Full speech, Budget 2009 statement
Minister of Finance and Economic Planning, Dr. Kwabena Duffuor, March 5, 2009

Introduction

1. Madam Speaker, it is with great pleasure and humility that I present to this august House the 2009 Budget Statement and Economic Policy of the National Democratic Congress (NDC) government on behalf of His Excellency, President John Evans Atta Mills.

2. Madam Speaker, in pursuit of its social democratic agenda to promote „A Better Ghana‟ in which real opportunities for gainful employment prosperous enterprise and social and economic welfare for all our people, the NDC Government has identified four broad themes by which the challenges confronting the national economy can be addressed.

3. Job creation will require the expansion of infrastructure, investing in Ghana‟s human capital and providing transparent and accountable governance.

Economic Performance

4. Madam Speaker, in his State of the Nation Address, H.E. the President highlighted the fundamentals of our current economic situation and predicament which include a large fiscal and trade deficits higher than expected rate of inflation, an increase in the national debt stock, and the depreciation in the value of the Cedi.

5. We also have to contend with low levels of productivity in agriculture, industry and manufacturing among others.

6. Externally, the world economy has been experiencing a severe credit crunch alongside the recent global energy and food price hikes.

7. Madam Speaker, the general effects of these developments were that MDAs had expenditure over-commitments.

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Government Commitment and 2009 Policy Thrust

8. Madam Speaker, the implication of the domestic and external state of affairs briefly described above is that 2009 will be very challenging for the new NDC administration. The Government is nevertheless committed to its pledge of providing improved social services to uphold the living conditions and dignity of the average Ghanaian.

9. The policy thrust of the 2009 budget is to reduce the current budget deficit to sustainable levels, improve the exchange rate regime, and work towards the attainment of single digit inflation.

10. The main strategies to be used will include enforcement of fiscal discipline, significant reduction in unproductive recurrent expenditure and improvement in revenue generation (including dividends from state owned enterprises). Infrastructure development in the roads, energy and water sectors will be accelerated and expanded whilst providing security and justice for all.

11. These measures will be pursed within a process of monitoring and evaluation of all MDA activities to ensure the effective implementation of government policies and the achievement of objectives and set targets.

12. The savings so achieved will be channeled into projects beneficial to our people.

13. Madam Speaker, we will also focus attention on some key expenditure in our budget in an effort to rationalize them and infuse some level of efficiency and value for money. These will include a critical look at the wage bill administration, the management of statutory funds, and the profitability, financial situation and relevance of state-owned enterprises and subvented organizations.

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14. In that regard Madam Speaker, Ghanaians should expect a significant change in the management of the economy. Managers of government institutions, especially state-owned companies, will be held to a high level of accountability.

15. Government will also partner the private sector to provide the necessary enabling policy environment and incentives for both enterprise growth and the efficient and effective delivery of public services.

16. Madam Speaker, we believe that these strategies will lead to the delivery of improved and better social services and generate sustainable employment opportunities within a secure environment for the people of Ghana.

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SECTION TWO: WORLD ECONOMIC DEVELOPMENTS AND OUTLOOK

The World Economy

Developments in 2008 and Outlook for 2009

17. Madam Speaker, the world economy witnessed three major shocks between 2007 and 2008: a global financial crisis, and upward spiral in food and fuel prices. These shocks have led to decreases in business investments and in consumer confidence, especially in the developed economies. For these reasons, the world economy turned sharply into a downturn in 2008.

18. The result, according to the World Economic Outlook Update, is that world economic growth is projected to be 3.4 per cent in 2008 down from 5.2 per cent in 2007. This downturn is mostly led by the advanced economies, which have been hit the hardest by the financial and economic crisis. Growth rate in the developed economies is projected to decline from 2.7 per cent in 2007 to 1.0 per cent in 2008.

19. Growth prospects are worse than expected not only in the United States of America and Europe but also in major emerging market economies. In the United States of America and Canada, economic growth rates in 2008 are projected to decrease to 1.1 per cent and 0.6 per cent respectively from their respective 2007 rates of 2.0 per cent and 2.7 per cent. In the Euro area, rate of economic expansion is projected to decrease by more than 50 per cent to 1.0 per cent from its 2007 rate of 2.6 per cent.

20. Madam Speaker, the developing economies also have not been spared the global economic slowdown. Growth in developing economies including emerging economies is projected to be 6.3 per cent in 2008 down from the realized growth rate of 8.3 per cent in 2007.

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21. For now, Africa seems to have been hit only mildly by the global financial crisis because of the limited level of integration of most African financial markets into those of the rest of the World. Even then, the rate of growth in economic activities slowed down in 2008 and is estimated to be 5.2 per cent in 2008, down from the 6.2 per cent growth rate in 2007.

22. In developing countries in Asia, the rate of economic expansion declined from 10.6 per cent in 2007 to an estimated rate of 7.8 per cent in 2008. China‟s economic growth slowed to 9.0 per cent in 2008, its lowest in seven years from the 2007 rate of 13.0 per cent. The story is similar in India. India‟s growth rate is estimated to decrease by 2.0 percentage points in 2008 from the 2007 rate of 9.3 per cent.

23. A similar pattern of slowdown in economic activities in 2008 characterized countries in Latin America, Eastern Europe and Russia. The only region of the world that was not projected to experience a lower rate of economic expansion in 2008 relative to 2007 rate is the Middle East, because of the large revenues from oil exports following the record high price of oil during the first half of 2008.

24. The general economic downturn has affected world trade. The rate of growth in the volume of world trade in goods and services decreased from 7.2 per cent in 2007 to a projected rate of 4.1 per cent in 2008. The rates of growth in both exports and imports declined in both developing and advanced economies.

25. Madam Speaker, with the global financial crisis still deepening, the prospects for World GDP growth in 2009 are diminishing. World output growth is projected to be just 0.5 per cent in 2009, down from 3.4 per cent in 2008.

26. Emerging and developing economies are projected to grow by 3.3 per cent in 2009, down from 6.3 per cent in 2008. For the developed economies, output is expected to contract in 2009 by 2.0 per cent. This would be the first annual contraction since World War II. This is expected to decrease the volume of world

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trade in 2009, leading to a decline in exports from developing economies.

Inflation

27. Madam Speaker, global inflation soared in 2008. This was mostly due to the high food prices, which worsened in 2008, and the record high price of oil during the first half of 2008.

28. In advanced economies, inflation rate increased from 2.1 per cent in 2007 to a projected rate of 3.5 per cent in 2008. In developing economies, inflation rate increased from 6.4 per cent in 2007 to a projected rate of 9.2 per cent in 2008.

29. Madam Speaker, the high rate of inflation of 2008, especially the high food prices put a big burden on consumers in general and the poor in particular. Inflation generally eats away real incomes of consumers, and expenditure on food takes the biggest portion of the poor‟s budget. The World Bank estimates that the cost of higher food and fuel prices to consumers in developing countries will be equal to about US$680 billion in 2008.

International Commodity Prices Oil

30. Starting the year with about US$90 per barrel as the average price in January 2008, international price of crude oil continued to soar till it hit a record high of US$147 per barrel in July. This led to increases in costs of production of firms, reinforcing the global economic slowdown of 2008. However, in response to the slowdown, crude oil prices started to ease during the later part of 2008. By December 2008, average monthly price of crude oil had fallen below US$50.

31. International crude oil price is expected to stay low in 2009 relative to 2008 because of the collapse in world growth, which is expected to lower global demand for crude oil.

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Cocoa

32. Madam Speaker, the international price of cocoa was high in 2008. On the London International Futures and Funds Exchange (IFFE), the weekly average price increased from £1,089 for the first week of January 2008 to £1,701 for the last week of June. From this period onwards, the price took a downward trend reaching £1,288 in the second week of November before surging again to reach £1,763 by the end of December 2008.

33. Like most international commodities, the projected decline in the rate of growth of the world economy is expected to have a negative impact on cocoa‟s world market price, albeit not to the same degree of that projected for crude oil price.

Gold

34. Madam Speaker, the world market for gold was very favourable in 2008. The realized international average weekly price started the year at $861.96 and reached as high as US$997.80 in the third week of March. Even though it started to ease a little thereafter, the weekly average price was $868.98 by the end of December 2008.

35. The nature of the international market for gold in 2008 was caused by demand pressures. The international financial crisis caused the dollar to depreciate and dimmed the prospects for the other major world currencies, causing investors to increase the gold holdings in their investment portfolios.

Implications for Ghana

36. Madam Speaker, like other developing economies, the downturn in the advanced economies in 2009 is expected to have negative effect on Ghana‟s exports and, thus, our external balance. Weak demand for exports and weak commodity prices imply less export revenue. In addition, expected shortfalls in remittances, a slowdown in donor support and private capital inflows as a result of the global recession are all likely to have negative impact on the Ghanaian economy in general and on public finances in particular. These therefore call for vigilance and

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careful monitoring of further developments in the World economy so that corrective actions could be taken quickly when the need arises.

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SECTION THREE: DEVELOPMENTS AND OUTLOOK IN THE WEST AFRICA SUB-REGION

Developments in West African Monetary Zone (WAMZ) Countries

37. The macroeconomic performance of the WAMZ countries was generally satisfactory during the first half of the year. Real GDP growth remained strong, on the back of robust performance in the agricultural sectors of member countries. Inflationary pressures, however, surged on account of the global energy and food price shocks. Fiscal outcomes deteriorated partly reflecting the fiscal costs of the measures implemented to mitigate the burden of the external shocks. External sector performance was mixed, to the extent that although most countries recorded marked growth in gross external reserves, the steep rise in import prices led to the decline in reserves in terms of months of imports they could cover.

38. Information available from the half-year data for 2008 compiled by the West African Monetary Institute (WAMI) indicate that the weighted average real growth for the region was 6.7 per cent which was 0.6 percentage points above the 2007 growth. In terms of country performance, Ghana, Nigeria and Guinea sustained their growth performance while the Gambia and Sierra Leone recorded reduced growth rates. At the sector level, Agriculture and Service sectors were the main contributors to growth.

Monetary Developments

39. Broad money (M2+) growth accelerated in the Region as credit to the private sector expanded markedly in all countries with the exception of Guinea that registered a deceleration. Credit to Government, however, fell across the member countries. The Net Foreign Assets (NFA) in the Zone also grew at a slower pace during the review period.

40. In response to the threat of high inflation occasioned by rising food and energy prices, most Central Banks in the Zone

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increased policy rates during the review period. However, with the exception of The Gambia, real interest rates in all countries were negative during the period.

External Developments

41. Exchange rates in the Zone remained relatively stable during the first half of 2008, with some countries experiencing real appreciation of their currencies. Ghana‟s exchange rate depreciation was significant relative to the corresponding half of 2007.

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SECTION FOUR: MACROECONOMIC PERFORMANCE FOR 2008

OVERVIEW OF ECONOMIC PERFORMANCE

42. Madam Speaker, in the 2008 Budget Statement and Economic Policy of the Government of Ghana, the following targets were set:

a real GDP growth of at least 7.0 per cent;
an end period inflation rate of between 6.0 and 8.0 per cent;
an average inflation of 7.0 per cent;
accumulation of gross international reserves equivalent to at least three months of import cover; and,
an overall budget deficit including divestiture of 4.0 per cent of GDP and a deficit excluding divestiture of 5.7 per cent of GDP.

43. Madam Speaker, all of these targets were missed. The provisional results for 2008 indicate that:

real GDP grew by 6.2 per cent;
inflation rate as at end December 2008 was 18.1 per cent;
average inflation for the year was 16.5 per cent;
gross international reserves reduced to the equivalence of 1.8 months of import cover for goods and services; and
the overall budget deficit excluding divestiture hit a high of GH¢2,557.6 million, equivalent to 14.9 of GDP. Adding divestiture receipts, however, reduced the deficit to GH¢1,982.9 million, equivalent to 11.5 per cent of GDP.

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Activity20062007*2008**2008*AGRICULTURE4.5 3.1 5.0 4.9 Crops and Livestock3.5 4.0 5.5 5.5 Cocoa Producation and Marketing2.0 3.5 4.0 5.0 Forestry and Logging2.6 2.5 3.0 3.5 Fishing15.0 5.0 5.0 3.0 Source: Ghana Statistical Service* Provisional Outturn, ** Target

44. Madam Speaker, in order to quickly stabilise the economy, the Ministry of Finance and Economic Planning intends to deepen collaboration with the Bank of Ghana to ensure better formulation and implementation of fiscal and monetary policies.

 

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