Government’s fiscal stabilization is on course - Finance
Minister
Accra, June 16, Ghanadot/GNA - Dr
Kwabena Duffour, Minister of Finance on Tuesday gave a
positive assessment of the economy, saying confidence was
gradually being restored due to the positive impact of
Government's fiscal policies, macroeconomic stability
measures and injection of external resources.
"The first five months of 2009 has witnessed a positive
primary fiscal balance, gradual stabilization in the cedi
exchange rate, sound, well capitalized and fairly liquid
financial sector, decline in the movement of the rate of
inflation and improvement in the trade balance, all as a
result of the prudent fiscal and macroeconomic measures
being implemented," he told members of the Association of
Ghana Industries (AGI) at a luncheon in Accra.
This, Dr Duffuor said had raised confidence in the economy
and paved the way for positive negotiations with development
partners for financial support, adding that negotiations
with multilateral institutions such as the World Bank would
soon yield dividend.
Ghana is expecting an inflow of $1.2 billion budget and
project support from the World Bank while the IMF could also
provide balance of payment support of $1 billion.
Dr Duffuor said provisional data on the implementation of
the 2009 budget showed that government's fiscal
stabilization strategy was on track.
The overall balance shows a deficit of GH¢608.9 million,
equivalent to 2.8 per cent of Gross Domestic Product.
"This shows that the deficit target of 2.8 per cent of GDP
for the first five months of 2009 was successfully
achieved," he said, adding that there had been gradual
decline in the exchange rate of the cedi.
The rate of depreciation of the dollar/cedi rate at the
inter-bank market fell from 5.1 per cent in January this
year to 1.4 per cent at end of May. In the Forex bureau it
went down from 6.8 per cent in January to 0.8 per cent in
May 2009.
The Finance Minister said inflation had stabilized in the
last two months but expected to go up in June as a result of
the adjustment in petroleum prices and assumed a downward
trend thereafter.
However, Dr Duffuor said despite the positive fiscal balance
there were inherent risks that posed difficulties in
realizing fiscal consolidation.
On fiscal risk, Dr Duffour said inadequate delivery of basic
public services such as water, electricity and sanitation
tended to increase the cost of doing business, limit access
to markets and reduce efficiency and in the process
undermined the opportunity for economic growth.
He cited the weak financial management capacity of the
public sector, making it difficult to control, monitor and
evaluate the effectiveness of government spending as one of
the major risks that government had to deal with.
Other areas of concern are poor performance of the state
owned enterprises (SOEs), which has resulted in huge losses
and accumulation of excessive debts that pose significant
risks to economic consolidation.
He said ineffective public sector wages was another major
risk that had the potential of derailing the economy.
Dr Duffuor said the growing wages and salary bill was not
linked to productivity and that "while cost increase on one
side there is no commensurate increase in the services that
the expenditure buys."
The high wage bill, he said, also added to the fiscal
rigidity and made the budget more vulnerable to shocks as
necessary adjustments became difficult.
Another risk Dr Duffuor said was the fiscal risk associated
with outstanding payment arrears from 2008 and commitments
running into millions of cedis for which inadequate
provision was made for in the 2009 budget.
He said this included the 2008 expenditure arrears and
commitments for projects and services rendered, arrears
related to fuel subsidies, monies owed to commercial banks
and judgment debts for cancelled contracts.
Dr Duffuor said the energy sector had risks related to
unreliable power supply for industries resulting from the
deteriorated infrastructure and obsolete transmission and
distribution networks.
This, he said, had adversely affected economic growth
particularly commercial and industrial activities, which
according to him could undermine the achievement of growth
targets.
Dr Duffuor said despite the enormous challenges that the
risks presented, government was in position to manage them
and bring fiscal consolidation for the growth of the
economy.
Mr Tony Oteng-Gyasi, President of AGI, stressed the need for
intervention in meeting the financing needs of Small and
Medium Scale Enterprises, which were unable to access funds
for growth.
GNA
