Date: June 1, 2012, 1:52 pm


2012 BUDGET IS BOLD AND AMBITIOUS BUT


Press Release on the 2012 Budget Statement by the Institute for Fiscal Policy (IFP) of the Integrated Social Development Centre (ISODEC).

 Presented on 18th November 2011

  

The following represents the views of the Institute for Fiscal Policy (formerly Centre for Budget Advocacy) of ISODEC based on a preliminary assessment of the 2012 annual budget and economic policy statement of the Government of Ghana. The budget is the single most important tool that impacts greatly on all segments of our population. It is a tool, not only for wealth creation but  more importantly for the allocation and re-distribution of the wealth created as a result of our collective enterprise. Viewing the budget from a pro-poor class position our preliminary assessment is on the basis of its adherence to the noble principles of equity, inclusion and social justice. 

The Overall Performance of the Economy in 2011 and Outlook for 2012

It is remarkable that despite the global ramifications of the financial, food, climate and fuel crisis, developing and emerging countries, including Ghana have largely managed to weather the storm. The general improvement in the macroeconomic environment in Ghana is commendable.  Indicators including growth in overall output, consumer price index, exchange rates, international reserve position and the current level of budget deficit point to progress in macro-economic management. What we insist on is a firm demonstration on how these positive developments translate into improving the welfare of the average Ghanaian.

In this regard we call on government to take steps to track and publish progress in the creation of sustainable employment in every sector of the economy, including projected targets for 2012. This is extremely important, given that the focus of the government’s budget in the last couple of years has been job creation and continues to be the same for 2012.

Government’s intention spelt out for the 2012 financial year seems to be bold and ambitious. This is not bad in itself as we expect our leaders to demonstrate courage and urgency in addressing the development needs of the country. The challenge however is the fact that the success of 2012 budget implementation seem to be dependent on 4 key elements as follows:

·         Favorable commodity prices on the global market

·         Favorable performance of the oil sector to sustain revenue inflows

·         Strong domestic revenue performance including the successful roll-out of new revenue measures and

·         Successful disbursement/inflow of contracted loans (especially the loan from the China Development Bank)

 

The first two seem likely, judging from trends in the global market and developments in the oil sector in Ghana. Investors, including central banks are turning more to gold in a bid to diversify their portfolio in an increasingly volatile market. Such demand pressures are likely to sustain commodity price levels in the coming year. Developments in Ghana’s emerging oil sector indicate positive prospects as far as production and revenue inflow is concerned. Success in sustaining a strong domestic revenue performance and the roll out of new initiatives would largely determine the achievement of the 2012 budget.

Real GDP Growth

The 9.4 percent overall real GDP growth target for the 2012 financial year is largely consistent with our expectation as it reflects an easing of the double digit growth projection for the current year. Achievement of this target would however be driven significantly by the performance of the non-oil sector, which is projected to grow at 7.6 percent in real terms.  The next financial year would provide an important test on  whether the economy is susceptible to the proverbial “Dutch Disease” – a phenomenon where other sectors become uncompetitive and succumbed to an emerging oil sector. Already, the abysmal performance of the manufacturing sector provides a cause for concern. We do not want to believe Ghana would want to succumb to what UNCTAD reported in this year’s report, describing Africa as portraying de-industrialization trend on the continent.  The manufacturing sector has equally greater contribution to make towards accelerated growth for job creation and the eventual transformation of the structure the economy.  Hence the need for this sector to be given a booster though special policy incentive packages.

 Fiscal Policy (Revenue Mobilization and Expenditure prioritization)

We welcome attempts to shore up domestic revenue mobilization with initiatives to maximize benefits from the natural resource sector. Even the International Monetary Fund, in its October 25th press release on its mission visit admits that Ghana’s “… taxation is low in comparison with peer countries”. The effective implementation of the new revenue measures would be important in providing the much needed revenue to fund the government’s planned investment in infrastructure in an election year. It would also be important in the face of an envisaged decline in concessionary financing terms due to Ghana’s middle income status. Adequate support must be given to the Ghana Revenue Authority in view of the immense responsibility placed on the Authority, while efforts must be intensified to reduce leakages, tax evasion and tax avoidance.

2012 is an election year. Expenditure prioritization would be important to ensure value for money. For any new infrastructure project a Cost Benefit Analysis would help anchor choices on ability to generate economic activity and not merely amassing political capital. Events in the past have shown that such vote-buying strategies do not always work. Ghanaians are discerning. Rather than beginning a spending spree on new projects, we encourage the completion of existing economically viable projects.

As far as strengthening public financial management, we do expect government to support the work of the Audit Report Implementation Committees in all Ministries, Departments and Agencies (MDAs). What is the use of an audit if the recommendations are left unattended to as what revealed in some MDAs during the public hearing of the Public Accounts Committee. So far, we have not seen any clear indication or reference to the subject in the 2012 budget.

Agriculture

Ghana’s agriculture sector is not only declining in terms of its contribution to GDP but also in terms of the performance of the non-cocoa sector. Given that it plays a major role as the sector that employs the largest share of the active workforce, efforts towards improving productivity and diversifying the sector away from a few export crops would be necessary in improving incomes and promoting a broad-based growth of the economy. Opportunities that exist in non-traditional crops such as shea nuts must be explored as it would also have equity implications for growth and poverty reduction. A strong agricultural sector would also help create the necessary forward and backward linkages between the sector and other sectors of the economy (including the manufacturing sector). This would also be important in propelling a structural transformation of economy. 

Allocation to the Ministry of Food and Agriculture has experienced an 18.365 percent nominal increase over that of 2011.

A cursory look at the sources of total allocation to MOFA reveals that the sector would be dependent on donor funding for the 2012 financial year. The donor component accounts for 43.702 percent of total allocation. The dependence of external sources for Ghana’s agriculture sector could be detrimental to the growth of the sectors given that the current global melt-down could trigger the inability of Development Partners to effectively honor their financial commitments.

 

Education

Budgetary allocation to the sector represents 20% of total Government of Ghana planned expenditure for 2012. The figure shows a 4 percentage point decline as compared to the 2011 allocation of 24%. It is however important to note in recent times, actual expenditure as a percentage of GDP has exceeded the global Education for All target of 6 percent. Initiatives in the 2012 budget to remove school under trees, increase the number of children fed at schools as well as the free uniform and textbook policies are welcome. What must receive priority attention is the need to arrest worrying educational quality outcomes as seen in the recent BECE results. While the number of students qualifying into SHS has reduced, the trend raises greater concern when analyzed at a disaggregated level (i.e. district level performance).

 

Health

The level of spending in the health sector for 2012 shows an increasing trend as against the declining trend over the years, which is very encouraging.  Allocations for 2012 also shows a considerable increase in investment (assets) of 6.6% above the 2011 investment allocation of 1.04% to the sector.  Although wages still dominate the expenditure items, it has declined from 95.6% to 90.3%.

Transport services to health facilities particularly helps in reversing maternal and infant mortality in most deprived areas. Once again the procurement of ambulance services is a step in the direction but the 2012 budget has failed to clearly state how much of such ambulances were procured in 2011 and to which facilities such services are intended for in 2012.

Although Government has outlined some measures to improve access to quality maternal, neonatal, child and adolescent services, there still remains a lot to be done for maternal and child health as far as achieving MDGs of reducing maternal and child mortality is concerned. The 2012 Budget did not clearly state how Government intends to bridge the yawning gap of achieving the MDGs for maternal health considering the fact that some policies like training TBAs is necessary for improving maternal health. 

  

 

Poverty and Social Protection

Government expenditure allocation on Poverty Reduction is targeted at the under-privileged. Preliminary assessment shows a decrease in allocation of resources towards social protection and poverty reduction.

The 2012 allocation, representing 23.7% of total expenditure allocation, which is intended to support the provision of basic education, primary health care, poverty-focused agriculture, rural water, feeder roads and rural electrification, has decreased minimally over the 2011 allocation of 24.3%.

Other allocations intended for social welfare, public safety, drainage, human rights, environmental protection, rural housing, legal aid, decentralization among others have suffered cutback. Expenditure allocation has decreased from 10.6% in 2011 to 6.12% in 2012 of total government expenditure allocation. This has the potential of adversely affecting Ghana’s march towards the achievement of the MDGs.

CONCLUSION

The 2012 budget generally presents some bold initiatives to boosting Ghana’s infrastructure status. In a World Bank Policy Research Working Paper, Foster and Pushak (2011) argue that Ghana could be adding more than 2.7 percentage points to its annual growth rate if its level of infrastructure was raised to that of its middle income peers. One major challenge to deal with in this regard is strengthening revenue mobilization efforts in the 2012 financial year, with greater focus on domestic sources.

Although the 2009 to 2012 budgets all place emphasis on growth and job creation, its implementation remains to be seen in concrete ways and  specifically targeting employment generation sources to which some boosters must be provided for this to happen. Furthermore, efforts must be aimed at transforming the structure of the economy from a primary commodity- dependent -base to a highly diversified and high value multi-product economy. For example, the 2012 budget could have capitalized on the favorable macroeconomic climate to initiate steps in the mining sector for value addition to our gold instead of remaining net exporters of raw gold. These would have provided a better outlook on maximization of benefit from the extractive sector rather than the current focus on revenue maximization from the sector.

 

MRS. PHILOMENA JOHNSON
INSTITUTE FOR FISCAL POLICY



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