Date: July 11, 2009, 7:39 am


PRESS STATEMENT ON THE 2009 POLICY AND BUDGET STATEMENT BY THE CENTRE FOR BUDGET ADVOCACY (CBA) OF THE INTEGRATED SOCIAL DEVELOPMENT CENTRE (ISODEC)


Madam Chairperson, members of the panel, members of the press, invited guests, ladies and gentlemen,

 

Over the years the Centre for Budget Advocacy (CBA) of the Integrated Social Development Centre (ISODEC) has been issuing press statements on the national budget after it has been read. This year we continue the tradition in the hope of contributing to a better understanding of the budget for informed public discussion towards the improvement of the quality of life of Ghanaians.

Our comments will examine the presentation of the budget, its format, participation in the budget and a casual glance at the performance of the 2008 budget and proposals for 2009.

 

We also wish to serve notice that this is only our initial observations.  We and our networks and coalitions will examine this budget thoroughly using the lenses of the economic, social and cultural rights framework (ESCR) to see the extent to which the state of Ghana has fulfilled its obligations to its citizens.  We will seek audience with the government to discuss how to improve the situation.  Should our engagement fail, we will move to the next stage of issuing an alternative report to the United Nations.

 

Madam chair, an effective and efficient economy requires a stock of goodwill, trust and acceptance and obedience to the law as well and the presence of institutions that provide social stability and security.  Any permutations of policy that threatens this core of society will land the country into irreversible and irreparable damage as we have witnessed in other countries.

 

Madam chair first let me pause here to commend the government for seeking to run a transparent, lean, efficient and effective government.  We observe that the number of ministries has been reduced.  We however see that the number of ministers is growing. Maybe the proposed constitutional review will look at capping the number of ministries.  Any changes should require parliamentary approval We also observe that the President has promised to allow the freedom of information Bill to see the day of light.  His Excellency has also promised that Contracts and agreements on natural resources like solid minerals, petroleum, forests and marine will be transparently disclosed.  We however recommend that all these natural resources management be brought under the discipline of the extractives industry transparency initiative (EITI).  Immediate steps should  be taken to review and adjust the fiscal regime for the extraction of these resources to ensure that government take,  in times of high prices, especially solid minerals sector increases as prices increase.  This will help generate revenues to reduce our dependence on external loans and provide resources to invest in the productive and social sectors

 

 

 

1.Global Context

According to the International Labour Organisation about 50 million jobs would be lost worldwide this year. In the USA, about 600,000 jobs are being lost every month. Industrial production has fallen by 10% and car production is 50% lower than a year ago[1]. The World Bank also estimates that global production would drop by 15%, whilst global trade would see a drop it has not experienced in about 80 years It is envisaged that the global financial crisis would translate into a number of difficulties for Africa in the year 2009. These include a possible shortfall in aid, remittances and other private capital inflows as well as demand for exports.   These happenings have direct and indirect negative implications for our constituents (poor, women, children, marginalized) in society. 

 

As most of you are aware the response to the above varies from country-to-country but there is no doubt that this is a very serious matter and thus bigger than any one country to handle by itself. It also means that those required assistance to exercise their basic rights and entitlements to enable them contribute positively to economic growth and benefit from growth now need more and not less protection.   

 

2.The basis for the 2009 budget

The basis for the 2009 budget of the NDC government can be looked at from three fronts. The first is an initial attempt to translate ideas spelt out in the NDC manifesto into reality. The second is an attempted response to the three “F�?s: that is the global financial, fuel and food crisis. Thirdly and more generally, the budget seeks to tackle current socio-economic challenges facing the economy of Ghana. This three-pronged effort is expected to be driven by the four main themes espoused by the NDC manifesto and subsequently contained in the 2009 budget, namely;

 

  1. Transparent and accountable governance
  2. Strong economy for real jobs
  3. Investing in people
  4. Expanding infrastructure for growth

 

Economic policy seeks to pursue three key targets: economic growth, stability, and equity. In the short run these three are contradictory but in the long run they are complementary. The task of economic policy and thus the challenge of a government is therefore to weave these into a coherent policy package. In the case of the NDC government, it has stated that it will pursue a social democracy agenda and therefore how it balances this challenge is informed by this orientation.    This is so given the global challenges of the “triple crisis of food, fuel and finance�? referred to above and the high expectations of Ghanaians.

 

The above could have been transparently articulated in an annual Fiscal Strategy Paper outlining the fiscal assumptions, targets and spending priorities for the fiscal year to guide government expenditure policy.  This would have enabled us to interrogate the social democracy agenda, especially how trade-offs and choices were made on our behalf in the budget. 

 

3.Budget Process and participation of citizens and their elected representatives

Madam Chairperson, in the past citizens input into the budget process, even though limited, had become established.  Adverts were placed in the newspapers requesting for inputs from the general public into the annual budgets. Unfortunately, this process was truncated this year during the preparation of the 2009 budget.  We assume that the short nature of the transition might have led to this situation. We call on the government to formalize the public input into the budget process. The budget process should even go beyond request for input from the public to the situation where:

  1. The public is involved in MDAs policy reviews and budget hearings and debates in parliament on the budget. 
  2. There is adequate time for parliament to engage (constituents) in process
  3. Parliament Amendment powers (ability of parliament to make amendments to budget) are secured in legislation.  We hope the proposed constitutional review will consider increasing the powers of the legislature to have full amendment powers over the national budget.  This however must go with enhanced capacity for the legislature and their staff, especially budget and planning, research, monitoring and evaluation.  You cannot exercise oversight over an entity if you do not have superior mandate and superior information.
  4. The budget process should be publicized to enable stakeholders to participate effectively
  5. The right and access to information bill is passed into law to enable citizens make informed input into the budget and public finance including helping to reduce corruption and mismanagement of public resources.

Participation in the macroeconomic framework

Citizens’ inputs and access to information and participation in the macroeconomic arena, especially labour and business is critical.  In the face of current environment, broad-based participation in economic policy is critical if the government is to be able to mobilize all of us behind the wheel of development and progress.  

Currently the macroeconomic framework is predetermined (Government has little to do with targets since they’ve been already set in loan and grant facilities with donors and money sellers). A Key weakness of this approach is the  lack of Parliamentary and CSOs involvement in determining this framework (and hence its targets) before Ministry of Finance signing on to them.   In times of crisis like we currently face, the government needs to consult widely and deeply to build synergy and or consensus for the macroeconomic framework and any other major reform so that we can all own and live or die by it.  The Ministry of Finance should therefore consult CSOs, business, labour and parliament adequately to make those documents Ghana owed. 

 

4.Presentation of Budget

Generally the budget should be presented in a non-technical language and in a format that is reader-friendly and conveys all information to allow citizens to understand and use it as a guide to life decisions.  Over the year, however, we observe that:

  1. There is limited analysis (budget document mainly descriptive and not analytical enough), it should show links, assumptions and risks.  Maybe the fiscal strategy paper will help to lay these out upfront;
  2. The language is very technical and therefore needs to be a citizens budget, targeting Ghanaians;
  3. Budget should start with what quality and quantity of jobs will be created and how many and what quality infrastructure will be created for which the president is seeking mandate to raise and spend public resources.

 

5.Promoting Transparency and Accountability

One of the four broad thematic areas mentioned in the budget targets transparency and accountability in governance. Though the Open Budget Index (OBI) mentioned Ghana (having scored 49%) among countries ‘providing some information’ on certain vital documents relating to the budget, we believe a lot more needs to be done. Certain key documents relating to budget formulation, implementation and monitoring should not only be made publicly available but also released on time. Examples of these documents are pre-budget statement, mid-year review, yearend report and audit report.  Some countries now routinely provide an annual fiscal strategy paper

 

6.Content of the 2009 budget

6.1.Macroeconomic Targets

Madam chair, a key purpose of macroeconomic policy is to ensure not just macro stability, but more importantly to ensure that the social framework of norms, rules and values are protected.  This can be done by ensuring that fiscal and monetary and well as exchange rate and employment policies do not lead to too high a budget deficit or too low a budget deficit or too high or too low an inflationary target

6.1.1Economic Growth:

2008 planned to grow the economy at 7% but this ended slightly below expectation at 6.2%.  For 2009, the target is 5.9%. 

Growth, though important, is not enough to ensure poverty reduction, especially where the distribution of assets, like land and credit, and others are unequal.  Both the source of growth and how this is distributed are critical for quality of life of the poor, marginalized and vulnerable in society.   By IMF (2003) calculations for every I % rise in real GDP growth poverty incidence falls by 0.34 % and 0.28 for extreme poverty for the period 1991/92 to 1998/99 but is not as good as countries in similar circumstances as Ghana.  For poverty to be drastically reduced there is the need not only for higher growth but equally important is the quality of growth and its equitable distribution.

 

Our expectation is that given the inequality of growth, especially over the structural adjustment period leading to some regions (three northern regions and central) gaining less from growth as well as food crop farmers and women, government will adopt a “distribution-with-growth and stability development strategy�?.  This will bring these disadvantaged groups and regions back into production and allow them to also enjoy the benefits of growth

6.1.2.Inflation and budget deficit

In 2008 government  planned to run a budget deficit of between 4 and 5.7% of GDP but ended with a deficit of 14% of GNP.  Inflation was targeted at between 6 and 8% but ended at between 16.5 and 18.1%.  Madam chair, we all know that too high inflation is not good and too  large a deficit is not good.  But what are the acceptable levels?

What drives inflation in Ghana?  Is it excess money supply (monetarists view) that causes inflation or it is inflation that cases excess money supply?  Or is it real side factors like low growth of productive sectors and low capacity utilisation? (structuralists view).  These are questions that have been part of the debate on inflation in Ghana for some time now. 

Our analysis of the Ghanaian economy for the period between 1980 and 2000 revealed that three factors drive inflation in Ghana; 1) broad money, 2) wholesale food prices and fuel prices with the broad money being the main driver.

 

In terms of the macro side of things, the monetarists’ arguments are supported by the data while in terms of the real side; the structuralists arguments are supported by the data.  See details in Egor (2004).  It therefore requires policy interventions from both sides to credibly deal with inflation and the stability of the economy, especially given the fact that industry is demand-constrained and agriculture is supply-constrained.  In the face of the current crisis, this approach is even more urgent.

Our work, Egor (2004) also shows that government is the main spender in the economy.  Given this role of government as

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