Ghana mid-year budget: Three key points
Finance Minister Ken Ofori-Atta read his mid-year budget statement yesterday pledging that he and the president ‘know how to bring the economy back’ from the ravages of annus covidus. To put some figures on that, projected growth for 2020 is now 0.9% per annum, as against 6.5% for 2019. That’s still significantly faster than the forecast for Sub-Saharan Africa as a whole; but it is implies a fall in per capita GDP and is accompanied by an 11.4% of GDP budget deficit (more than double the programmed cap). Three key takeaways from Ofori-Atta’s account of where Ghana is, how it got there and where it is going next include:
A. The role of oil in the economy
Unsurprisingly oil, which in less than ten years grew to become Ghana’s second largest source of export revenue after gold and ahead of cocoa, is amongst the hardest hit. To quote the minister there has been a significant impact on exploration, appraisal and production activities including delays to anticipated projects valued at USD324 million. Bear in mind, prior to COVID-19 Ghana had hoped to see oil production grow from around 120,000 barrels per day (bpd) to 400,000 bpd in the medium term, and to 1 million bpd over the long-term. The minister fears that recent developments ‘could weaken the critical role of the oil and gas sector in propelling economic growth’. Q1 2020 figures underpin his concerns: nominal growth for the services, agricultural and industrial sectors were 9.5%, 2.8% and 1.5% respectively compared to 7.2%, 2.2% and 8.4% for the same periods in 2019. In other words, in the first three months of the year, services and agricultural sector growth actually accelerated in nominal terms, while industrial sector growth (which includes oil and gas) collapsed. The impact on government finances is immediate. According to government, oil revenue shortfalls are the main explanation for revenue targets being missed by 26%.
What was missing: Ghana is the largest producer of gold in Sub-Saharan Africa. Gold is Ghana’s single largest source of export earnings. In recent months, international gold prices have jumped from USD1,500/Oz to almost USD1,900/Oz at the time of writing. If we look forward, electric vehicles and otherwise ‘greening the economy’ are important pillars of reflationary plans for trading partners such as China and Germany. There was no mention of gold or of mining at all in the budget statement.
B. Digitisation and formalisation
Increasing digitisation of the Ghanaian economy was an appreciable fact even before COVID-19 forced the world indoors. Between 2014 and 2017 alone, the number of people with a digital payment account jumped from 13% to 39% of adults. And now, according to the budget statement: (a) ICT experienced growth of 46.5% in 2019, (b) government assistance is being distributed via mobile money platforms and contributing to Tax Identification Number registration going up from 110,000 per month to 815,449 per month in the six or so weeks between 19 May 2020 and 30 June 2020. Separately, Ghana’s interbank payments system announced an 81% year on year growth in digital transactions, 444% growth in transactions across mobile networks and from mobile wallets to bank accounts. Local accounts in recent weeks of rapid take up of digital services from business owners and the attention being given to the cost and availability of data by consumers/voters chime with the minister’s narrative. Namely, that “now more than ever the possibilities of the digital economy has been brought to the fore”.
What was missing: As one might expect, especially in an election year, the attention has been placed on the success stories. Not just sector growth but implementation of programmes like Ghana’s digital addressing system. Of course, there are instances where the tally is mixed. See for example continuing complaints about the customs clearance systems.
C. Shape of the state
Economic growth of 0.9% per annum as anticipated would mean falling per capita income for Ghanaian people. They will need support. From short-term interventions like continued free power for the poorest, free water generally for the next three months and a reduction in the communications services tax from 9% to 5%, to longer-term measures like establishing a GHS2 billion guarantee facility for business and job retention, and creating an unemployment insurance scheme, the government has given the rough shape of its 2020-2023 planned response. The ruling New Patriotic Party (NPP) holds a substantial parliamentary majority and will not struggle to get bills through the house, but then general elections will take place in December 2020. Per usual, it is mainly a two-horse race between the NPP and the National Democratic Congress (NDC), which held power from January 2009 until January 2017. Programmatic differences between the two are slimmer than those of personality, network, patronage and policy implementation. The NDC’s main criticism of the budget thus far, is that (a) they view it as an electioneering tool rather than an economic plan in earnest, and that (b) it does not go into sufficient detail on spending plans.
What was missing: There are no provisions for unemployment benefits in Ghana today. The idea is as revolutionary to the functioning of the Ghanaian state as digitisation is to the formalisation of the economy. It warrants considerable thought. This includes managing the expectations and interests of internal and external constituents. The latter now include the multilateral creditors that Ghana has had to turn to heavily in light of COVID-19. Both might be more comfortable with the proposed transformation in the size and function of the state if and when key outstanding questions about Ghana’s fiscal position have been resolved. Among them, disbursement of COVID related support, transparency around tax waivers and energy sector power purchasing agreements.
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