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

From Page One

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.

Real Sector Developments

Overall GDP Growth

45. Madam Speaker, the provisional real GDP grew by 6.2 per cent in 2008. The sectoral components of the growth were as follows.

Agriculture Sector Developments

46. The agriculture sector, the largest among the three sectors in the national accounts grew by 4.9 per cent against a target of 5.0 per cent.

47. Within the agriculture sector, value addition from the crop and livestock sub-sectors recorded a 5.5 per cent growth.

48. The cocoa production and marketing sub-sector recorded a growth of 5.0 per cent against a target of 4.0 per cent.

49. Forestry and logging grew by 3.5 per cent, while the fishing subsector grew by 3.0 per cent, against the respective targets of 3.0 per cent and 5.0 per cent.

Table 1: Growth in Agriculture Sector Investing in A BETTER GHANA 16 Activity20062007*2008**2008*INDUSTRY9.5 6.6 9.8 8.3 Mining and Quarrying13.3 20.0 7.9 2.0 Manufacturing4.2 2.3- 4.0 4.0 Electricity and Water24.2 15.0- 22.1 16.3 Construction8.2 15.0 13.0 14.0 Source: Ghana Statistical Service* Provisional Outturn ** Target

Industrial Sector Developments

50. Madam Speaker, the industrial sector, grew at 8.3 per cent compared to a target of 9.8 per cent. With the exception of construction which exceeded the growth target of 13 per cent, all the industrial sub-sector components registered lower than projected outturns.

51. The mining and quarrying subsector registered a significant decline in growth rate from 20.0 per cent in 2007 to 2.0 per cent in 2008.

Table 2: Percentage Growth in Industry

Services Sector Developments

52. Madam Speaker, the Services Sector grew by 6.9 per cent compared to 10.0 per cent in 2007. This was the result of a less-than-expected growth in wholesale and retail trade and commodity, social and personal service; and producers of private non-profit services.

53. Within the sub-sectors, transport, storage and communication grew by 10.0 per cent, indicating 2.0 percentage point increase over the target of 8.0 per cent.

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Activity20062007*2008**2008*SERVICE6.7 10.0 7.3 6.9 Transport, Storage and Communication7.2 10.0 8.0 10.0 Wholesale and Retail Trade, Restaurants and Hotels7.5 10.0 10.0 7.0 Finance, Insurance, Real Estate and Business Services9.0 16.0 13.0 13.0 Government Services5.7 8.6 2.7 2.7 Community, Social and Personal Services4.2 5.0 6.0 4.5 Producers of Private Non-Profit Services4.0 5.0 6.0 5.0 Source: Ghana Statistical Service* Provisional Outturn, ** Target

Table 3: Percentage Growth in services

FISCAL DEVELOPMENTS

54. Madam Speaker, the fiscal operations of government in 2008 came under severe stress, resulting in high fiscal deficits. The fiscal deficit excluding divestiture receipts, was GH¢2,557.6 million, equivalent to 14.9 per cent of GDP, while the deficit including divestiture was GH¢1,982.9 million, equivalent to 11.5 per cent of GDP.

55. Madam Speaker, with your permission, I would like to present the details of the fiscal performance for 2008.

Receipts

56. Provisional fiscal outturn for 2008 indicates that total receipts, comprising domestic revenue, grants and other receipts amounted to GH¢9,538.2 million, equivalent to 55.4 per cent of GDP. The outturn was 34.2 per cent higher than the budget estimate of GH¢7,107.2 million and 56.8 per cent higher than the outturn for 2007.

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57. Domestic revenue, made up of tax and non-tax revenue totaled GH¢4,802.4 million. This amount which was equivalent to 27.9 per cent of GDP was also 0.8 per cent higher than the budget estimate of GH¢4,763.2 million and 31.5 per cent increase over the outturn for 2007.

58. Madam Speaker, tax revenue amounted to GH¢4,299.5 million, equivalent to 25.0 per cent of GDP, against a budget estimate of GH¢3,973.8 million, equivalent 24.4 per cent of GDP. This outturn was 29.8 per cent higher than that recorded in 2007.

59. Direct taxes which comprise personal income, self-employed income, company and other taxes such as airport tax, amounted to GH¢1,253.2 million, exceeding the budget estimate of GH¢1,122.4 million by 11.7 per cent. The outturn indicates a 33.3 per cent increase over the outturn in 2007. The good performance in direct taxes can mainly be attributed to the performance of pay-as-you earn tax type which recorded a 16.8 per cent yield higher than the budget target, and 31.1 per cent increase over the outturn in 2007.

60. Indirect taxes, made up of value added, petroleum and excise taxes amounted to GH¢1,532.9 million, marginally below the budget estimate of GH¢1,548.5 million. The outturn was, however, 17.3 per cent higher than the outturn recorded in 2007. The low performance in indirect taxes is mainly explained by the poor performance of petroleum taxes.

61. Madam Speaker, in 2008, domestic VAT recorded a total amount of GH¢417.2 million, 12.1 per cent higher than the budget estimate of GH¢372.0 million. The outturn also indicates a 23.7 per cent increase over the outturn for 2007.

62. Import VAT for the period under review amounted to GH¢670.8 million, against a budget estimate of GH¢628.1 million. The outturn was 35.0 per cent higher than the outturn in 2007.

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63. Petroleum taxes recorded an outturn of GH¢386.2 million, 21.2 per cent lower than the budget estimate of GH¢490.0 million and 4.2 per cent lower than the outturn recorded in 2007. The underperformance of petroleum taxes was mainly a result of the downward revision of some petroleum taxes and levies, as well as a decline in the volume of petroleum products consumed.

64. International Trade Taxes for the period yielded GH¢719.4 million, 3.6 per cent lower than the budget estimate of GH¢746.3 million. The outturn, however, was 24.8 per cent higher than the corresponding figure in 2007.

65. Madam Speaker, National Health Insurance Levy (NHIL) for 2008 amounted to GH¢318.3 million, 33.4 per cent higher than the budget estimate of GH¢235.4 million and 23.5 per cent higher than the outturn recorded in 2007.

66. During the 2008 fiscal year, receipts from non-tax revenue, amounted to GH¢433.9 million, equivalent to 2.5 per cent of GDP. Of this amount, GH¢308.1 million was retained by the MDAs while GH¢125.8 million was lodged into the Consolidated Fund. The outturn for total non-tax revenue was 2.3 per cent higher than the budget estimate and a 28.3 per cent increase over the outturn recorded in 2007.

67. Total grant disbursements for 2008 amounted to GH¢820.8 million, against a budget estimate of GH¢853.4 million. The outturn was 4.3 per cent lower than that for the same period in 2007, on account of low project grant disbursements. Project grants were 22.0 per cent below the budget estimate of GH¢514.8 million, but 15.3 per cent higher than the outturn for 2007. Programme grants recorded GH¢257.2 million, 28.0 per cent higher than the budget estimate of GH¢201.0 million. Multilateral HIPC Assistance recorded an outturn of GH¢95.2 million.

68. Madam Speaker, during the period under review, total programme and project loans amounted to GH¢668.2

Investing in A BETTER GHANA 20

million, against a budget estimate of GH¢621.5 million. Project loan disbursements were GH¢514.9 million, 6.1 per cent higher than the budget estimate of GH¢485.3 million and 36.2 per cent higher than the outturn in 2007. Programme loans amounted to GH¢153.3 million against a budget target of GH¢136.2 million.

69. Divestiture receipts for the year amounted to GH¢998.4 million, comprising GH¢983.0 million from the sale of 70 per cent of Ghana Telecom shares and GH¢15.4 million from WESTEL.

70. Exceptional Financing of the budget, which is predominantly debt relief from our bilateral partners, amounted to GH¢77.5 million.

Payments

71. Madam Speaker, total payments for 2008, comprising discretionary and statutory payments, amounted to GH¢9,538.2 million, significantly higher than the budget estimate of GH¢7,107.2 million. The details are outlined below.

Statutory Payments

72. Total statutory payments which include interest payments, amortization, transfers to households, and statutory funds, amounted to GH¢2,356.5 million, equivalent to 13.7 per cent of GDP, against a budget estimate of GH¢1,728.9 million, equivalent to 10.6 per cent of GDP. The outturn indicates a 36.0 per cent increase over the outturn for 2007.

73. External Debt Service for the year amounted to GH¢694.7 million, against a budget target of GH¢293.2 million and an outturn of GH¢439.0 million recorded in 2007. Principal and interest payments were GH¢497.4 million and GH¢197.3 million, respectively.

Investing in A BETTER GHANA 21

74. Domestic interest payments, amounted to GH¢481.9 million, 36.8 per cent higher than the budget target, and a 49.6 per cent increase over the outturn recorded during the same period in 2007. The outturn was equivalent to 2.8 per cent of GDP. The higher than budgeted expenditure on domestic interest payment was due to higher than projected domestic borrowing and increases in the cost of borrowing.

75. Transfers to households, in the form of pensions, gratuities and social security contributions by Government on behalf of public sector workers, collectively amounted to GH¢361.5 million, against a budget estimate of GH¢318.0 million. The outturn represents a 25.5 per cent increase over the 2007 outturn.

76. Madam Speaker, during the year, transfers to the Road Fund and Petroleum-related Funds amounted to a total of GH¢105.7 million, against a budget target of GH¢132.7 million. Of this transfer, GH¢102.9 million was disbursed to the Road Fund.

77. In 2008, the District Assemblies Common Fund (DACF) received an amount of GH¢252.1 million, 7.6 per cent higher than the budget target. Transfers into the Ghana Education Trust Fund (GETFund) amounted to GH¢204.1 million, against a budget target of GH¢163.9 million. The over performance was as a result of the higher than projected outturn for tax revenue and VAT receipts.

78. Transfers into the National Health Insurance Fund (NHIF) was GH¢256.5 million, 8.9 per cent higher than the budget target of GH¢235.4 million.

Discretionary Payments

79. Madam Speaker, total discretionary payments amounted to GH¢7,181.8 million, equivalent to 41.7 per cent of GDP, against a budget target of GH¢5,378.2 million, equivalent to 33.0 per

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cent of GDP and an outturn of GH¢4,348.2 million, equivalent to 31.1 per cent of GDP recorded in 2007.

80. Personal emoluments (item 1) for the period amounted to GH¢1,987.6 million, equivalent to 11.5 per cent of GDP. The outturn was 27.4 per cent higher than the budget estimate of GH¢1,559.9 million and 40.1 per cent higher than the outturn for 2007. The wage overrun was mainly the result of higher than anticipated salary increases to public sector workers, as well as higher than programmed number of public sector workers.

81. Administration expenditure (item 2) amounted to GH¢412.7 million against a budget estimate of GH¢385.6 million. The outturn was 7.0 per cent higher than the budget estimate and 0.7 per cent higher than the outturn in 2007.

82. Service expenditure (item 3) registered an outturn of GH¢235.7 million, against a budget target of 120.6 million. This was mainly due to payments for some expenditures that had not been budgeted for.

83. Madam Speaker, Total Investment Outlays (Item 4) for the year amounted to GH¢1,002.9 million (5.8 per cent of GDP), about 34.5 per cent higher than the budget estimate of GH¢745.8 million. Of this amount, expenditures directly tied to the proceeds from the sovereign bond issued on the international capital markets amounted to GH¢581.9 million, (3.4 per cent of GDP).

84. Foreign-financed capital expenditure in 2008 amounted to GH¢916.4 million, 8.4 per cent lower than the budget estimate of GH¢1,000.2 million, but 26.2 per cent higher than the outturn in 2007.

85. Multilateral Debt Relief Initiative (MDRI) and Highly Indebted Poor Country (HIPC) financed expenditures totaled GH¢278.9 million, against a budget estimate of GH¢183.2 million. Of this, GH¢185.2 million was expended on HIPC-related projects and programmes.

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86. Madam Speaker, an amount of GH¢467.2 million was spent from the Reserve Fund for the purchase of crude oil for the Volta River Authority (VRA), and the payment of judgment debts emanating from court orders against the government.

87. Other transfers, made up of retention of internally-generated funds, safety net for deregulation, subsidies for lifeline consumers of electricity and tax exemptions, amounted to GH¢831.5 million, against a budget target of GH¢679.2 million.

Clearance of Arrears and Liquidation of Commitments

88. During the period under review a total amount of GH¢142.3 million was paid in respect of clearance of arrears and liquidation of commitments carried over from 2007. The outturn for the period was made up of road arrears of GH¢46.9 million and non-road commitments of GH¢95.4 million.

Overall Budget Balance and Financing

89. Madam Speaker, the overall budget balance excluding divestiture, amounted to a deficit of GH¢2,557.6 million, equivalent to 14.9 per cent of GDP. This compares with a budget estimate of a deficit of GH¢929.2 million, equivalent to 5.7 per cent of GDP.

90. The overall budget balance including divestiture, showed a deficit of GH¢1,982.9 million, equivalent to 11.5 per cent of GDP compared with a budgeted deficit of GH¢653.4 million, equivalent to 4.0 per cent of GDP.

91. The overall budget deficit including divestiture was financed from both domestic and foreign sources. Net Domestic Financing of the budget amounted to GH¢1,152.7 million, equivalent to 6.7 per cent of GDP, while financing from foreign sources totaled GH¢830.2 million, equivalent to 4.8 per cent of GDP. Of this amount GH¢581.9 million, equivalent to 3.4 percent of GDP was a drawdown on the receipts from the sovereign bond issued in 2007 on the international capital markets.

Investing in A BETTER GHANA 24 -15.00%-10.00%-5.00%0.00%Overall Budget Balance excluding Divestiture Overall Budget Balance include Divestiture Overall Balance Outturn Target

DEVELOPMENTS IN PUBLIC DEBT AND AID MANAGEMENT

92. The policy of public debt management in Ghana is to source funds at the minimum cost possible within a prudent level of risk, to meet government financing needs while ensuring that public debt is maintained at sustainable levels over the medium to long term.

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