November 22

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DAILY HERITAGE THURSDAY, NOVEMBER 22, 2018
03
2019 budget
commendable
RENOWED ECO-
NOMIC Think Tank,
the Institute for Fiscal
Studies (IFS) has, after
a critical examination
of the 2019 Budget Statement presented
by the Finance Minister,
Mr Ken Ofori-Atta, commended
the 2019 Budget.
The IFS, however, pointed out
key areas government could focus
on to achieve the needed economic
transformation that Ghanaians
crave for.
At a post-budget press conference
held at the Institute’s Head
Office in Accra, Leslie Dwight
Mensah, Senior Economist and
Research Fellow at the IFS
pointed out that though the Institute
supports the prominence
given infrastructure in the 2019
Budget, it believes there is a need
to anchor Ghana’s infrastructure
development on a long-term national
infrastructure plan.
The Research Fellow said the
long-term national infrastructure
plan “will identify, cost, and prioritise
the country’s infrastructure
requirements on a long-term basis
to meet the demands of a modern,
middle-income economy.
The infrastructure plan itself
should be based on a long-term
national development plan.”
Finance Minister
Presenting the 2019 Budget Statement
in Parliament, Mr Ofori-Atta said
infrastructure, both hard and soft, was
the backbone of economic development
and growth, as well as a source of jobs
and wealth for a majority of people.
“In a rapidly changing global marketplace,
traditional infrastructure like electricity
and power, transport and logistics,
water and sanitation, roads, highways,
and railways have combined with new,
mostly soft infrastructure like digitisation
of government services to enable
emerging economies like ours leapfrog
the development path to prosperity.
“Mr Speaker, this Government, is
committed to embarking on an inte-
• Says IFS, but cautions govt to
anchor planned infrastructure
dev. on long-term national plan
grated infrastructural development programme
across the country that will move goods, food
items and people from one location to another that
will create jobs and prosperity and ensure value for
money for Ghana as well as position Ghana as the
transportation, energy and logistics hub in the region.”
The Finance Minister, for instance, said “Cabinet
had given approval for the establishment of a
Home-Based Airline with private sector participation
to provide regional and inter-continental services
for efficient movement of people, goods and
services as well as promote tourism. Strategic investors
will be engaged, and the airline is expected
to commence operations in 2019.”
Commenting on the government’s elaborate
plans on infrastructure, some of which funding are
not captured in the budget, the IFS said “we also
want to draw attention to a recurring practice in the
country whereby various amounts which are borrowed
to finance infrastructure are not captured in
the budget. The increase in such extra-budgetary
borrowing activities has important fiscal and debt
sustainability implications for the country.
“There is the need therefore to control the
growth of these activities and to widen the coverage
of the fiscal accounts to incorporate these
transactions. We believe that it would be appropriate—and
indeed prudent—to align these borrowings
strictly with the budget cycle. The IFS intends
to examine this issue more closely to come up with
necessary reform proposals to enhance fiscal transparency
and long-term debt sustainability.”
Below is the full presentation by the IFS:
Institute for Fiscal Studies
Post-2019 Budget Press Statement
Introduction
Ahead of the reading of the 2019 budget, IFS
presented its views and expectations in key areas in
a press conference. After the reading, the Institute
has assessed the budget in light of its expectations.
The Institute is once again meeting with the press
to comment on issues it deems pertinent. The presentation
will cover:
Economic Growth and Job Creation;
Fiscal Policy Stance and Realism of the
Projections;
Domestic Revenue Mobilization;
“There is the need
therefore to control
the growth of these
activities and to
widen the coverage
of the fiscal accounts
to incorporate these
transactions...”
Expenditure Control and Rationalization;
Infrastructure Development and financing; and
Exiting IMF Financial Program and Legislating
Fiscal Responsibility.
Our statement is intended to contribute to the
public discussions as well as the debate that will
take place in Parliament prior to the approval of
the budget.
Economic Growth and Job Creation
It is recalled that Economic Growth and Job
Creating was the centrepiece of IFS’ pre-budget
press briefing. The views expressed therein reflected
those articulated by the Institute in a paper
titled: “Strong Economic Growth and Significant
Reduction in Unemployment: The Critical Issues to
Address in Ghana’s 2019 Budget” and published in
October.
Among others, the paper pointed out that unemployment
has become the most serious challenge
currently confronting Ghana. To ensure
significant creation of jobs and minimise the problem
of unemployment and its attendant socioeconomic
ills, IFS suggested that strong broad-based
economic growth, driven by agricultural growth
and transformation, industrialization, and the closing
of the country’s infrastructure gap, is critically
needed. The Institute is, therefore, happy—and, indeed,
feels vindicated—to see that the 2019 Budget
has included agricultural modernization, industrialization,
and infrastructure development in its strategic
pillars, alongside improving efficiency in
revenue mobilization and protecting the public
purse.
IFS noted that recent growth had been driven
largely by the extractives sectors, but since activities
in those sectors were highly capital intensive, they
had not created enough jobs. The nonoil sectors,
particularly agriculture and manufacturing, which
have higher capacities to generate jobs, however,
had virtually stagnated in the past few years and
this had compounded the unemployment problem
in the country. The Institute, therefore, welcomes
the attention being given these sectors in the
budget. The agricultural sector should be aided by
scaling up irrigation facilities, extensions services,
storage and preservation facilities, and marketing
facilities. Regarding industrialization, the 1D1F policy
could be the fulcrum to achieve major transformation
of the economy so as to reduce our
dependence on imports and increase employment.
The 1D1F policy, however, needs careful planning
in terms of the type of products, factory sizes, locations,
ownership, management, and the supplychain
(or raw material base).
These decisions should be informed by Ghana’s
previous industrialisation experience and international
best practices. To ease the burden of financing
the 1D1F policy on the public purse, privateand
PPP-funding options should be considered. In
terms of direct creation of jobs, NABCO and the
YEA programs may be important interventions to
help alleviate youth unemployment, in particular.
However, the capacity of the state to create large
numbers of jobs on a sustainable basis is always
tempered by issues of efficiency, productivity and
budgetary costs. Ideally, the private sector should
be spearheading growth and job creation. The
Ghanaian private sector, however, remains weak,
bogged down by a myriad of bottlenecks, including
overly regulatory burden, poor infrastructure, high
taxes, high cost of credit, high cost of public services
and the general adverse effects of macroeconomic
instability. It is important for government to
continue to enable the private sector to drive
growth and durable job creation by addressing the
numerous bottlenecks mentioned above that continue
to inhibit the sector.
Fiscal Policy Stance and Realism
of the Projections
The 2019 budget indicates a policy change from
fiscal consolidation to fiscal expansion. This is reflected
in the projected increase in the budget
deficit to 4.2% of GDP from 3.7% of GDP in
2018, and follows a period of consolidation in
which the deficit was also reduced from 6.5% of
GDP in 2016 to 4.8% in 2017.The policy change is
seen in the fact that government spending for 2019
has been projected to increase significantly. In
2019, government spending is projected to increase
by a whopping GH₵15.62 billion, up from the increases
of GH₵5.78 billion in 2017 and GH₵5.88
billion in 2018. If realized, the increase in government
spending in 2019 will be the highest in absolute
terms in the Fourth Republic. In percentage
terms, the projected increase in government expenditure
of 27.0% in 2019 is the highest since 2012.
While this policy reversal was not exactly anticipated
by IFS, it did not come as a surprise to the
Institute because the consolidation process had seriously
constrained fiscal policy and affected economic
growth. Therefore, it was just a matter of
time that some policy stimulus would be injected
into the economy.
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