATION.......................................................................................................................8

MONETARY DEVELOPMENTS.....................................................................................9

FISCAL PERFORMANCE..............................................................................................11

SECTION THREE: MACROECONOMIC PERFORMANCE IN 2014.....................................22

MACROECONOMIC TARGETS FOR 2014..................................................................22

GDP GROWTH................................................................................................................22

INFLATION.....................................................................................................................23

MONETARY DEVELOPMENTS...................................................................................24

EXTERNAL DEVELOPMENTS.....................................................................................28

FISCAL PERFORMANCE..............................................................................................28

SECTION FOUR: STATUS OF IMPLEMENTATION OF KEY POLICY INITIATIVES.......39

SECTION FIVE: REVISED 2014 MACROECONOMIC TARGETS, FISCAL

FRAMEWORK AND REQUEST FOR SUPPLEMENTARY BUDGET...................................57

SECTION SIX: CONCLUSION..................................................................................................62

LIST OF TABLES

Table 1: Economic Aggregates (2009 – 2013)..........................................................................7

Table 2: Summary of Central Government Operations and Financing – 2013........................11

Table 3: Summary of Central Government Revenues and Grants – 2013...............................12

Table 4: Total Government Tax Revenue – 2013....................................................................14

Table 5: Wage-to-Tax Revenue and GDP Ratios (%).............................................................16

Table 6: Trends in Interest Cost to Revenue and GDP Ratios (%).........................................17

Table 7: Summary of Central Government Expenditures – 2013............................................18

Table 8: Summary of Central Government Financing – 2013.................................................19

Table 9: Sources of fiscal slippage in 2012 and 2013..............................................................19

Table 10: Domestic Debt by Maturity Structure......................................................................21

Table 11: Summary of Central Government Operations and Financing..................................30

Table 12: Summary of Central Government Revenue and Grants..........................................31

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Table 13: Details of Central Government Tax Revenue.......................................................................32

Table 14: Summary of Central Government Expenditures................................................33

Table 15: Summary of Central Government Financing.......................................................34

Table 16: Petroleum Receipts in the First Quarter of 2014...............................................35

LIST OF FIGURES

Figure 1: GDP Growth Rate (2008-2013)................................................................................7

Figure 2: Inflation Trend (2009 – 2013).................................................................................................9

Figure 3: Inflation Trends, January 2013-May 2014.............................................................24

Figure 4: Public Debt 2010 to May 2014 (Millions of US$)..................................................................36

APPENDICES

Appendix 1: Summary of Central Government Operations - 2013 – 2014

Appendix 2: Economic Classification of Central Gov't Revenue - 2013 – 2014

Appendix 3: Economic Classification of Central Gov't Expenditure - 2013 – 2014

Appendix 4: Summary of Central Government Operations – 2014

Appendix 5: Economic Classification of Central Gov't Revenue - 2014

Appendix 6: Economic Classification of Central Gov't Expenditure - 2014

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SECTION ONE: INTRODUCTION1. Right Honourable Speaker, on behalf of His Excellency, President

John Dramani Mahama, and in accordance with Article 179(8) of the 1992 Constitution, I stand before this august House, to present a Mid-Year Review and revised budget and macroeconomic targets for 2014. These are necessitated by recent, and in some cases, longstanding global and domestic developments. Consequently, we seek approval for Supplementary Estimates for the 2014 fiscal year.

2. Mr. Speaker, let me convey to you and Honourable Members, the appreciation of His Excellency, President John Dramani Mahama, to the House, for the cooperation we receive any time we present major policy statements. While presenting an Urgent Policy Statement on the fiscal consolidation measures for the Ghanaian Economy to this august House in April 2014, I indicated that, if necessary, and as required by our laws, I will appear before the House with a Mid-Year Review and a Supplementary Budget.

3. Let me also convey through you, Mr Speaker, and the People’s Representatives, President John Mahama’s commitment, focus and determination to lead this nation out of our current temporary economic challenges. In doing so, I wish to communicate Government’s appreciation of the sacrifices, fortitude, and support of the people of Ghana. As a nation, we have risen above many challenges before, and we shall rise again. Indeed, the signs of recovery are already beginning to show.

4. Mr Speaker, in the early 2000s when we faced difficulty as a nation, we opted for debt relief under the HIPC Initiative, which gave us significant borrowing space to accelerate our development. In 2010 when we rebased our GDP, we became a Lower Middle Income Country (LMIC) with some pride but also with serious implications. Then in 2011 when we started to export crude oil, our LMIC status

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got consolidated. As at today, the World Bank has changed our status, moving us from softer loan terms (that is, 10-year grace period, with 30-year repayment) to stricter terms (that is, 5-year grace period and 20-year repayment). The African Development Bank has also introduced and implemented similar loan repayment measures. Again, in the last few months, the World Bank has started the process of upgrading Ghana to a “blend” status, which will make us eligible to access the resources of both the International Development Agency (IDA) and International Bank for Reconstruction and Development (IBRD) at the same time. Following on from this, Ghana is now experiencing limited access to concessional loans and grants from development partners.

5. Mr. Speaker, since November 2013, however, when the 2014 Budget was presented and approved by Parliament, the economy has experienced a number of pressures, which continue to pose challenges to the attainment of our 2014 economic targets. Notable among these challenges are: the continuing shortfalls in tax and non-tax revenues, notably

from grants and concessional financing – in the case of tax revenues, it is also partly due to the lower national output;

the consequential depreciation of the Cedi, which is having significant adverse effects on economic activity, public expenditure and other macroeconomic variables; and

declining gold and cocoa prices in 2013 which continue to have a lingering effect on the economy. Although cocoa prices have recovered, the continuous decline in the prices and volumes of gold still pose risks to the country’s external position and domestic revenue mobilization;

6. Power-sector disruptions, arising from the year-long shortages in gas supply from the West Africa Gas Pipeline and the frequent downtime of the TICO and BUI projects, amongst other disruptions, that have adversely affected power production and output have

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resulted in our reliance on higher imports of crude oil for thermal power generation. Mr. Speaker, these challenging factors have adversely affected the nation’s growth and output, domestic revenue mobilization effort, as well as balance of payments and reserves position. In addition, they have considerably undermined the implementation of policy decisions, such as the automatic utility price adjustments, thereby, giving rise to the payment of higher subsidies. These have added to the complexity in managing an economy in transition to a Middle Income Status—a complexity reinforced by the cuts in grants and in the terms on which the country can now attract grants and concessional financing, notably from the development partners, including the World Bank and African Development Bank.

7. Mr. Speaker, going forward, a very important lesson arising out of this situation is the need to further sharpen and enhance our economic management systems so that we can better manage volatilities such as disruptions in power supply and commodity price shocks. The new realities associated with the implementation of the Single Spines Salary Structure, and our Lower Middle Income Country status are also being confronted head-on by this Government. We shall continue to rely on the cooperation of all stakeholders. We must also improve on various proposals that are emerging and which we are implementing to manage our transition to LMIC status. Furthermore we must endeavour to address the risks posed by events in the global environment, including the difficulty with which the global economy continues to emerge from the worldwide financial and economic crisis.

8. Mr. Speaker, notwithstanding these challenges—and our bold efforts to address them with measures that include those approved by this august House—we wish to reiterate that the short-to-medium term prospects for Ghana remain positive. This encouraging assertion is supported by the following:

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expected increases in oil and gas exploration and production, particularly from the Jubilee, Sankofa-Gye Nyame and Tweneboa-Enyenra-Ntomme (TEN) fields backed by factual evidence such as the building of a second Floating Production Storage and Offloading (FPSO) vessel and ongoing negotiations for gas pricing;

the recovery in cocoa prices, a stable outlook for petroleum prices (with positive impact on revenue yields), and further expansion of the services sector;

public-private sector investments, including FDI, in key sectors of the economy, contributing to the diversification and value addition into the economy; reduction of the infrastructure deficit; and boosting Ghana’s growth potential. A notable example is the imminent completion of the gas pipelines and processing plant to stabilize and improve the supply of energy and domestic output;

effective and more durable long-term public financial management systems, including GIFMIS, that will lead to better control of extra-budgetary expenditures as well as increased efficiency in public expenditure management; and

benefits from the next generation of revenue reforms, to improve efficiency—mainly, by moving all GRA tax processes to an electronic platform in order to enhance tax administration and compliance.

9. It is estimated that strategic infrastructure investments in the oil and gas sector could generate an additional US$2.5 billion in revenues, and increase our GDP growth: they also form the basis for tailoring our “Home Grown” Fiscal Consolidation Programme to overlap with firm goals that help achieve our medium term targets.

10. Mr. Speaker, we are presenting these Supplementary Estimates to ensure that we maintain the pursuit of our growth and macroeconomic stability agenda. It has, therefore, become necessary to make adjustments to accommodate the following:

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higher interest costs due to rising interest rates, borrowing, and exchange rate depreciation;

higher foreign-financed capital expenditure due to the exchange rate depreciation;

higher subsidies due to slower-than-expected implementation of utility and petroleum price adjustments;

higher compensation payments to public sector employees despite the moderation in wage negotiations – thanks to organised labour - that has led to the implementation of a 10 percent Cost of Living Allowance (COLA), effective May 2014; and

lower-than-expected tax revenues and grants.11. Mr. Speaker, let me use this opportunity to caution MDAs and

MMDAs, that this Revision and Supplementary Estimates will not necessarily result in automatic increases in expenditure across the board.

12. Mr. Speaker, against this background, I beg to move that this august House approves the Supplementary Estimate of GH¢3,196,855,671.00 in conformity with Article 179(8) of the Constitution and Standing Order 143 of this House.

13. Mr. Speaker, this year’s Mid-Year Review and Supplementary Estimates aim to:

update Honourable Members of this House on the performance of the economy in 2013 and the first five months of 2014;

revise the macroeconomic targets for 2014; revise our budget estimates based on current information; request for approval of the 2014 Supplementary Estimates; and outline measures for addressing our Nation’s International

Reserves to restore the value of the Ghana Cedi.

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SECTION TWO: MACROECONOMIC PERFORMANCE IN 2013MACROECONOMIC TARGETS FOR 2013

14. Mr. Speaker, as you may recall, at the time of presenting the 2014 Budget, we did not have full year information but rather provided projected outturn for 2013 based on actual data for January to September. We now have the full complement of the actual outturn for 2013.

15. Mr. Speaker, before we present the 2013 macroeconomic outturn, please permit me to restate the 2013 macroeconomic targets which were as follows: real overall GDP growth including oil of 8.0 percent; real non-oil GDP growth of 6.5 percent; end period inflation of 9.0 percent; average inflation of 8.9 percent; overall budget deficit equivalent to 9.0 percent of GDP; and gross International Reserves of not less than three months of

import cover for goods and services.

GDP Growth

16. Mr. Speaker, GDP data for 2013 released by the Ghana Statistical Service (GSS) showed an overall GDP growth of 7.1 percent against a target of 8.0 percent. Mr. Speaker, I wish to emphasize that the 7.1 percent growth shows a robust and strong performance, especially when compared to the Sub-Saharan average of 4.9 percent.

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Figure 1: GDP Growth Rate (2008-2013)

2009 2010 2011 2012 2013* -

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

4.0

8.0

15.0

8.8 7.1

Percen

t

Source: Ghana Statistical ServiceNotes: *Revised

17. Mr. Speaker, even though the 2013 GDP growth rate was slightly lower than projected, both the real and nominal GDP values were higher than projected. As shown in Table 1, the real GDP in 2013 was GHȻ32,507 million against a target of GHȻ32,109 million for the year. In nominal terms, GDP was GHȻ93,461 million, against a projected amount of GHȻ88,764 million.

Table 1: Economic Aggregates (2009 – 2013)Ite m 2009 2010 2011 2012 2013*G D P a t c o s ta n t 2 0 0 6 p ri c e s ( G H Ȼ m i l l i o n ) 2 2 ,4 5 4 2 4 ,2 5 2 27 ,8 9 1 30 ,3 4 3 3 2 ,5 0 7 G D P i n c u rre n t p ri c e s ( G H Ȼ m i l l i o n ) 3 6 ,5 9 8 4 6 ,0 4 2 59 ,8 1 6 74 ,9 5 9 9 3 ,4 6 1 G D P i n c u rre n t p ri c e s ( U S $ m i l l i o n ) 2 5 ,7 7 3 3 2 ,1 8 6 39 ,5 1 7 41 ,4 5 9 4 8 ,6 7 8 N o n - O i l G D P i n cu rre n t p r i c e s ( G H Ȼ m i l l i o n ) 3 6 ,6 9 8 4 4 ,3 5 3 56 ,0 7 0 71 ,6 2 7 8 9 ,5 4 5 N o n - O i l G D P i n co n s ta n t p r i ce s ( G H Ȼ m i l l i o n ) 2 2 ,4 5 4 2 4 ,1 8 7 26 ,5 1 9 28 ,6 7 4 3 0 ,5 3 8 P e r ca p i ta G D P ( G H Ȼ ) 1 , 5 6 3 1 , 90 0 2 , 43 1 2 , 8 9 8 3 , 5 3 0 P e r ca p i ta G D P ( U S $ ) 1 , 1 0 0 1 , 32 8 1 , 60 6 1 , 6 0 3 1 , 8 3 8 Source: Ghana Statistical ServiceNotes: *Revised

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Sectoral Performance

18. Mr. Speaker, the Services sector was the largest contributor to GDP, with a growth of 8.9 percent in 2013, compared to 11.0 percent in 2012. Key performing subsectors in the Services sector were the Information and Technology (24.7%), Financial and Insurance Activities (23.2%), Public Administration & Defence; Social Security (9.1%) and the Health and Social Work (7.8%) subsectors.

19. The Industry sector recorded a growth of 7.0 percent, down from 11.0 percent in 2012 on account of strong performances in the Mining and Quarrying (11.7%), Electricity (16.1%) and the Construction (8.6%) subsectors. Upstream petroleum activities also grew by 18.0 percent compared to 21.6 percent in 2012. The Manufacturing subsector, however, continued with its declining growth trend by recording a growth of 0.6 percent in 2013, with the Water and Sewerage subsector declining by 1.4 percent.

20. The Agriculture sector doubled its growth rate of 2.3 percent in 2012 to 5.2 percent in 2013. This was mainly on account of growth in the Crop subsector (5.9%), Livestock subsector (5.3%) and the Fishing subsector (5.8%).

21. In terms of sector shares, the Services sector increased its share of GDP from 48.4 percent in 2012 to 49.5 percent in 2013. The Agriculture sector, on the other hand, continued to experience a declining share of GDP while the Industry Sector maintained its share of GDP.

INFLATION

22. Mr. Speaker, inflation surged in 2013 mainly on account of the removal of subsidies on petroleum and utilities. Inflation moved

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from 10.1 percent in January to 11.8 percent in July and ended the year at 13.5 percent in December, compared to a rate of 8.8 percent in 2012, as shown in Figure 2.

Figure 2: Inflation Trend (2009 – 2013)

Source: Ghana Statistical Service

23. Food inflation for the review period was 7.2 percent, while non-food inflation was 18.1 percent. Housing, water, electricity, gas and other fuels (35%) and transportation (25.6%) were the main “price drivers” for non-food inflation. Communication recorded the lowest inflation (4.4%) in the subgroup category. The main price drivers for food inflation were mineral water, soft drinks, fruits and vegetable juices (9.6%), fish and seafood (8.8%) and cereals and products (7.6%).

MONETARY DEVELOPMENTS

Monetary Aggregates

24. Mr. Speaker, the annual growth rate of broad money supply (M2+) declined on year-on–year basis. The growth rate reduced to 19.1 percent as at end-December 2013 from 19.6 percent at the end of December 2012.

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25. The growth in M2+ was mainly from growth in Net Domestic Assets (NDA) which was moderated by a decline in Net Foreign Assets (NFA) of the banking system. While NDA went up by 36.7 percent, NFA decreased by 19.5 percent. From the components of NFA, the Bank of Ghana’s holdings went up by 1.1 percent while that of the commercial banks declined by 123.2 percent by end-December 2013. This compares with a decrease in both Bank of Ghana (12.8%) and commercial banks (3.2%) holdings in 2012.

Interest Rate Developments

26. Mr. Speaker, developments in interest rates for 2013 in general indicated a downward trend on year-on-year basis. The Bank of Ghana Policy Rate which was increased to 16.0 percent in May 2013 remained unchanged till the end of the year.

27. The rate on the 91-day and the 182-day Treasury bills went down by 390 and 433 basis points (bps), respectively, from 23.12 percent and 22.99 percent at the end of December 2012 to 19.22 percent and 18.66 percent at the end of December 2013. The 1-year note, 2-year note, 3-year and 5-year bonds rates decreased from 22.90 percent, 23 percent, 21 percent and 23.00 percent in December 2012 to 17.0 percent 16.8 percent, 19.24 percent, and 19.04 percent at the end of December 2013, respectively.

28. During the year under review, the interbank weighted average rate decreased by 77 bps to 16.34 percent on year-on-year basis. The Deposit Money Banks’ average 3-month time deposit rate remained unchanged on year-on-year basis at 12.50 percent as at December 2013. The Savings rate gained 50 bps year-on-year to settle at 5.75 percent as at December 2013.

29. The average lending rates decreased by 15 bps on year-on–year basis to 25.56 percent as at December 2013. The spread between the borrowing and lending rates also narrowed from 13.22 percent at end-December 2012 to 13.06 percent at end-December 2013.

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Exchange Rate Developments

30. Mr. Speaker, the Ghana Cedi generally traded weak against the currencies of the major trading partners during the review year. In the Inter-Bank Market, the Ghana Cedi recorded cumulative annual depreciation of 14.6 percent against the US dollar during the review period. The recorded annual depreciation of 14.6 percent in 2013 was however lower than the 17.5 percent annual depreciation recorded in 2012. The Ghana Cedi recorded depreciations of 16.7 percent and 20.1 percent against the Pound Sterling and the Euro, respectively, in 2013.

31. On the Forex Bureau Market, the Ghana Cedi also traded weaker against the major currencies and recorded cumulative depreciations of 16.3 percent, 17.5 percent and 19.3 percent against the US dollar, the Pound Sterling and the Euro, respectively.

FISCAL PERFORMANCE 32. Mr. Speaker, fiscal policy outlined in the 2013 Budget aimed to

achieve fiscal prudence and debt sustainability by reducing the budget deficit from 11.5 percent of GDP in 2012 to 9.0 percent of GDP in 2013. The fiscal and other related targets were to be achieved through the following measures: improved revenue mobilization through the Ghana Revenue

Authority’s (GRA) on-going Modernization Programme; enhancing the efficiency of public expenditures through the

ongoing Public Financial Management (PFM) reforms, (including GIFMIS); and

reviewing capital expenditures and the strategy for financing them.

33. Provisional end-year fiscal data for 2013 indicate that both revenue and expenditure were below their respective targets for the year. However, the shortfall in revenue far exceeded the shortfall in expenditure, resulting in a cash fiscal deficit equivalent to 10.1 percent of GDP against the original budget target of 9.0 percent and

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the revised target of 10.2 percent. This compares to a deficit equivalent to 11.5 percent of GDP recorded in 2012, as shown in Table 2.

Table 2: Summary of Central Government Operations and Financing – 2013

Description 2012 Outturn2013 Budget

Estim a te (M illion G H¢)

P rovisiona l Outturn for 2013

(M illion G H¢)P ercent

Devia tionP ercenta ge

C hange over 2012 outturn

a b c (c/ b-1)* 100 (c/ a -1)* 100

To tal Revenue and Grants 16,668.4 22,533.4 19,471.6 -13.6 16.8

To tal Expenditure and A rrears C learance 25,317.1 30,544.3 28,926.2 -5.3 14.3

O verall Fiscal Balance -8,648.7 -8,010.8 -9,454.6 18.0 9.3

To tal Financing 8,648.7 8,010.8 9,454.6 18.0 9.3

o/ w Dom estic F inancing 7,018.0 5,700.8 6,920.4 21.4 -1.4

Source: Ministry of Finance

Revenue

34. Mr. Speaker, total revenue and grants for the period was GH¢19,471.6 million, equivalent to 20.8 percent of GDP, against a target of GH¢22,533.4 million, equivalent to 25.4 percent of GDP. The shortfall in total revenue and grants was partly as a result of low disbursement of grants from our development partners and, mainly due to the lower than anticipated performance of domestic revenue. The outturn was 13.6 percent lower than the budget target and 16.8 percent higher than the outturn for the same period in 2012.

35. Domestic revenue, made up of tax and non-tax revenue, amounted to GH¢18,732.1 million, against the budget target of GH¢21,275.0 million. The shortfall in domestic revenue was due to weak tax revenue performance in all tax types, except corporate income tax from the oil companies and communication service tax. The outturn was 12.0 percent lower than the budget target and 20.8 percent higher than the outturn for the same period in 2012, as shown in Table 3.

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Table 3: Summary of Central Government Revenues and Grants – 2013

Description

2012 Outturn2013 Budget

Estim ate (M illion G H ¢)


(M illion G H ¢)P ercent

DeviationP ercentage


a b c (c/ b-1)* 100 (c/ a - 1)* 100

Total Revenue and Grants 16,668.4 22,533.4 19,471.6 -13.6 16.8

D omestic R evenue 15,508.1 21,275.0 18,732.1 -12.0 20.8

o /w O il Revenue 970.9 1,122.7 1 ,634.0 45.5 68.3

Tax Revenue 12,517.3 17,090.8 14,307.7 -16.3 14.3

o /w O il Revenue 270.2 385.2 670.9 74.2 148.3

N on-Tax R evenue 2,853.0 4,019.9 4 ,265.4 6 .1 49.5

o /w O il Revenue 700.7 737.5 876.7 18.9 25.1

O thers 137.9 164.2 159.1 -3 .2 15.3

Grants 1,160.3 1,258.5 739.4 -41.2 -36.3Source: Ministry of Finance

36. Non-oil tax revenue, excluding exemptions for the period, amounted to GH¢12,708.3 million (13.6% of GDP), 18.7 percent lower than the budget target of GH¢15,634.5 million (17.6% of GDP). Including oil and exemptions, tax revenue amounted to GH¢14,307.7 million, equivalent to 15.3 percent of GDP. This was 16.3 percent lower than the target of GH¢17,090.8 million (19.3% of GDP). In nominal terms, tax revenue was 14.3 percent higher than the outturn recorded in 2012.

37. Mr. Speaker, given the need for further fiscal consolidation, after the first half of the year, Cabinet and subsequently Parliament in July 2013 approved the following tax measures to improve revenue performance and support the fiscal consolidation effort: National Fiscal Stabilisation Levy of 5 percent of profit before tax

of institutions in banking, insurance, other financial services, communication, and brewery sectors with a sunset clause to end at the end of 2014;

Special Import Levy of 1 and 2 percent on some imported goods also with a sunset clause to end at the end of 2014;

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a broadened base of the environmental tax and a reduction in the tax rate from 15 percent to 10 percent; and

re-imposition of import duty of 20 percent and VAT on imported mobile handsets.

38. In total these revenue measures yielded revenue of about GH¢168 million or 0.2 percent of GDP in 2013. The full effect of these measures are expected to strongly impact on revenue performance in 2014 and contribute to the continuing fiscal consolidation, in line with the multi-year adjustment effort.

39. The weak performance of tax revenue in 2013 was partly due to the following factors: lower import volumes which negatively affected import taxes; decline in world commodity prices, particularly gold, which

resulted in lower than expected corporate taxes and mineral royalties;

the slowdown in economic activities during the first half of the year, due partly to the energy crisis; and

low tax compliance and disruptions due to tax administration reforms.

Table 4: Total Government Tax Revenue – 2013

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Description







a b c (c/ b-1)* 100 (c/ a - 1)* 100

Total Tax Revenue excluding exemptions 11,738.3 16,019.7 13,459.2 -16.0 14.7

To tal Tax Revenue including exemptions 12,517.3 17,090.8 14,307.7 -16.3 14.3

Taxes on I ncome and P roperty 5,536.2 7,825.0 6 ,301.7 -19.5 13.8

o /w Personal I ncome Tax 2,204.4 2,908.5 2 ,367.5 -18.6 7.4

o /w Company Taxes 2,361.5 3,432.7 2 ,315.6 -32.5 -1.9

Taxes on D omestic Goods and Services 4,212.0 5,576.2 4 ,833.0 -13.3 14.7

o /w VA T 2,777.3 3,768.0 3 ,317.1 -12.0 19.4

o /w Excise 730.3 903.8 694.2 -23.2 -4.9

o /w N H I L 576.1 753.6 647.7 -14.1 12.4

o /w CST 128.4 150.8 174.0 15.4 35.5

I nternational Trade Taxes 2,769.0 3,689.7 3 ,173.0 -14.0 14.6

Exemptions (non-cash) 778.9 1,071.1 842.0 -21.4 8.1Source: Ministry of Finance

40. Although the performance of tax revenue from the traditional sources was weak, oil revenue performance for the year was very strong as a result of higher than expected crude oil prices, higher production levels and higher corporate income taxes from the sector. Total oil revenue for 2013, amounted to GH¢1,634.0 million (1.7% of GDP), against a target of GH¢1,103.9 million (1.2% of GDP).

41. On the other hand, grant disbursement from our development partners was 41.2 percent lower than the budget target of GH¢1,258.5 million and 36.3 percent lower than the outturn recorded during the same period in 2012. The lower than expected outturn of grants was mainly due to the non-disbursement of budget support from some of our Multi-Donor Budget Support (MDBS) partners as well as the slow disbursement of project grants.

Expenditure

42. Mr. Speaker, in addition to the revenue measures that were announced in 2013, expenditure measures were introduced to help

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contain expenditures and to ensure the achievement of the fiscal deficit target for the year. These measures included: agreement on a lower percentage increase in salaries compared

to immediate past years; regular adjustment of fuel and utility prices to reduce subsidies

to the barest minimum; minimising the award of new contracts and contracting of new

loans; refinancing of short term debt with a view to extending the

tenure and reducing interest costs; and processing of all GoG expenditures on the Ghana Integrated

Financial Management and Information System (GIFMIS) to control unauthorised commitments.

43. These expenditure rationalisation measures helped to contain most expenditures within the 2013 total Appropriation.

44. Total expenditure, including payments for the clearance of arrears and outstanding commitments for 2013 amounted to GH¢28,926.2 million (31.0% of GDP), against a target of GH¢30,544.3 million (34.4% of GDP). The outturn was 5.3 percent lower than the budget target and 14.3 percent higher than the outturn for the corresponding period in 2012.

45. Mr. Speaker, as a result of the shortfall in revenue and grants, government reduced spending on goods and services as well as other expenditure items. This led to total expenditures being lower than budgeted. Although overall spending was lower than planned, spending on wages and salaries as well as interest cost were higher than budgeted.

46. Mr. Speaker, expenditure on Wages and Salaries for the period totalled GH¢8,242.9 million, 10.4 percent higher than the budget target of GH¢7,465.4 million and 23.7 percent higher than the outturn for the same period in 2012. In addition to this, an amount

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of GH¢1,065.0 million was spent on the clearance of wage arrears compared to GH¢1,872.0 million in 2012. Nonetheless, in 2013, expenditure on wages and salaries alone was 64.9 percent of non-oil tax revenue (excluding exemptions) and 61.2 percent of tax revenue (excluding exemptions). Including the wage arrears paid during the period, expenditure on wages was 73.2 percent of non-oil tax revenue (excluding exemptions) and 69.1 percent of tax revenue (excluding exemptions). These ratios are significantly higher than the West African Monetary Zone (WAMZ) secondary convergence criteria of wage-to-tax revenue (excluding exemptions) ratio of 35 percent.

Table 5: Wage-to-Tax Revenue and GDP Ratios (%)

Description 2007 2008 2009 2010 2011 2012 2013

Wage/Non-oil Tax Revenue (excl exemptions) 46.0 53.0 56.0 52.6 50.6 58.1 64.9

Wage (incl. arrears)/Non-oil Tax Revenue (excl. exemptions) 46.0 53.0 56.0 52.6 50.6 74.4 73.2

Wage/Tax Revenue (excl exemptions) 46.0 53.0 56.0 52.6 49.6 56.8 61.2

Wage (incl. arrears)/Tax Revenue (excl. exemptions) 46.0 53.0 56.0 52.6 49.6 72.7 69.1

Wage/GDP 6.1 6.6 6.8 6.9 7.6 8.9 8.8

Wage (incl. arrears)/GDP 6.1 6.6 6.8 6.9 7.6 11.4 10.0Source: Ministry of Finance

47. Mr. Speaker, interest payment for the period totalled GH¢4,397.0 million, 37.6 percent higher than the budget target of GH¢3,194.4 million and 80.5 percent higher than the outturn for the corresponding period in 2012. Of this amount, domestic interest payment constituted 86.2 percent of total interest costs and was 47.2 percent higher than the budget target. On a year-on-year basis, domestic interest payment grew by 101.5 percent, reflecting very high domestic borrowing in 2013 to finance the deficit.

18


Table 6: Trends in Interest Cost to Revenue and GDP Ratios (%)

Description 2007 2008 2009 2010 2011 2012 2013

Domestic Interest Cost/Tax Revenue (excl. exemptions) 10.5 12.9 17.5 18.6 14.3 16.0 28.1

Domestic Interest Cost/Total Revenue (excl. exemptions) 9.4 11.5 14.4 15.3 11.8 12.8 21.2

Total Interest Cost/Tax Revenue (excl. exemptions) 14.3 18.1 23.3 23.8 17.6 20.8 32.7

Total Interest Cost/Total Revenue (excl. exemptions) 12.9 16.2 19.3 19.6 14.6 16.5 24.6

Domestic Interest Cost/GDP 1.4 1.6 2.1 2.4 2.2 2.5 4.1

Total Interest Cost/GDP 1.9 2.3 2.8 3.1 2.7 3.2 4.7Source: Ministry of Finance

48. High domestic interest rates coupled with the continuous rise in the level of domestic borrowing to finance the budget over the years accounts for the strong growth in domestic interest cost.

49. Expenditure on Goods and Services amounted to GH¢1,449.1 million, against a budget target of GH¢1,742.4 million. The lower expenditure on Goods and Services was mainly as a result of the rationalization of discretionary spending in the face of revenue shortfalls, high expenditures on wages and salaries, as well as high interest cost.

50. Total capital expenditure for the period amounted to GH¢4,791.2 million, equivalent to 5.1 percent of GDP. This compares with a budget target of GH¢5,155.1 million, equivalent to 5.8 percent of GDP. The shortfall in capital expenditure was mainly as a result of the slow disbursement of some project loans. Of the total capital expenditure for the period, domestically-financed capital

19


expenditure was GH¢1,646.0 million, 26.2 percent higher than the budget target.

Table 7: Summary of Central Government Expenditures – 2013

Description







a b c (c/ b-1)* 100 (c/ a - 1)* 100

Total Expenditure and A rrears C learance 25,317.1 30,544.3 28,926.2 -5 .3 14.3

To tal Expenditure 20,944.7 28,163.4 27,463.0 -2 .5 31.1

Compensation o f Employees 7,177.6 9,004.0 9 ,479.1 5 .3 32.1

o /w W ages and Salaries 6,665.5 7,465.4 8 ,242.9 10.4 23.7

U se o f Goods and Services 1,321.8 1,742.4 1 ,449.1 -16.8 9.6

I nterest Payments 2,436.2 3,194.4 4 ,397.0 37.6 80.5

o /w D omestic I nterest 1,879.7 2,574.2 3 ,788.2 47.2 101.5

Subsid ies 809.0 1,022.2 1 ,158.1 13.3 43.2

Grants to O ther Government U nits 3,765.0 6,208.8 4 ,547.9 -26.8 20.8

Social Benefits - 38.8 1 .1 -97.3

O thers 1,851.0 1,797.7 1 ,639.7 -8 .8 -11.4

Capital Expenditure 3,584.2 5,155.1 4 ,791.2 -7 .1 33.7

A rrears C learance and Tax R efunds 3,829.8 2,380.9 2 ,352.5 -1 .2 -38.6

D iscrepancy 542.5- - 889.3 Source: Ministry of Finance

Overall Budget Balance and Financing

51. Mr. Speaker, based on the revenue and expenditure outturns for 2013, the overall budget balance on cash basis registered a deficit of GH¢9,454.6 million, equivalent to 10.1 percent of GDP. This was against a deficit target of GH¢8,010.8 million, equivalent to 9.0 percent of GDP.

52. The domestic primary balance registered a deficit of GH¢667.8 million, equivalent to 0.7 percent of GDP, against a target deficit of GH¢154.2 million, equivalent to 0.2 percent of GDP.

20


53. Mr. Speaker, the overall budget deficit for the period was financed from both domestic and foreign sources. Domestic financing amounted to GH¢6,920.4 million, against a target of GH¢5,700.8 million. Foreign financing of the deficit was GH¢3,212.0 million, against a target of GH¢2,536.0 million. The higher foreign financing was as a result of partially utilising the 2023 Eurobond to finance some capital expenditures in the Budget and to refinance high-interest maturing domestic debt.

54. An amount of GH¢677.7 million out of the total oil revenue due Government in 2013 was lodged in the Ghana Petroleum Funds Accounts in accordance with the Petroleum Revenue Management Act, 2010 (Act 815).

Table 8: Summary of Central Government Financing – 2013

Description2012 Outturn

2013 Budget Estim ate

(M illion G H ¢)

P rovisiona l Outturn fo r 2013




a b c (c/ b-1)* 100 (c/ a -1)* 100

Total Financing 8,648.7 8,010.8 9,454.6 18.0 9.3

Foreign 1,630.6 2,536.0 3,212.0 26.7 97.0

D omestic 7,108.9 5,700.8 6,920.4 21.4 -2.7

P e tro le um F und s -90.8 -226.0 -677.7 199.9 646.0Source: Ministry of Finance

55. Mr. Speaker, the fiscal overrun in 2013 was mainly due to significant shortfalls in revenue and grants, higher spending on wages and salaries as well as interest payments. The table below summarizes the details of the sources of the fiscal overruns in 2012 and 2013.

Table 9: Sources of fiscal slippage in 2012 and 2013

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A m t (M il G H ¢ )

% o f G D P

A m t (M il G H ¢ )

% o f G D P

W a g es an d S a la rie s 1 ,0 2 8 .0 1 .4 7 7 7 .6 0 .8

W a g e A rre a rs 8 8 1 .0 1 .2 9 2 2 .6 1 .0

In te re s t P ay m en ts 2 4 5 .0 0 .3 1 ,2 0 2 .6 1 .3

G ra n ts -3 8 9 .4 -0 .5 -5 1 9 .0 -0 .6

C o rp o ra te In c o m e T ax (o il) -3 8 4 .1 -0 .5 3 11 .0 0 .3

N o n -o il T a x R ev e n u e -11 2 .3 -0 .1 -3 ,1 5 5 .3 -3 .4

U tility an d F u e l S u b s id ie s 3 3 9 .0 0 .5 1 3 5 .8 0 .1

G o o d s & S e rv ic es 3 5 4 .7 0 .5 -2 9 3 .2 -0 .3

D e s c r ip tio n

2 0 1 2 2 0 1 3


Developments in Public Debt

56. Mr. Speaker, Ghana’s total public debt stock, which stood at GH¢35,999.64 million (US$19,150.78 million) as at end-December 2012, increased to GH¢52,125.91million (US$24,021.16 million) at the end of December 2013. Of the total public debt stock, external debt was GH¢24,871.9 million (US$11,461.71 million) while domestic debt amounted to GH¢27,254 million (US$12,559.45 million), representing 47.72 percent and 52.28 percent, respectively. Total public debt as a percentage of GDP stood at 55.77 percent as at end-December 2013, an increase from the December 2012 figure of 48.03 percent. The increase in the public debt was largely on account of the issuance of Eurobond and disbursement for major infrastructure projects such as the Bui Dam, the Ghana Gas Project, the Coastal Protection Projects, and Redevelopment of the Police Hospital.

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57. Ghana’s total public external debt stock amounted to GH¢17,206.90 million (US$9,153.6 million) at the end of December 2012 and increased to GH¢24,871.90 million (US$11,461.71 million) in December 2013. Total external debt as a percentage of GDP stood at 26.61 percent at the end of 2013, slightly up from 22.96 percent recorded for the same period in 2012.

58. Total public domestic debt stock, which stood at GH¢18,792.7 million (US$ 9,997.2 million) in December 2012, increased to GH¢27,254.00 million (US$ 12,559.45) by end-December 2013. This represents a year-on-year growth of 44.4 percent. As a percent of GDP, total domestic debt was 29.16 percent at the end of December 2013, against 25.07 percent at the end of December 2012.

59. Of this total, short-term instruments (91-day, 182-day and 1-year) amounted to GH¢8,806.4 million (US$ 4,058.25million), forming about 32.3 percent of the total domestic debt stock. An increase from December 2012 of 30.5 percent.

60. Medium-term instruments added up to GH¢12,576.8 million (US$5,795.78 million), long-term instruments totalled GH¢5,282.5 million (US$ 2,434.3 million) and standard loans equalled GH¢466.9 million (US$ 271.1 million) at the end of December 2013. There was also a slight decrease in the shares of the medium-term instruments (2-year note, 3-year bond, 5-year bond and 7-year bond) from 50.8 percent of the total domestic stock in December 2012 to about 46.1 percent as at end-December 2013, while standard term loans (usually with commercial banks) comprised about 2.2 percent of the total domestic debt stock.

Table 10: Domestic Debt by Maturity Structure

DOMESTIC DEBT BY MATURITY STRUCTURE (MILLIONS OF USD)

2012 % 2013 %

SHORT TERM 3,050.8 30.5 4,058.2 32.3

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MEDUIM TERM 5,077.4 50.8 5,795.8 46.1

LONG TERM 1,676.5 16.8 2,434.3 19.4

STANDARD LOANS 192.5 1.9 271.1 2.2

TOTAL 9,997.2 100.0 12,559.4 100.0Source: Ministry of Finance

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SECTION THREE: MACROECONOMIC PERFORMANCE IN 2014MACROECONOMIC TARGETS FOR 2014

61. Mr. Speaker, against the backdrop of a challenging macroeconomic environment in 2013, the 2014 Budget aims at restoring stability and sets the following targets: overall real GDP (including oil) growth of 8.0 percent; non-oil real GDP growth of 7.4 percent;An end year inflation

target of 9.5 percent within the band of ±2 percent; Overall budget deficit equivalent to 8.5 percent of GDP; and Gross international reserves of not less than 3 months of import

cover of goods and services.62. Developments from January to May 2014 indicate that the economy

continues to face challenges due to unfavourable developments in both domestic and external environments. The details of the macroeconomic performance for the period under review are highlighted below.

GDP GROWTH63. Mr. Speaker, GDP grew by 6.7 percent in the first quarter of 2014,

down from 9.0 percent in the corresponding period in 2013. In a marked departure from the sectoral performance in the first quarter of 2014, the Agriculture Sector led with a growth of 12.7 percent, up from 6.7 percent in the analogous quarter in 2013. The Services Sector followed with a growth of 4.6 percent, down from 10.4 percent in the same quarter in 2013, while the Industry Sector declined by 1.1 percent, down from 8.1 percent in the corresponding period in 2013.

Agriculture Sector

64. Mr. Speaker, the remarkable performance of the Agriculture Sector resulted mainly from a growth of 71.9 percent in the Livestock subsector, up from 5.3 percent in the first quarter of 2013, and a 20 percent growth in the Fishing subsector, up from a decline of 5.0

25


percent in the first quarter of 2013. The Crops and Cocoa subsector grew by 5.0 percent, up from 4.5 percent in the first quarter of 2013, while the Forestry subsector declined by 7.6 percent, down from 27.6 percent in the first quarter of 2013.

Industry Sector

65. Mr. Speaker, the decline of the Industry Sector’s real output in the first quarter of 2014 resulted mainly from a general underperformance of all subsectors, as compared with performance in the corresponding period in 2013, notably the 19.3 percent decline in the output of the Manufacturing subsector, compared with a decline of 1.9 percent in the first quarter of 2013. The Mining and Quarrying subsector grew by 7.5 percent, down from 19.6 percent in the first quarter of 2013. This could be attributed to low outputs from the gold industry, owing to rising costs and falling gold prices, and a marginal decline of crude oil output due to the delay in lifting the gas from the Jubilee Field.

66. The Electricity subsector grew by 8.9 percent, compared to 11.8 percent in the first quarter of 2013. The Water & Sewerage subsector grew by 0.2 percent, an improvement over the decline of 3.4 percent in the analogous quarter in 2013. The Construction subsector grew by 4.7 percent compared to 8.1 percent in the same period in 2013.

Services Sector

67. Mr. Speaker, the Services Sector grew by 4.6 percent in the first quarter of 2014, down from 10.4 percent in the corresponding period in 2013. The slow growth was due mainly to lower growth rates in most of the subsectors.

INFLATION68. Mr. Speaker, inflation has continued to increase in 2014, after

assuming double digit rates in 2013. Inflation rose to 15 percent in June, 2014 from 13.5 percent at the end of December 2013. The rise

26


in inflation during the period was mostly influenced by cost push pressures arising from upward adjustments of petroleum and utility prices, higher transportation cost, and the pass through effect of the currency depreciation.

69. The upsurge in prices has been influenced mainly by the non-food components of the Consumer Price Index (CPI). The non-food group recorded an average year-on-year inflation rate of 20.3 percent in June 2014, compared to 20.0 percent recorded in May 2014. Among the non-food group, the Housing, Water, Electricity, Gas, and other Fuels component recorded the highest inflation rate of 53.6 percent followed by Transport which recorded 24.6 percent. The main drivers for the food inflation include, Mineral waters, soft drinks, fruit and vegetable juice (21.7 percent), Coffee, tea and cocoa (14.2 percent), Milk, cheese and eggs (12.8 percent), and Food Products (12.6 percent).

Figure 3: Inflation Trends, January 2013-May 2014

Source: Ghana Statistical Service

MONETARY DEVELOPMENTSMonetary Aggregates

27


70. Mr. Speaker, provisional data for May 2014 showed that the annual growth rate of broad money supply (M2+) which is currency, demand deposits, savings and time deposits as well as foreign currency deposits, increased on year-on–year basis. The growth rate went up to 30.8 percent as at the end of May 2014 compared with a growth rate of 19.1 percent at end-December 2013 and 17.1 percent at the end of May 2013. Broad money supply stood at GH¢30,371.4 million at the end of May 2014.

71. The change in M2+ during the period under review reflected growth in both the domestic currency component (M2) and foreign currency deposits. Demand deposits, and savings & time deposits which are the most liquid components of M2, increased by 38.9 percent and 22.6 percent respectively for the five months of 2014 compared with the respective growth of 23.1 percent and 18.9 percent recorded for the corresponding period in 2013. The Ghana Cedi value of foreign currency deposits also went up by 40.4 percent as at May 2014 from 3.9 percent in May 2013.

72. The main source of annual growth in M2+, as at the end of May 2014, was from strong growth in Net Domestic Assets (NDA) which was moderated by a decline in Net Foreign Assets (NFA) of the banking system. While the NDA went up by 42.7 percent, the NFA decreased by 6.9 percent. The Bank of Ghana’s components of the NFA declined by 12.0 percent while that of the commercial banks rose by 46.6 percent.

73. The growth in the NDA of the banking system largely reflected increases in claims on the private sector (GH¢6,141.7 million or 46.1%), net claims on Government (GH¢4,585.8 million or 47.7%) and claims on the public sector (GH¢2,481.0 million or 144.7%). Other Items Net (OIN) also increased by GH¢5,668.3 million or 81.2%.

Banks’ Outstanding Credit

28


74. Mr. Speaker, the annual growth rate of banks’ outstanding credit to the public and private institutions in May 2014 indicated an upward trend on year-on-year basis. The nominal growth rate of banks’ outstanding credit went up from 34.6 percent (GH¢3,756.8 million) as at the end of May 2013 to 46.0 percent (GH¢6,725.3 million) in May 2014. In real terms, it grew from 21.4 percent in May 2013 to 27.2 percent in May 2014. The private sector accounted for 88.8 percent of the total outstanding credit at the end of May 2014 compared with 88.1 percent at the end of May 2013.

75. The nominal growth rate in outstanding credit to the private sector increased from 32.7 percent at the end of May 2013 to 47.2 percent at the end of May 2014. In real terms, growth rate of outstanding credit to the private sector increased from 19.5 percent at the end of May 2013 to 28.2 percent at the end of May 2014.

Interest Rate Developments

76. Mr. Speaker, developments in interest rates in the first five months of 2014 indicate a rising trend. The Monetary Policy Committee increased the Policy Rate by 200 bps to 18.0 percent at its meeting in February and recently to 19.0 percent to rein in the volatility in the domestic foreign exchange market so as to meet the inflation target.

77. Consequently, money market instruments recorded significant increases in rates during the review period compared to their levels at the end of December 2013. Interest rates on the money market generally moved upwards in tandem with the Bank’s tight monetary policy stance. Between December 2013 and May 2014: The 91-day Treasury bill rate moved from 19.2 percent to 24.1

percent; and The 182-day Treasury bill rate rose from 18.7 percent to 21.3

percent.

29


78. The 1-year note rose from 17.0 percent to 22.50 percent while the 2-year note and 3-year bonds also increased respectively, to 23.50 percent and 25.48 percent on year-to-date terms.

79. The interbank weighted average rate increased to 22.71 percent from 16.34 percent in December 2013. The Deposit Money Banks’ average 3-month time deposit rate however remained unchanged at 12.50 percent, same as at December 2013.

The Stock Market

80. Mr. Speaker, developments in the capital market in the review period indicated a continuing positive growth but at a slower pace in activity compared to the corresponding period a year ago. The slow pace could be attributed to increased inflation expectations, a sustained depreciation of the local currency and increasingly attractive money market rates. The GSE Composite Index posted a year-to-date growth of 8.1 percent at the end of May 2014. In the same vein, the GSE Financial Stock Index (GSE-FI) also registered a growth of 13.8 percent as at end May 2014.

Exchange Rates Developments

81. Mr. Speaker, demand for foreign exchange from both official sources and the informal sector were high relative to the supply during the period under review. This resulted in the weakening of the Ghana Cedi in the domestic currency market. The rate of depreciation moderated after March following strict implementation of existing foreign exchange regulations by the central bank.

82. In the Inter-Bank Market, the Ghana Cedi recorded cumulative depreciation of 23.9 percent against the US dollar, 24.1 percent against the Pound Sterling and 21.4 percent against the Euro in the first five months of 2014. Developments in the forex bureau market were similar to those of the interbank market with the Ghana Cedi depreciating by 22.7 percent, 25.4 percent and 22.7 percent against the US Dollar, the Pound Sterling and the Euro respectively during

30


the period. Comparatively, during the corresponding period of 2013, the Ghana Cedi recorded cumulative depreciation of 3.1 percent and 3.6 percent against the US Dollar and the Euro respectively but appreciated by 2.7 percent against the Pound Sterling in the interbank market. In the forex bureau market, the Ghana Cedi recorded cumulative depreciation of 1.9, and 1.7 percent against the US Dollar and the Euro respectively, but appreciated by 6.2 percent against the Pound Sterling in 2013.

83. Mr. Speaker, to address the liquidity overhang and improve supply of foreign exchange in the markets, the cash reserve requirement of banks has been revised to 11.0 percent from 9.0 percent while Net Open Position (NOP) limits of banks have been revised downwards. The single currency NOP has been reduced from 10.0 percent to 5.0 percent and the aggregate NOP has been reduced from 20.0 percent to 10.0 percent.

84. Meanwhile the foreign exchange measures introduced in February 2014 were revised in June to minimise the unintended consequences of the measure.

EXTERNAL DEVELOPMENTS

Balance of Payments

85. Mr. Speaker, the value of merchandise exports during the first five months of 2014 was estimated at US$5,871.9 million, indicating a decline of 7.5 percent from the outturn in the corresponding period of 2013. The decline in exports was as a result of low receipts from gold and crude oil. Total value of merchandise imports during the review period was valued at US$6,028.4 million, also indicating a decline of 17.8 percent on the level in the corresponding period of 2013. The decline in imports was recorded in both oil and non-oil imports. The trade balance for the period January to May 2014 consequently registered a deficit of US$156.6 million, an

31


improvement from a deficit of US$990.8 million recorded by end-May 2013.

International Reserves

86. Mr. Speaker, at the end of June 2014, the country’s Gross International Reserves stood at US$4,471 million sufficient to provide 2.5 months of imports cover compared to the stock position of US$5,632.15 million at the end of December 2013 which could cover 3.1 months of imports. This development partly reflects the seasonality in foreign exchange flows during the year.

FISCAL PERFORMANCE 87. Mr. Speaker, in line with Government’s medium term fiscal

objectives as outlined in the 2014 Budget, fiscal policy in 2014 aims at ensuring fiscal prudence and debt sustainability. This fiscal policy objective is to be achieved through improved revenue mobilization, rationalizing and enhancing the efficiency of public expenditures, as well as implementing new debt management reforms.

88. In this regard, the 2014 Budget uses the overall budget deficit as the fiscal anchor, and targets a reduction in the deficit from 10.1 percent of GDP in 2013 to 8.5 percent of GDP in 2014. The 2014 Budget, therefore, introduced a number of revenue enhancing measures, debt management reforms as well as measures to realign and rationalize expenditures.

89. Revenue measures introduced in the 2014 Budget include the following: a change in petroleum excise tax from specific to ad valorem in

line with other excise regimes; an increase in withholding tax on rent on commercial properties

from 8 to 15 percent; an increase in the withholding tax on management and technical

services fees from 15 to 20 percent;

32


an increase in corporate income tax rate of free zones companies selling on the local market from 8 to 25 percent; and

more effective application of the communication service tax.

90. The VAT rate was also increased by 2.5 percentage points and the base broadened to cover fee-based financial services and real estate.

91. Expenditure measures introduced in the 2014 Budget include: continuation of the policy of regular adjustment of utility and

petroleum prices; a proposal of a moratorium on public sector wage increase in

2014 through the public sector wage negotiation process; continuation of the policy of net freeze on employment in some

sectors of the public service. payroll management measures such as payroll audits and

Electronic Salary Payment Voucher (E-SPV) to reduce the incidence of ‘ghost’ workers on government payroll; and

continuation of the limits on the award of new contracts and new loans with continuing emphasis on pipeline items.

92. Mr. Speaker, preliminary data from January to May of the year indicate that, both revenue and expenditure were below their respective targets for the period. Since the shortfall in revenue was lower than the shortfall in expenditure, the resulting cash fiscal deficit was equivalent to 3.6 percent of GDP, against a target of 3.5 percent. This compares to a deficit equivalent to 4.0 percent of GDP for the same period in 2013.

93. Table 11 below shows the summary of government fiscal position for January to May 2014.

Table 11: Summary of Central Government Operations and Financing

33


D e s c r ip t io n % D e v ia t io n% C h a n g e o v e r

2 0 1 3 M a y o u ttu rn

A m t. (M illio n G H ¢ )

(% o f G D P ) A m t. (M illio n G H ¢ )


(% o f G D P )

a b c (c /b -1 )* 1 0 0 (c /a -1 )* 1 0 0

T o ta l R ev e nu e an d G ran ts 7 ,9 1 2 .6 8 .5 9 ,5 27 .9 8 .3 9 ,0 4 3 .8 7 .9 -5 .1 14 .3

T o ta l E x p e nd itu re a n d A rrea rs C le a ran c e 11 ,69 2 .4 12 .5 13 ,5 8 7 .5 11 .8 1 3 ,17 0 .9 11 .5 -3 .1 12 .6

O v era ll F is c a l B a lan c e -3 ,77 9 .8 -4 .0 -4 ,0 5 9 .6 -3 .5 -4 ,12 7 .1 -3 .6 1 .7 9 .2

T o ta l F in an c in g 3 ,7 7 9 .8 4 .0 4 ,0 59 .6 3 .5 4 ,1 2 7 .1 3 .6 1 .7 9 .2

o /w D o m e s tic F in an c in g 3 ,4 1 2 .9 3 .7 3 ,0 36 .9 2 .6 3 ,2 3 4 .5 2 .8 6 .5 -5 .2

2 0 1 3 (J a n . -M a y ) A c tu a l O u ttu rn

2 0 1 4 (J a n . -M a y ) E s tim a te

2 0 1 4 (J a n .-M a y ) P r o v is io n a l O u ttu rn


Revenue

94. Mr. Speaker, total revenue and grants for the period was GH¢9,043.8 million, equivalent to 7.9 percent of GDP, against a target of GH¢9,527.9 million, equivalent to 8.3 percent of GDP. The shortfall in total revenue and grants for the period was as a result of low disbursement of project grants from our development partners and lower than anticipated domestic revenue collections. In nominal terms, the provisional outturn was 14.3 percent higher than the outturn for the same period in 2013.

95. The summary of government revenue and grants from January to May 2014 is presented in Table 12.

Table 12: Summary of Central Government Revenue and Grants

34


D e s c r ip tio n % D e v ia t io n% C h a n g e o v e r





(% o f G D P )

a b c (c /b -1 )* 1 0 0 (c /a -1 )* 1 0 0

T o tal R e ve nu e an d G ran ts 7 ,91 2 .6 8 .5 9 ,5 2 7 .9 8 .3 9 ,0 4 3 .8 7 .9 -5 .1 1 4 .3

D o m es tic R ev en ue 7 ,47 6 .7 8 .0 9 ,1 3 4 .6 8 .0 8 ,9 2 1 .9 7 .8 -2 .3 1 9 .3

o /w O il R ev en u e 5 0 4 .8 0 .5 5 3 5 .5 0 .5 1 ,1 9 4 .7 1 .0 1 2 3 .1 13 6 .7

T a x R e v e nu e 5 ,29 8 .8 5 .7 7 ,2 7 3 .7 6 .3 7 ,0 7 6 .8 6 .2 -2 .7 3 3 .6

o /w O il R ev en u e 1 9 6 .8 0 .2 2 1 9 .4 0 .2 6 1 2 .9 0 .5 1 7 9 .3 21 1 .5

N o n -T a x R e v en u e 2 ,13 3 .2 2 .3 1 ,7 9 3 .9 1 .6 1 ,7 5 6 .3 1 .5 -2 .1 -1 7 .7

o /w O il R ev en u e 3 0 8 .0 0 .3 3 1 6 .0 0 .3 5 8 1 .8 0 .5 84 .1 8 8 .9

O th ers 44 .7 0 .0 67 .0 0 .1 88 .9 0 .1 32 .7 9 8 .8

G ran ts 4 3 5 .9 0 .5 3 9 3 .3 0 .3 1 2 1 .9 0 .1 -6 9 .0 -7 2 .0

2 0 1 3 (J a n . -M a y ) A c tu a l O u ttu r n

2 0 1 4 (J a n . -M a y) E s t im a te



96. Total tax revenue amounted to GH¢7,076.8 million, 2.7 percent lower than the budget target of GH¢7,273.7 million. The shortfall in tax revenue compared to the target was partly due to the slowdown in economic activity, the delay in the implementation of the change in petroleum excise from specific to ad valorem, lower than anticipated revenue from excise taxes as well as the delay in the implementation of the VAT on fee based financial services. In addition, declining gold prices on the world market and rising operating cost led to lower corporate income taxes from the mining sector.

97. In nominal terms tax revenue was 33.6 percent higher than the outturn recorded for the same period in 2013. The sturdy year-on-year growth in tax revenue was mainly as a result of the strong performance of oil tax revenue, which was about 179.3 percent higher than the budget target, and 211.5 percent higher than the outturn for the same period in 2013.

98. Mr. Speaker, the strong performance of oil revenue was mainly due to the payment of part of 2013 corporate income taxes in the first quarter of the year as well as higher oil price and quantities.

35


99. Of the total tax revenue, non-oil tax revenue for the period was GH¢6,463.9 million, 8.3 percent lower than the Budget target and 26.6 percent higher than the outturn for the same period in 2013.

Table 13: Details of Central Government Tax Revenue D e s c r ip tio n % D e v ia tio n

% C h a n g e o v e r 2 0 1 3 M a y

o u ttu rn




(% o f G D P )

a b c (c /b -1 )* 1 0 0 (c /a -1 )* 1 0 0

T o ta l T ax R e ve nu e ex c lu d in g ex em p tio n s 5 ,03 6 .5 5 .4 6 ,9 5 3 .1 6 .1 6 ,72 7 .5 5 .9 -3 .2 33 .6

T o ta l T ax R e ve nu e inc lu d in g ex em p tio n s 5 ,29 8 .8 5 .7 7 ,2 7 3 .7 6 .3 7 ,07 6 .8 6 .2 -2 .7 33 .6

T a x e s o n In c o m e an d P ro p e rty 2 ,30 6 .2 2 .5 3 ,0 5 2 .7 2 .7 3 ,31 5 .3 2 .9 8 .6 43 .8

o /w P ers o n al In c o m e T ax 9 8 6 .0 1 .1 1 ,2 5 4 .9 1 .1 1 ,23 2 .3 1 .1 -1 .8 25 .0

o /w C o m p an y T ax es 7 3 1 .7 0 .8 1 ,0 0 4 .3 0 .9 1 ,00 4 .4 0 .9 0 .0 37 .3

T a x e s o n D o m es tic G o o d s a nd S e rv ic e s 1 ,90 4 .8 2 .0 2 ,7 5 5 .6 2 .4 2 ,38 3 .5 2 .1 -1 3 .5 25 .1

o /w V A T 1 ,31 0 .3 1 .4 1 ,8 9 1 .6 1 .6 1 ,71 7 .7 1 .5 -9 .2 31 .1

o /w E x c is e 2 6 9 .6 0 .3 48 7 .5 0 .4 2 9 9 .1 0 .3 -3 8 .6 11 .0

o /w N H IL 2 5 8 .5 0 .3 28 7 .9 0 .3 2 8 3 .7 0 .2 -1 .4 9 .8

o /w C S T 66 .3 0 .1 8 8 .6 0 .1 8 2 .9 0 .1 -6 .4 25 .0

In te rna tio n a l T rad e T ax es 1 ,08 7 .8 1 .2 1 ,4 6 5 .3 1 .3 1 ,37 8 .0 1 .2 -6 .0 26 .7

E x em p tio n s (no n -c as h) 2 6 2 .3 0 .3 32 0 .5 0 .3 3 4 9 .3 0 .3 9 .0 33 .2

2 0 1 3 (J a n . -M a y ) A c tu a l O u ttu rn

2 0 1 4 (J a n . -M a y ) E s tim a te



100. Grant disbursements from our development partners was 69.0 percent lower than the budget target and 72.0 percent lower than the outturn recorded during the same period of 2013. The lower than expected outturn of grants was due to the slow disbursement of project grants from our development partners resulting from project implementation delays in the signing of mixed credit agreements.

Expenditure

101. Mr. Speaker, total expenditure, including payments for the clearance of arrears and outstanding commitments from January to May 2014 amounted to GH¢13,170.9 million (11.5% of GDP), against a target of GH¢13,587.5 million (11.8% of GDP). The outturn was 3.1 percent lower than the budget target and 12.6 percent higher for the same period in 2013.

36


102. The lower than estimated expenditures for the period was mainly as a result of the delays in the transfers to the statutory funds as well as lower than anticipated spending on capital.

103. Expenditure on Wages and Salaries for the period totalled GH¢3,802.9 million, 2.2 percent higher than the budget target of GH¢3,720.3 million and 26.2 percent higher than the outturn for the same period in 2013. In addition to this, an amount of GH¢348.5 million was spent on the clearance of wage arrears.

104. Mr. Speaker, interest payment for the period totalled GH¢2,832.1 million, 26.0 percent higher than the Budget target of GH¢2,246.8 million and 49.8 percent higher than the outturn for the same period in 2013. The higher interest cost in the period was as a result of high domestic interest rates and higher than estimated domestic borrowing during the period. Domestic interest cost was 35.8 percent higher than the budget target. On a year-on-year basis, domestic interest grew by 49.5 percent.

105. Capital expenditure from January to May 2014 amounted to GH¢1,767.2 million, against the Budget target of GH¢2,169.9 million. The outturn was 26.9 percent higher than the outturn for the same period in 2013. The shortfall in capital spending was mainly as a result of lower than estimated foreign financed-capital expenditure due to the slow disbursement of project loans and grants.

106. The summary of Government expenditure for January to May 2014 is presented in Table 14.

Table 14: Summary of Central Government Expenditures

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D e s c r ip tio n % D e v ia tio n% C h a n g e o ve r





(% o f G D P )

a b c (c /b -1 )* 1 0 0 (c /a -1 )* 1 0 0

T o ta l E x p e n d itu re an d A rrea rs C le aran c e 11 ,6 92 .4 12 .5 13 ,5 8 7 .5 11 .8 13 ,1 70 .9 11 .5 -3 .1 1 2 .6

T o ta l E x p e n d itu re 9 , 04 2 .7 9 .7 12 ,2 0 1 .4 10 .6 10 ,9 78 .4 9 .6 -1 0 .0 2 1 .4

C o m p en s a tio n o f E m p lo ye es 3 , 29 8 .5 3 .5 4 ,39 6 .0 3 .8 4 ,13 0 .4 3 .6 -6 .0 2 5 .2

o /w W age s an d S a la ries 3 , 01 3 .8 3 .2 3 ,72 0 .3 3 .2 3 ,80 2 .9 3 .3 2 .2 2 6 .2

U s e o f G o o d s a nd S e rv ic e s 29 0 .8 0 .3 35 3 .3 0 .3 34 2 .7 0 .3 -3 .0 1 7 .8

In te res t P ay m en ts 1 , 89 1 .2 2 .0 2 ,24 6 .8 2 .0 2 ,83 2 .1 2 .5 26 .0 4 9 .8

o /w D o m es tic In te res t 1 , 62 3 .9 1 .7 1 ,78 7 .7 1 .6 2 ,42 7 .9 2 .1 35 .8 4 9 .5

S u b s id ies 30 .5 0 .0 20 .0 0 .0 - 0 .0

G ran ts to O ther G o ve rn m e nt U n its 1 , 72 8 .4 1 .8 2 ,67 1 .9 2 .3 1 ,55 5 .6 1 .4 -4 1 .8 -1 0 .0

S o c ia l B en efits 0 .3 0 .0 23 .0 0 .0 1 .2 0 .0 -9 5 .0

O the rs 411 .0 0 .4 32 0 .5 0 .3 34 9 .3 0 .3 9 .0 -1 5 .0

C a p ita l E x p end itu re 1 , 39 2 .1 1 .5 2 ,16 9 .9 1 .9 1 ,76 7 .2 1 .5 -1 8 .6 2 6 .9

A rrears C leara n c e and T ax R e fu n d s 1 , 42 0 .8 1 .5 1 ,40 2 .6 1 .2 2 ,00 4 .5 1 .7 42 .9 4 1 .1

D is c rep anc y -1 ,2 29 .0 -1 .3 16 .5 0 .0 -1 8 8 .1 -0 .2

2 0 1 3 (J a n .-M a y ) A c tu a l O u ttu rn

2 0 1 4 (J a n .-M a y ) E s tim a te

2 0 1 4 (J a n . -M a y) P ro v is io n a l O u ttu rn


Overall Budget Balance and Financing

107. Mr. Speaker, the cash fiscal deficit of 3.6 percent of GDP for the period under review was financed mainly from domestic sources, resulting in a Net Domestic Financing (NDF) of the budget of GH¢3,234.5 million (2.8% of GDP). The NDF for the period was 6.5 percent higher than the budget target of GH¢3,036.9 million.

108. Foreign Financing of the budget was GH¢848.4 million, against a target of GH¢1,011.5 million. The summary of financing of the cash fiscal deficit from January to May 2014 is presented in Table 15.

Table 15: Summary of Central Government Financing

D e s c r ip tio n % D e v ia tio n% C h a n g e o v e r


A m t. (M ill io n G H ¢ )



(% o f G D P )

a b c (c /b -1 )* 1 0 0 (c /a -1 )* 1 0 0

T o ta l F in an c in g 3 ,7 7 9 .8 4 .0 4 ,0 5 9 .6 3 .5 4 ,1 2 7 .1 3 .6 1 .7 9 .2

F o re ig n 5 83 .7 0 .6 1 ,0 11 .5 0 .9 8 48 .4 0 .7 -16 .1 4 5 .3

D o m e s tic 3 ,4 1 2 .9 3 .7 3 ,0 3 6 .9 2 .6 3 ,2 3 4 .5 2 .8 6 .5 -5 .2

P e tro leu m F u nd s & C o n tin g en c y -21 6 .8 -0 .2 11 .2 0 .0 1 4 4 .2 0 .0 4 2 95 .1 -12 0 .4

2 0 1 3 (J a n .-M a y ) A c tu a l O u ttu rn

2 0 1 4 (J a n .-M a y ) E s tim a te

2 0 1 4 (J a n . -M a y ) P r o v is io n a l O u ttu r n


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First Half 2014 Petroleum Revenue Receipts

109. Mr. Speaker, a total of US$410.44 million was received in the first half of 2014, covering the sixteenth to nineteenth crude oil liftings. The sixteenth lifting was undertaken on 20th December, 2013, but the proceeds were realised on 20th January, 2014, and is thus credited to the first quarter of 2014. In addition to the revenue received from crude oil liftings, other petroleum receipts amounted to US$152.04 million, including Corporate Income Tax, Royalties from the Saltpond Field, Surface Rentals and returns on undistributed funds in the Petroleum Holding Fund, as shown in Table 16. The other petroleum receipts, together with the lifting proceeds of US$410.44 million, resulted in total petroleum revenues of US$562.48 million in the first half of 2014. Of this amount, transfers to Ghana National Petroleum Company (GNPC) for Equity Financing Cost (US$33.72 million) and its share of the Net Carried and Participating Interest (US$78.73 million) amounted to US$112.45 million.

Table 16: Petroleum Receipts in the First Quarter of 2014

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110. The remaining balance of US$450.03 million was distributed between the Annual Budget Funding Amount (ABFA) and the Ghana Petroleum Funds (GPFs), i.e. US$204.54 million and US$245.49 million, respectively, in accordance with the provisions in the PRMA. Of the amount allocated to the Ghana Petroleum Funds, the Ghana Heritage Fund received US$73.65 million, while the Ghana Stabilisation Fund received US$171.84 million.

111. The 2014 Budget placed a cap of US$250 million on the Ghana Stabilisation Fund, in line with Section 23(3) of the Petroleum Revenue Management Act. The excess over the cap of US$250 million was to be used to set up the Contingency Fund (using the equivalence of GH¢50 million) and for debt repayment. By the end of the first quarter of 2014, a total of US$426.49 million had accrued in the Ghana Stabilisation Fund, giving an excess over the cap of US$176.49 million. In line with the 2014 Budget proposal, and in consonance with the PRMA, the equivalence of GH¢50 million of the excess over the cap was used to establish the Contingency Fund

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and the remaining US$159.06 million transferred into the Debt Service Account for debt repayment.

DEVELOPMENTS IN PUBLIC DEBT112. Mr. Speaker, provisional public debt stock as at end-May 2014 stood

at GH¢62,861.72 million (US$21,661.52 million), representing 54.8 percent of GDP compared to the same period end-May 2013 of GH¢38,593.77 million (US$19,977.11). This is made up of GH¢34,331.22 million (US$11,830.19 million) and GH¢28,530.50 million (US$9,831.32 million) for external and domestic debt respectively.

Figure 4: Public Debt 2010 to May 2014 (Millions of US$)

2010 2011 2012 2013 MAY-2014 -

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%


External Debt stock

113. Mr. Speaker, Ghana’s total external debt stock, amounted to GH¢24,871.90 million (US$11,461.71 million) at the end of December 2013, and increased to GH¢34,331.22 million (US$11,830.19 million) by end May 2014. The high Ghana Cedi equivalent of the end-May figure is as a result of the depreciation of the Ghana Cedi. Total external debt as a percentage of GDP stood at 29.93 percent

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at the end of May 2014, but in terms of its share of total public debt was 54.61 percent.

Domestic Debt Stock

114. Total domestic debt stock, which stood at GH¢27,254.00 million (US$12,559.45 million) in December 2013, increased to GH¢28,530.50 million (US$ 9,831.32 million) by end-May 2014. The low US Dollar equivalent of the end-May figure is as a result of the depreciation of the Ghana Cedi. As a percentage of GDP, total domestic debt was 24.87 percent at the end of May 2014, against 29.16 percent at the end of December 2013.

Status of China Development Bank Loan Facility

115. As at June 2014, three years after the Master Facility Agreement (MFA) and other finance documents under the facility were signed, only two out of the twelve projects anticipated under the facility have been financed by CDB. These are the Western Corridor Gas Infrastructure Project (WCGIP) (US$800 million) and the ICT enhanced Surveillance Project for the Western Corridor Oil and Gas enclave (US$150 million).

116. The facility was to be disbursed under two tranches: A and B, of US$1,500 million each. Both projects currently underway are tranche B facility projects. The status of the facility as at June 2014 are as follows:

Tranche A: No activityTranche B: Total principal amount of the facility - US$3,000 million Total Amount disbursed to date – US$597.3 million Total Amount disbursed in 2014 – US$50.8 million Total number of projects underway – two

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Total Amount of additional projects CDB has agreed to sign for – two (Coastal Fishing Landing Sites and AMA intelligent Traffic Management)

117. CDB has introduced a new condition precedent to the effectiveness of the subsidiary agreement for the two additional projects, namely a side agreement to amend some of the terms of the MFA, the Five Party Agreement and the Account Agreement.

118. The Side Agreement is to primarily ensure that starting from the 10th shipment of crude oil to Unipec Asia, in support of the facility, GoG will transfer an amount equal to 49 percent of the price of the shipment into the debt service account to ensure that GoG has sufficient funds to service the debts when principal repayments become effective in 2015; and the CDB facility is recognised as an oil-backed transaction contrary to the agreed position between CDB and GoG during the initiation of the transaction that the facility is not an oil-backed facility.

119. Cabinet in June 2014 approved GoG’s capping of the facility at US$1,500 million to accommodate three additional projects. In addition, it also authorised the submission of the Side Agreement to Parliament for approval.

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SECTION FOUR: STATUS OF IMPLEMENTATION OF KEY POLICY INITIATIVES 120. Mr. Speaker, in presenting the 2014 Budget, we outlined a number

of policy initiatives and fiscal measures aimed at: resolving our short-term imbalances from the 2012 Budget over-

runs; and consolidating and sustaining our Lower Middle Income status.

121. These measures also prepare us for managing traditional volatilities and policy setbacks; and deal with the challenges of financing and accelerating our development. We hereby present an update on the implementation of these measures.Addressing Ghana’s International Reserves to Restore the Value of the Ghana Cedi

122. Mr. Speaker, there is no doubt that the Ghana Cedi has lost value in recent months. However, we are working to stabilise the value of our currency. There are a number of factors that have contributed to this phenomenon:

The loss of foreign exchange from the rapid fall in world commodity prices, especially gold and cocoa in the 2013 fiscal year;

The loss of foreign exchange from the sharp decline in grants from our Development Partners from 2012 to date;

Speculative activities of some Banks, Financial Institutions and foreign exchange bureaux that are allowed to retain foreign exchange; and

Our growing and insatiable appetite for the consumption of imported goods which is putting a strain on available foreign exchange reserves.

123. While this depreciation could be positive for exporters, its impact has to some extent affected fixed income earners, inflation, interest rates and economic activities.

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124. Consequently, Government has, and will continue to design and implement appropriate responses including the following: continuing review and clarification of the Bank of Ghana foreign

exchange measures to stop its unintended consequences, especially those that affect business confidence, and introduce further measures intended to boost the flow of foreign exchange into the economy;

increasing the production of crude oil and gas to reduce the reliance on imported light crude oil for the generation of power, thereby reducing the demand for forex. This coupled with expected reversals in the low world commodity price of cocoa would improve the foreign exchange position of Government;

enforcing H.E. the President’s directive for all MDAs and MMDAs to patronize Made-in-Ghana products to preserve foreign exchange;

addressing the annual seasonality of our foreign exchange inflows by effectively arranging the smooth use of our international reserves through interventions including swaps, especially for the period after the cocoa season;

continuing with on-going discussions with the business community that is allowed to retain significant foreign exchange to channel those funds through the Bank of Ghana and our domestic banks;

ensuring compliance with Customs import valuation which tends to undermine our tariff policies and makes imported goods cheaper in relation to domestic goods on our market;

enforcing Government’s directive for MDAs and MMDAs to award contracts only in Ghana Cedis;

at the same time, checking the illegal practice of dealing in forex transactions on a large and often speculative scale without licence; and

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implementing the directive of Cabinet to review our laws and generous incentive packages to make retentions commensurate with the risk associated with doing business.

125. Mr. Speaker, these measures will assure Ghanaians, especially the business community, that we can manage rapid shortfalls in commodity prices; implement compliance and regulatory measures without affecting business confidence and foreign exchange flows; and use additional future flows of foreign exchange for investment, not consumption and wage payments.

Automatic Fuel Price Adjustment and Mitigating Measures

126. Mr. Speaker, the recent queues at the filling stations arising from delayed adjustments of fuel prices and speculations grossly affected business activities and caused a lot of personal discomfort for Ghanaians.

127. In the same vein, the recent significant ex-pump fuel price increase was equally disruptive for the average Ghanaian and as with similar past increases, affects the effective planning by the business community.

128. The implementation of a gradual and automatic adjustment to ex-pump fuel price within tolerable price bands and the establishment of an effective over/under recovery mechanism that will avoid wide swings in prices.

129. In addition, interventions in the areas of support for public and urban transportation will be pursued to ensure alternative options for the most vulnerable in society. In this regard, an estimated 450 buses are expected soon to contribute to this process.

130. Government will also review the fuel pricing structure and the method of assessing foreign exchange losses and subsidies to reduce the overall fiscal deficit.

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Sustaining the New Pay Policy

131. Mr. Speaker, one of the major policy challenges to align the budget since 2010 is the implementation of the Single Spine Pay Policy (SSPP). Government is therefore implementing a number of initiatives to ensure the sustainability of the Single Spine Pay Policy towards our goal of achieving a wage to tax revenue ratio of 35 percent by 2017. These measures include:

Public Sector Wage Negotiations: Mr. Speaker, in line with the conclusions reached at the Ho Forum on the sustainability of the SSPP, wage adjustment for 2014 was moderated through the wage negotiation process resulting in the introduction of 10 percent Cost of Living Allowance (COLA) effective May 2014 to cushion workers. Government will work closely with Organised Labour and Employers’ Associations towards the completion of the 2015 wage negotiations before the presentation of the 2015 Budget to Parliament.

Weaning off Sub-vented Agencies from Government payroll: As at June, 2014, the Sub-Committee on Sub-vented Agencies held preliminary meetings with eight (8) out of the twelve (12) identified Sub-vented Agencies to assess their capacities and readiness to be weaned-off Government subvention. The issues that are being considered include:

I. The need to amend laws that established the institutions;II. Irregular review of fees, levies and charges on the goods

and services they provide, which is preventing them from making sufficient income/revenue;

III. The need to complete on-going projects before weaning-off. These would require Government support.

Recruitment and Replacement: Government is also implementing the following measures on recruitment and replacement to control the wage bill:

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i. enforcement of policy of institutions seeking financial clearance before recruitment and replacement of staff;

ii. imposition of sanctions on heads of institutions who flout the policy on financial clearance;

iii. payment of arrears of newly recruited staff not exceeding 3 months until auditing is done by the Auditor-General for the rest of accrued arrears;

iv. justification of request for replacement of staff by MDAs/MMDAs at the Public Services Commission or the OHCS for initial approval, in addition to a final approval by the Ministry of Finance; and

v. strict enforcement of expiry of financial clearance at the end of each year.

Market Premium: Mr. Speaker, in line with Section 3.5 of the Government’s white paper on guidelines for the determination of Market Premium under the Single Spine Pay Policy, the Fair Wages and Salaries Commission is to determine Market Premium for the attraction and retention of critical but scarce skills in the Public Service within the budget constraints of relevant MDAs. To this end a labour market survey is being conducted to identify critical but scarce skills to form the basis for the determination of Market Premium for such skills. Consistent with Section 4.2 of the white paper, Market Premium shall not apply to all jobs within a particular service classification or be granted across board. The newly determined Market Premium shall come into force in 2015 at which stage the payment of interim Market Premium will cease.

Public Service-Wide Performance Management System: Mr. Speaker, the following activities have so far been completed under the Public service–wide performance management system at the end of June. These are a:

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i. working document or blueprint to guide the roll out of the Public Service-Wide Performance Management Monitoring and Evaluation System;

ii. policy document and proposal for sourcing funds; iii. performance management monitoring and evaluation

instrument;iv. monitoring and evaluation framework; and v. national roundtable conference on productivity.

Categories 2 and 3 Allowances: Mr. Speaker, the ongoing work on harmonization and standardisation of Categories 2 and 3 is at advanced stages. Consistent with the outcome of the Ho Forum on the sustainability of the Single Spine Pay Policy, government has indicated that the implementation of the recommendations by the PSJNC and its sub-committee on the subject matter will be subject to budget constraints.

National Research Facility: Mr. Speaker, in the 2014 Budget Statement and Economic Policy, Government indicated its decision to review the existing system of payment of Book and Research Allowance and replace it with a research and innovation facility with a seed funding of GH¢15 million, which has been created and funded. The Professor Mireku Gyimah Committee was mandated to make recommendations on the operationalisation and establishment of the National Research Facility. They have submitted their report and implementation will commence soon.

Human Resource Management Policy: Mr. Speaker, the Comprehensive Human Resource Management Policy Framework and Manual has been approved by Cabinet. Training of selected public service organizations for the policy framework and manual will begin in August 2014. Furthermore, the Human Resource Management Information System (HRMIS) is being implemented -to strengthen controls around entrance, progression and exit of

49


public service employees, link HR information to budget preparation and payroll processing.

Nine MDAs – Public Services Commission (PSC), Office of the Head of Civil service (OHCS), Local Government Service (LGS), Ghana Education Service (GES), Ghana Health Service (GHS), Ministry of Food and Agriculture (MoFA), Ghana Police Service and Ghana Prisons Service, which constitute about 80 percent of the total workforce in the public service, have been selected to pilot the project.

Payroll Upgrade: The upgrade of the IPPD2 payroll system has been completed and has been used to run the payroll from February 2014 to date. The upgraded IPPD2 has resulted in the correction of inherent errors in the old payroll calculations as well as distortions to individual monthly salaries.

Integration of Payroll: The upgraded payroll system has been integrated into GIFMIS. This will facilitate budgetary control over payroll costs. With this, heads of institutions now have direct responsibility for managing the payroll budget as they do for other items of expenditure.

Electronic Salary Payment Vouchers (ESPV): The ESPV system provides online access to heads of management units and human resource managers to approve staff to be paid for a particular month as well as the amounts to be paid to them. With the 24-hour access to the payroll data, the manager has adequate time to continuously review the payroll report. As at the end of June, the system had been deployed to 73.3 percent of management units in the Greater Accra Region. The validation of the June payroll of these management units has resulted in the deletion of 266 names and blocking for investigation of 2,531 staff. The total estimated payroll cost of the 2,797 staff is GH¢36.7 million per annum. Projecting this result to the entire

50


mechanised payroll and discounting it by 40 percent generates an estimated savings of GH¢414 million per annum or GH¢172.5 million for the rest of the year.

Electronic Pay Slips System (E-pay slip): At the end of June 2014, about 385,000 government employees on the mechanised payroll representing 75 percent with a geographical coverage of 90 percent have registered on the E-Pay slip system. The verbal complaints by employees on salaries have minimized because the system provides information to employees as well as an avenue for channelling of complaints. Registration onto the system is ongoing and it is expected that all staff will be registered by the end of 2014.

Payroll Audit: Mr. Speaker, the Internal Audit Agency conducted a pilot audit on GES staff in the Shai Osudoku District of the Greater Accra Region. This exercise was to validate staff strength and determine whether adequate controls existed over the management of the payroll and personnel records to confirm payroll data. The audit has been completed and it was observed that 40 teachers representing 4.7 percent of the staff strength who were on the GOG payroll were neither on the nominal payroll of their management units nor sighted during the headcount. We have taken action to block the salaries of the 40 teachers whilst measures are being taken to expand the audit to cover other districts and also recover illegal payments.

Biometric Registration: Validation of the current Biometric database is in progress to isolate duplicate names. A total of 1,656 employees data have been identified as duplicates for further interrogation with an estimated payroll cost savings of about GH¢6.5 million. The biometric registration function will be merged with that of the National Identification Authority.

Implementation of Provisions and Review of the PRMA

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132. Mr. Speaker, the approved downward revision of the 40 percent share of the Net Carried and Participating Interest to 30 percent has since been implemented. The retention of the 70 percent allocation of the benchmark revenue for ABFA and 30 percent of the Ghana Petroleum Funds (GPFs) has also been implemented.

133. The Ghana Stabilisation Fund has been capped at US$250 million consistent with Section 23(3) of the PRMA. As at May 2014, an excess of US$176 million had been realized. Out of this amount, US$16 million (GH¢50 million) was lodged into the newly established Contingency Fund and the difference of US$159 million is being used for debt repayment.

134. The legislative review of the Petroleum Revenue Management Act (PRMA) which may affect provisions related to the petroleum benchmark revenue and Public Interest and Accountability Committee (PIAC) membership, among others, is on-going and will be presented to Parliament shortly.

Resource Mobilization Initiatives

135. Mr. Speaker, a number of tax measures were introduced in the 2014 Budget. The status of implementation of these measures are as follows

136. A compliance exercise has started to compare customs data on importers with the domestic records of taxpayers. Additionally, GIFMIS systems data is being used to confirm the accuracy of withholding taxes deducted and paid by withholding agents to GRA. This data will also be used to review domestic tax obligations relating to filing and issuing of tax clearance certificates.

137. These assessments are based on revelations that include discrepancies between what taxpayers import and pay as import duties and the corresponding domestic tax payments. Also either withholding taxes deducted are not being paid to GRA or lower

52


withholding tax rates are being used to calculate the payments. It is also clear that many taxpayers do not declare their TIN or the tax office code where they are registered.

138. Most tax defaulters invited have accepted their liabilities without objection and have started paying their liabilities. Within 2 weeks of the exercise GH¢6.8 million tax liability has been uncovered by the Medium Tax Offices and GH¢20 million from the Large Taxpayers Office.

139. All the statutory compliance and enforcement tools, including tax audits and investigations, are being employed in this exercise by GRA.

140. The Ministry of Finance has since directed the GRA that Tax Identification Numbers and tax office codes should form part of declarations made by taxpayer for external (import and export) and domestic tax transactions.

141. The Customs Division of GRA has put in place additional measures to enforce compliance. Among others, it has set up a task force to mount road blocks to detect and arrest vehicle owners who have not paid the correct taxes on the vehicles. GRA is collaborating with DVLA to detect fake vehicle registration. In that regard, a portal has been created for buyers to text to a short code to verify their vehicle’s status. This exercise is important as revenue from taxes on vehicles form about 18 percent of customs revenue. In the first week of operation, 23 arrests and detention were made in Accra and 18 in Kumasi and Ho.

142. Special warehousing audits are being undertaken. Free zones audit will begin in August. These audits will emphasize on detection of misclassification, mis-description, wrong rates application, and under declaration of quantities and values of goods as well as verifying the tax liabilities of Free Zones enterprises in respect to

53


their income tax, VAT/NHIL and other domestic taxes. Sanctions will be applied on affected importers/declarants. Post clearance monitoring has also been intensified.

143. To improve tax compliance, with the aim of achieving the revenue target for the year, technical assistance has been sought to use a consulting firm and an expert local technical group made up of former GRA staff, private tax experts, staff from the Tax Policy Unit of the Ministry of Finance among others to undertake Corporate Income Tax auditing and reconciliation, Pay As You Earn (PAYE) reconciliation and enforcement, VAT reconciliation and auditing and Customs Valuation and Examination.

144. Specifically, under the Customs Division of the GRA, the exercise will among others include: valuation, with the aim of reducing undervaluation of imported

goods and to confirm import prices, quality and quantities; examination, to confirm the classification of imports for tax

purposes. It will also help confirm quantity and quality of imports under valuation;

rationalization and review of the free zones regime to ensure activities of firms within the free zones align with regulations governing them;

enforcement of warehousing regime to ensure that goods taken into the warehouse are only released on payment of relevant taxes. There will be strict enforcement of accounting of goods stored in warehouse to track leakages of goods into the local market without payment of due taxes; and

development and application of systems to ensure goods in transit actually exit the country with sanctions applied for any infringement of the rules.

145. Mr. Speaker, under the Domestic Tax Revenue Division, activities will include:

54


support in reconciling the input-output relationship in the VAT mechanism throughout the import/manufacturing/wholesale and retail chain to enhance the audit process;

building capacity to ensure monthly withholding taxes by companies are reconciled and payments made on time; and

support in corporate income tax auditing and reconciliation.

Public Debt Management

146. Mr. Speaker, the Debt Management Strategy that Cabinet and Parliament approved acknowledges our limited access to grants and concessional loans after attaining LMIC status. The measures outlined in the strategy are consistent with the anticipated rapid growth in our national output and will lead to higher per capita income in the next decade. In this regard, the strategy seeks, among others to: establish an effective mechanism, through the Ghana

Infrastructure Investment Fund (GIIF), to ensure repayment of loans and grants for commercially viable projects, notably those implemented by State-Owned Enterprises (SOEs);

support the GIIF with an allocation from the ABFA to leverage the capital markets for infrastructure development;

channel grants and concessional loans to finance social infrastructure projects;

channel commercial loans to finance commercially viable projects—with on-lending and escrow mechanisms to ensure their recovery; and

restructure expensive short-term and high-interest bearing debt, including domestic debt with hybrid holdings by extending their repayment period and/or lower interest costs.

Ghana Infrastructure Investment Fund (GIIF)

147. Mr. Speaker, government has started the process of setting up the Ghana Infrastructure Investment Fund (GIIF)—originally proposed as Ghana Infrastructure Fund (GIF) in the 2014 Budget. The purposes

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include the treatment of commercial projects on capital market basis, with recovery mechanisms that will lead to classifying elements of the Public Debt guaranteed by Government as Contingent Liability.

148. Mr. Speaker, we are pleased to note that we are making significant progress on this important initiative, with support from this august House with respect to the consideration of the GIIF Bill. Immediately upon passage, Government will put the necessary institutional structures in place to make the Fund operational.

Self-Financing and On-Lending policies

149. Mr. Speaker, an important element of the Government’s New Debt Management Strategy is to recover loans that are used to support commercial projects (or projects that have underlying fees and charges). To date the Ministry of Finance has undertaken the following actions: consultation with the Attorney General’s Department, which has

since advised that such loans should be approved by Parliament, unless otherwise stated;

completed the drafting of a standard On-lending Agreement for use by all MDAs and MMDAs;

prepared Guidelines on Escrow and Debt Service Account arrangements, with the CAGD advising BOG to open local currency and foreign exchange (US$) Debt Service Accounts; and

organization of meetings with State-owned Enterprises (SOES) on the concept and starting a reconciliation exercise with these entities: to be followed by meetings with MDAs and MMDAs.

150. Mr Speaker, when operational, the process will link conceptually to the GIIF mechanism for all commercial projects—through a revolving fund that can be used to do more projects and alleviate the burden of quasi-public debt on the Budget and taxpayers.

Debt Refinancing and Financing the Capital Budget

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151. Mr Speaker, as noted in the 2014 Budget, a major feature of our Public Debt is their relative short-term nature and high-interest cost. To address this situation, government proposes to use a portion of the 2014 Sovereign Bond to refinance existing short-term domestic debt.

152. Mr. Speaker, following approvals by Parliament and the completion of other procurement processes, the Ministry of Finance has appointed local and foreign experts to assist with the 2014 Bond issue. The advice of the experts will determine the exact period for conducting “road shows” and floating the bond.

Managing Foreign Exchange Losses

153. Mr. Speaker, as part of the debt management policy approved by this House, government set up a foreign currency debt service account to minimize exposures to foreign exchange risks and potential default risks. Government has directed all MDAs/MMDAs to issue contracts and undertake transactions using the local currency, the Ghana Cedi. In cases where this is not possible, approval will have to be sought from the Ministry of Finance.

Public Investment Programme and Public Private Partnership

154. A policy and law on Public Investment Management to provide appropriate legislative framework to guide the delivery and management of public investment have been developed and will be submitted to Cabinet shortly.

155. A Bill to regulate Public Private Partnership (PPP) has been submitted to cabinet for approval and subsequent submission to Parliament.

Boost for SMEs, Stimulus for the Private Sector and Support to Local Industries

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156. Mr. Speaker, Export Development and Agricultural Industrial Fund (EDAIF) has allocated a financial stimulus package for exports, pharmaceuticals, poultry, textiles and garments, SMEs and agro processing sectors to enhance their competitiveness for growth and job creation. During the period under review, 5 pharmaceutical companies that produce essential drugs were identified under this programme and so far, one application has been approved for funding. The other 4 applications are under consideration and funding will be approved shortly. The Ghana Cedi equivalent of US$10 million and GH¢9.7 million has been earmarked to facilitate the stimulus package for the Pharmaceuticals and poultry industries, respectively. An amount of GH¢10 million has also been set aside by EDAIF for the Youth Entrepreneurial Development Programme.

157. Funding has also been released by EDAIF to Irrigation Development Authority (IDA) for preliminary works to expand irrigation facilities for selected and other export crops in areas such as Tanoso, Nasia/Ligba, Okyereko, Tamne, Kamba, Sabare, Keta, Ho (Kpeve) Kpli, Amate and Mprumen to support small holder farmers. As part of government’s measures to reduce rice importation, EDAIF has allocated GH¢20 million to the Ministry of Food and Agriculture to support local rice production. One thousand small scale farmers in Bawjiase and Nsawam will be supported to increase production of fruits.

Financial Sector Reforms

158. Mr. Speaker, Government is currently preparing SOE's for the capital market to enable them access affordable medium to long-term financing. Apart from education and awareness of potential SOEs, government is working with Development Partners to provide rating services for SOEs. The draft ToR has been developed to procure a consultant to assist with the study of the SOE sector to inform a technical support.

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159. H.E. the President engaged Stakeholders in the Mortgage Finance Sector in response to the Housing initiative indicated in the State of the Nation’s address. He has directed the Chairman of the Ghana Association of Bankers to submit a paper on innovative housing financing products to help address the country's housing deficit of approximately 1.2 million. In addition, government is developing a Ghana Housing Finance Initiative (GHFI) which seeks to increase housing supply and develop affordable loan products.

Banking Sector Reforms

160. Mr. Speaker, with the view to consolidating the Banking Act and its related amendments, strengthen the framework for consolidated supervision and address gaps in the Act, the Bank of Ghana has prepared the Banks and Special Deposit-Taking Institution Bill. In addition, Bank of Ghana has prepared the Ghana Deposit Protection Bill which seeks to boost the confidence and trust of financial consumers. The Bills are currently under consideration for submission to Cabinet.

Social Intervention Initiatives

161. Mr. Speaker, the process for the construction of 200 new Community Day Senior High Schools is in progress. The contract of the first batch of 50 schools has been awarded. Cabinet and Parliament have approved a loan to finance the construction of additional 23 Senior High schools and upgrade facilities in another 125 Senior High schools. These projects are expected to improve the quality in secondary education. Under the secondary education improvement project about 10,400 students will also receive special scholarships.

162. Mr. Speaker, government will support 5,651,342 pupils with Capitation Grants and 500,000 pupils will receive free school uniforms this year. Government will also continue to subsidise the

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Basic Education Certificate Examination (BECE) and the West African Senior Secondary Certificate Examination (WASSCE).

163. Mr. Speaker, the Bill on the proposed public university in the Eastern Region will soon be laid before this august House.

164. Right Honourable Speaker, on 10th June this year in Geneva, Switzerland, Ghana was recognized by the International Telecommunication Union (ITU) and given the 2014 World Summit on the Information Society (WSIS) PROJECT PRIZE AWARD in Rural Telephony. Our rural telephony project targets underprivileged and deprived Ghanaian communities with population of less than two thousand people. The latest community to benefit from this intervention was Tuluwe in the Northern region. The following towns are the next in line to benefit from the rural telephony project – Drobonso, Mafia, Boinzan, Agyemadiem, Wansapo, Kwasi Fanti, Aidoo Suazo, Essase, Sekesua, Akarteng among others.

165. As part of this year’s celebration of Girls in ICT Day which is aimed at empowering disadvantaged girls to adopt ICT as a major tool for development, series of activities involving hands-on ICT workshops to encourage the study of technology-related disciplines were held at various Community Information Centres (CICs) in the Eastern Region. 411 girls have so far benefitted from the training and sensitization workshops being conducted at the Community Information Centres. In 2013, 16 more Community Information Centres in Tepa, Kuntanase, Mehame, Mpohor Wassa, Half Assini, Yagaba, Damongo, Zebilla, Hlefi, Dzodze, Tegbi, Akatsi, Mepe etc were completed. This year, funds have been made available for the construction of 21 more Community Information Centres. The beneficiary towns include, Effiduase, Asuogyaman, Twifo Atti Morkwa, Bodi, Ngleshie Amanfro, Pantang, Keta, Battor, Drobonso, Sagnarigu, Nalerigu, Talensi, Pusiga, Lambussie, Wellembelle, Nandom, etc.

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166. The dilapidated PWD warehouses near Kwame Nkrumah Circle are being converted into Business Process Outsourcing Grade A facility with ‘Plug and Play’ features for prospective investors and employees. The project when fully operational is estimated to generate 10,000 direct and indirect jobs.

167. The 780km Eastern Corridor optic fiber project to provide broadband infrastructure for over 120 towns and communities along the route from Ho to Bawku, with link to Tamale from Yendi, is being vigorously constructed. So far over 405km have been covered.

168. The 120 beneficiary towns include: Garu, Nakpanduri, Gushiegu, Nakpachei, Bokpaba, Bimbila, Kpasa, Menuso-Nkwanta, Kadjebi, Jasikan, Hohoe, e.t.c. The Ghana Revenue Authority together with the Controller and Accountant-General’s Department will monitor revenue generation and public expenditure respectively through this strategic infrastructure to ensure optimization of our limited resources.

169. The US$97million eTransform project currently before parliament is expected to enhance eJustice including the Attorney General’s Department, eParliament, eImmigration, eEducation and eHealth among others.

170. Mr. Speaker, works on the first phase of the 110MW Kpone Thermal Plant and the 110MW Tico Expansion project are ongoing and scheduled for completion by December 2014. The Tumu-Han-Wa 161kV Transmission Line Project is 60% complete and is also expected to be completed by December 2014.

171. The Electricity Access rate as at December 2013 was 72% and is now 76%. 202 communities out of a target of 490 communities in 9 regions under SHEP have been completed and connected to the national grid. All 302 communities under the Upper West Electrification project have also been connected to the national grid.

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Furthermore 77 communities under the Northern Regional Electrification project have been connected to the grid out of the 500 communities while 30 communities are ready for commissioning. 90 substations have been completed and customer service connections and are on-going in communities under the Upper East Regional Project.

172. Mr. Speaker, under the Self-help Electrification Project, 40 new communities were connected to the national grid during the period under review in all regions. The Ministry of Energy and Petroleum set up a database of solar lantern promotion and has begun the free distribution of 200,000 solar lanterns under the Kerosene Lantern Replacement project.

173. Under the Rural LPG programme, 50,000 6kg LPG cylinders and cook-stoves produced locally were distributed at Derma in the Tano South District of the Brong-Ahafo Region during the programme launch.

174. Mr. Speaker, over 4,000 used refrigerators were turned in and replaced with new ones under the Refrigerator Rebate Programme. New and realistic rebate amounts (GH¢200 and GH¢300 for 2 star and 3-5 Stars respectively) have been proposed for adoption under the programme.

175. Mr. Speaker, with respect to the LEAP programme, data on 4,674 households is ready to be enrolled. Data collection on 23,000 is on-going. The common targeting Mechanism will be used by the National Targeting office to collect data in the Upper West Region to increase the LEAP households to 150,000. This process will lead to the creation of the Single Registry for the Social Protection called the Ghana National Household Registry.

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Additional Policy Measures

176. Mr. Speaker, the Ministry of Finance in consultation with the National Petroleum Authority (NPA) and the Public Utilities Regulatory Commission (PURC) will submit proposals for a thorough review of the basis (i.e. cost/price build up) for calculating all subsidies and the treatment of forex losses.

177. In the 2013 and 2014 Budgets, the Ministry of Finance decentralised payment of utilities to MDAs and allocated funds in the budget for these payments. This policy will be pursued and implemented fully in the 2015 Budget.

178. With immediate effect, Government will begin the process of enforcing the International Financial Reporting Standards (IFRS) rule with respect to all routine foreign exchange losses involving government transactions. Under this rule, businesses must report foreign exchange losses as legitimate business expenditure in their financial statements and in their GRA tax returns. In this regard, any recoveries made through payments must be reported as a gain.

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SECTION FIVE: REVISED 2014 MACROECONOMIC TARGETS, FISCAL FRAMEWORK AND REQUEST FOR SUPPLEMENTARY BUDGET179. Mr. Speaker, developments in both the global and domestic

economic environment have necessitated a revision of the macroeconomic framework and assumptions underlying the 2014 Budget that was presented to this august House in November, 2013. The current energy challenge, rising inflation and interest rates, as well as exchange rate depreciation pose a strong downside risk to the achievement of the growth target for the year. Based on the revisions to the macroeconomic framework, the 2014 macroeconomic targets have been revised as follows: overall real GDP (including oil) growth revised from 8.0 percent

to 7.1 percent; non-oil real GDP growth revised from 7.4 percent to 6.6 percent; an end year inflation target revised from 9.5 ±2 percent to

13.0±2 percent; overall budget deficit target revised from 8.5 percent of GDP to

8.8 percent; and Gross International Reserves of not less than 3 months of import

cover of goods and services.180. Mr. Speaker, as a result of the revisions made to the

macroeconomic framework arising from developments in both the domestic and global economic environment and the fiscal performance for the first five months of the year, the 2014 revenue and expenditure estimates have been revised to reflect these developments.

181. Mr. Speaker, some of the developments in the domestic economy that have necessitated the revisions to the fiscal framework are as follows:

decline in gold prices;64


challenges in the implementation of some of the revenue measures announced in the 2014 Budget;

slowdown in economic activity due to the energy crisis and exchange rate depreciation;

rising interest rates leading to higher interest costs; implementation of the 10 percent Cost of Living Allowance

(COLA) to Government employees, effective May 2014; slower-than-expected implementation of utility and petroleum

price adjustments; and exchange rate depreciation.

Revisions to Total Revenue and Grants

182. Mr. Speaker, as a result of the exchange rate depreciation, the exchange rate assumption for the Budget has been revised. Consequently, all Budget inflows denominated in foreign currency have been revised upwards.

183. Due to a combination of factors such as the slowdown in economic activity, delays in the implementation of some revenue measures announced in the Budget and the declining gold prices which have impacted negatively on taxes on domestic goods and services as well as taxes on income and property, total non-oil tax revenue have been revised downwards by GH¢948.0 million to GH¢18,712.3 million, equivalent to 16.3 percent of GDP. The revised non-oil tax revenue for the year represents an increase of 38.1percent over the outturn for 2013.

184. Due to the exchange rate depreciation, oil revenue have also been revised upwards by GH¢707.1 million to GH¢2,416.5 million and grants have been revised upwards from GH¢1,130.7 million to GH¢1,390.8 million. The positive ongoing discussions with DPs suggest that they will disburse some commitments.

185. In summary, total revenue and grants for the 2014 fiscal year have been revised upwards from GH¢26,056.5 million to GH¢26,230.3

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million, equivalent to 22.9 percent of GDP. The revised revenue and grants for the year represents an increase of 34.7 percent over the outturn for 2013.

Revisions to Expenditures

186. Mr. Speaker, the estimate for total expenditure and arrears clearance have been revised upwards by GH¢1,331.1 million from GH¢35,027.3 million to GH¢36,358.3 million (31.7 percent of GDP) mainly on account of higher wages and salaries, interest payments, foreign-financed capital expenditures and subsidies.

187. Wages and Salaries have been revised upwards from GH¢8,967.8 million to GH¢9,218.9 million as a result of the COLA that was approved for public sector employees.

188. On account of higher interest rates and the depreciation of the cedi, interest payments have been revised upwards from GH¢6,178.6 million to GH¢7,884.7 million.

189. Due to the exchange rate depreciation, foreign-financed capital expenditure has been revised upwards from GH¢4,525.8 million to GH¢4,748.7 million.

190. Mr. Speaker, as a result of the slower-than-expected implementation of utility and petroleum price adjustments, the provision made for subsidies in the 2014 budget have been revised upwards from GH¢50.0 million to GH¢618.8 million.

191. Based on the revisions made to the estimates for VAT revenue and total tax revenue in general, transfers to the National Health Insurance Fund, the Ghana Education Trust Fund and the District Assemblies Common Fund are estimated to be lower than earlier projected by GH¢21.8 million, GH¢27.4 million and GH¢54.0 million, respectively.

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192. Due to the higher estimated revenue from oil and in accordance with the Petroleum Revenue Management Act (Act 815), transfers to GNPC from the oil revenue have been revised upwards from GH¢423.7 million to GH¢599.0 million.

193. Mr. Speaker, as a result of the estimated higher spending on wages and salaries, interest payments and subsidies, estimated spending on Goods and Services have been revised downwards from GH¢1,550.0 million to GH¢1,085.0 million and domestic financed capital expenditure have been revised downwards from GH¢1,491.5 million to GH¢1,241.5 million.

Expenditure Efficiency Measures

194. In order to ensure achievement of the revised expenditure targets the following procedures will be enforced: the GIFMIS will be used to ensure strict compliance with

established commitment control procedures and apply appropriate sanctions against officers that flout these procedures;

the revised MDAs expenditure estimates resulting from the mid-year review will be strictly enforced to avoid any expenditure overruns;

Ministry of Finance will engage MDAs to ensure that they focus on only critical programmes and operations for the rest of the year;

Ministry of Finance will take measures to strictly link the elements of cash ceilings, releases, payments and reconciliations to minimise delays between releases and payments experienced in the first half of the year. This will also minimise the amount of outstanding payments at CAGD;

enforce guidelines on use of IGFs and improve their contribution to the programme objectives of MDAs and MMDAs; and

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statutory funds must implement their own moratorium on new projects and stick to their core business to ease the pressure on those funds.

Revised Overall Budget Balance and Financing

195. On the basis of the revised revenues and expenditures estimates, the revised 2014 budget will result in an overall budget deficit of GH¢10,128.1 million, equivalent to 8.8 percent of GDP, against the earlier estimate of GH¢8,970.8 million, equivalent to 8.5 percent of GDP.

196. The revised budget deficit will be financed from domestic and foreign sources as well as the excess amount from the stabilisation fund for debt repayment. Foreign financing of the deficit is estimated at GH¢5,936.3 million whilst domestic financing of the Budget is estimated at GH¢3,856.4 million. An amount of GH¢385 million from the Stabilisation Fund will be used to repay debt.

Request for Approval for Supplementary Estimates

197. Mr. Speaker, as mentioned earlier on in this presentation, the aim of this Supplementary Estimate is to seek Parliamentary approval to commit additional resources outlined in this report to fund additional expenditures resulting from the revisions made to the 2014 budget. We are requesting approval for a total amount of GH¢3,196,855,671 as Supplementary Expenditures.

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SECTION SIX: CONCLUSION198. Right Honourable Speaker, notwithstanding the current temporary

challenges, we are poised to achieve our goal of a fully-fledged middle income country with opportunities for all. The medium term prospects of Ghana are bright. The last time I addressed this august House, I highlighted on behalf of H.E, President John Dramani Mahama, key measures to improve the situation. The measures are far reaching and transformational in nature. They are aimed at injecting stability while changing the structure of our economy. As the President noted recently, some of the measures will be painful in the short term but will no doubt be beneficial in the long run.

199. Despite the major setbacks in 2013, we are determined to see through the implementation of these measures and those outlined in this Supplementary estimates as a major step towards the attainment of the President’s transformational agenda. We are incorporating the key and major recommendations of the Senchi Consensus in our overall economic management agenda.

200. We are blessed with rich human and natural resources. We are determined to transition into full Middle Income status and this is supported by bold paradigm shifts such as the enactment of the PRMA, proposals for the establishment of the GIIF, promoting the consumption of Made In Ghana Goods through revamping the Komenda Sugar factory, increase funding for poultry and rice production and increased support to the Pharmaceutical industry and SMEs in general.

201. Mr. Speaker, I beg to move for this august House to approve the 2014 Supplementary Estimates of GH¢3,196,855,671 million in compliance with Article 179 (8) of the Constitution and Standing Order 143 of this House.

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202. Mr. Speaker, the Appropriation Bill covering this Supplementary Estimates will be submitted to this august House in conformity with Article 179 (9) of the Constitution of the Republic of Ghana and Standing Order 144 of this august House.

203. Mr. Speaker we will be relentless and resolute in our efforts to building a better Ghana for all. We trust that in this endeavour we can count on the support of all. God Bless Us All, God Bless Our Homeland Ghana.

204. Mr. Speaker, I beg to move.

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