Six key pointers from Ghana’s Mid-Year Budget
Fulfilling his constitutional requirement Ghana’s finance minister, Ken Ofori-Atta has presented a mid-year budget review statement to parliament. It comes against a backdrop that includes positive elements like continued single-digit inflation at 7.8%, 5 months import cover (USD 11 billion) and USD 954 million in FDI from January to June, a 71% increase over the same period last year. The main concern continues to come from the debt position. The debt-to-GDP ratio stands at 76.6%[1] and warnings on debt sustainability have come from the World Bank, IMF, the Bank of Ghana and Fitch[2].
Headline provisions from the statement include: a deeper explanation of where funding will come from for the GHS 100 billion (USD 16.7 billion) Ghana COVID-19 Alleviation and Revitalization of Enterprises Support (Ghana CARES) ‘Obaatanpa’ Programme; the lack of a request for a supplementary budget; no imposition of new fiscal measures; an ambitious scheme to create one million new jobs by 2025 and the award of contracts to construct more than 2,200 km of roads at a cost of GHS 7.8 billion (USD 1.3 billion)
Below we look at six strategically significant decisions/omissions emerging from the 2021 budget review.
1. Establishment of National Vaccine Institute
USD 25 million in seed funding has been committed to establishing a National Vaccine Institute. The impact of such an institution, only now in the conceptual phase, may be limited when it comes to the short or even medium-term provision of Covid-19 vaccines. Nevertheless, it will be welcomed by the country’s already buoyant domestic pharmaceuticals industry. A report valued the industry at USD 616 million in 2020[3] and it is a key supplier of medication to the sub-region. The private sector has been vocal in its desire to be part of the growth of vaccine manufacturing. Similarly, the added investment in cold chain facilities to be able to handle vaccines that need extreme refrigeration is unique amongst Ghana’s peers and is indicative of the efficiency and preparedness that saw Ghana become the first country globally to receive vaccines under the Covax facility earlier this year.
2. Widening role of GNPC
One of the major criticisms of the state-owned petroleum company, Ghana National Petroleum Company (GNPC) was that it was negating the section of its mandate that called for active participation in the oil sector. It holds the state’s interests in oil projects but has never taken up a role in exploration or production. Ofori Atta has announced that the GNPC subsidiary, GNPC Explorco will seek to acquire assets and offshore blocks with the aim of becoming an operator in its own right. It is understood that one potential target may be the Pecan field currently operated by Aker Energy – it was forced to delay initial production during the onset of the Covid 19 pandemic.
3. Security Spending
The security situation in the sub-region has deteriorated significantly over the past 12-18 months and there had been a concerning lack of visible response from the Ghanaian government. Attacks in northern Cote d’Ivoire, a worsening of the situation in both Mali and Burkina Faso and a marked increase in piracy attacks in the Gulf of Guinea all present a real threat to commercial and public activity within Ghana. So, the announcement of new spending on intelligence and military will be welcomed. But accompanied by concerns about the judicious use of the intelligence apparatus. Ghana was among the countries to have purchased the controversial Pegasus software from Israel that worldwide seems to have been used to primarily intercept the communications of government detractors. There have also been accusations that former political vigilantes allied to the ruling New Patriotic Party (NPP) have been subsumed into the National Security framework following the disbandment of political vigilante groupings in Ghana. They purportedly do the bidding of the NPP and answer only to politicians, not their supposed commanders.
4. No update on Development Bank of Ghana (DBG)
One of the key lights on the horizon for Ghana’s banking sector has been the planned launch of a domestic development finance institution (DFI), to be known as the Development Bank of Ghana (DBG). It could help with access to credit for the private sector which stood at 10.9% of GDP in 2020 according to the World Bank, compared to 21.1% for neighbours Cote d’Ivoire. The long-touted date for the launch of DBG has been the end of July. However, it received only a cursory mention in the statement and no firm launch date was given, nor was an update on the progress towards its opening. This may also be being watched closely in Brussels as the European Investment Bank has committed to finance of EUR 170 million for the establishment of DBG, the most it has given to any banking project in Africa.
5. Progress/Funding of National Cathedral Program
Ghana is a deeply religious nation but, even so, the 2018 announcement of the construction of a national cathedral[4] was met with consternation from numerous corners. The announcement in Ofori-Atta’s statement that the construction is ongoing and that there is a target to get one million Ghanaians to contribute GHS 100 (USD 16) monthly to fund its construction has again raised eyebrows. To quote a retired politician from the opposition National Democratic Congress (NDC); “this is purely a legacy project. There is nothing wrong with legacy projects but, for countries in positions such as ours, they simply must contribute to our development agenda, this cathedral has the potential to do the opposite[5].” Whilst any other issue is unlikely to galvanise a similar level of public interest, the potential GHS 100 million (USD 16 million) monthly that could be mobilised could be better directed elsewhere.
6. Macro-risks remain
With no new taxes imposed, no supplementary budget requested, no slowdown in spending and revenue targets already not being met, there is considerable risk of an increase in borrowing. Efforts are being made to bolster revenue collection such as the establishment of Revenue Assurance and Compliance Enforcement (RACE) within the Ghana Revenue Authority. However, they are unlikely to bear significant fruit before the end of this year. The deficit is therefore likely to land in excess of the government target 9.5% this year[6]. Much of the planned expenditure and growth is contingent upon the Covid-19 situation remaining stable. However, in recent weeks, Ghana has seen a marked upward trajectory in both reported cases and hospitalisations. With just over 1% of the country fully vaccinated, the potential for the Delta variant to cause significant disruption does exist and the planned acquisition of extra vaccines is unlikely to come in time to make any significant difference to the current wave.
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[1] According to the Bank of Ghana, the IMF disputes this and puts it at 79%.
[2] Fitch recently downgraded its outlook for Ghana to negative
[3] Ghana Pharma Market & Regulatory Report. Pharmaceutical Export Promotion Council of India (July 2020)
[4] Designed by world-renowned architect David Adjaye who has Ghanaian heritage and to be constructed at a cost of USD 100 million.
[5] Referring to potential conflict between Christian denominations over the use of the cathedral that initially emerged over its funding.
[6] The IMF forecasts 13.9% of GDP.
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