The budget for the year 2003 was read yesterday afternoon by Dr Yaw Osafo Maafo, Ghana’s Minister of Finance. In my opinion the comprehensive budget has shed a significant amount of political polishes, and gone down to dealing with the bolts and nuts that should set Ghana on the path for growth.

GDP

Provisional figures indicate an overall GDP growth rate of 4.5% in consonance with the target of 4.5%. This compares favorably with real growth of 4.2% in 2001.

Main drivers accounting for the growth (as per provisional estimates) are 4.4% expansion in output in the Agricultural sector, 4.7% in Industry, and 4.7% in services

Fiscal Developments

Total receipts of ?15,447.0 billion as against ?16,359.7 billion

Net Domestic financing of budget was ?2,331.7 billion compared to budget of ?139.0 billion. This is composed of government borrowing of ?1,035.5 from the banking sector and ?1,296.3 billion from the non banking sector. Accordingly the reason for the increase is to meet shortfalls in expected foreign inflows.

Payments

Total Payments amounted to ?15,447 billion compared to a target of ?16,359.7 billion made up of statutory payments of ?6,676 billion and discretionary payments of ?8,771 billion. Under statutory payments external debt service amounted to ?2,915 billion (?2,888 billion) and domestic interest was ?2,210 billion (against budget of ?2,136.1 billion). The increase in domestic debt service is as a result of accrued interest resulting from restructuring of the Tema Oil Refinery (TOR) debt into government bonds.

Overall Balance

Overall budget registered a deficit of 6.3% of GDP (against budget of 6. % ). Domestic primary balance registered a surplus equivalent to 2.1% of GDP (against budget of 3.1% of GDP)

Monetary Developments

Prime rate remained at 24.5% throughout the year. Average lending rate declined from 44.0% to 38.5%. Savings deposit rates declined from an average 14.5% to 13.0%, whilst the 91day deposit rate fell from 23.3% to 18.0%. 12month deposit rate remained unchanged at 20.0%

Inflation

Inflation moved from 21.3% in December 2001 to 12.9% in September 2002 to 15.2% in December 2002. Average yearly inflation declined from 32.9% in December 2001 to 14.8% in December 2002.

Exchange rate Developments

The cedi depreciated by 13.2% (from ?7,321.94/$1.00 at the end of 2001 to ?8,439.82/$1.00) at the end of 2002 as against 3.7% at the end of 2001. On the forex bureax (open) market the depreciation for 2002 was 15.7%

Balance of Payments

Estimated total exports was $2,063.9 million (against budget of $2036.8 million).

Cocoa receipts were $463.4 million against budget of $469. 0million. Volumes fell from 310,476 tonnes in 2001 to 305,000 tonnes in 2002.

Trade balance recorded a deficit of $641.2 million(11.2% of GDP) against a projected deficit of $821.6 million (14.0% of GDP). In 2001 the trade deficit was 20.6% of GDP.

Current Account Balance

2002 (excluding official transfers) recorded a deficit of $204.6 million (3.6% of GDP), including official transfers there was a marginal surplus of $15.6 million (0.3% of GDP). In 2001 deficit on current account (including transfers) was $324.5 million (6.1% of GDP).

Capital Account Balance

A net deficit of $47.6 million as against a projected inflow of $247.3 million. 2001 recorded a surplus of $392.2 million

Overall Balance of Payments

A surplus of $39.8 million as against a projected deficit of $145.9 million. 2001 registered a surplus of $8.6 million. External reserves thereby increased by $157.8 million representing 2.0 months imports cover

External Debt Developments

Total medium and long term external debt (including IMF obligations) was $6,131.3 million. Of this $331.6 million was to the IMF and $5,799.7 million was to multilateral., bilateral and commercial creditors). 68% of this is to multilateral creditors whilst 26% is due to bilateral creditors and 6$ is to commercial creditors.

2003 Goals

► Real GDP growth of at least 4.7%

► Reduction in inflation rate from 15.2% to 9.0% by end of 2003

► Overall budget deficit equivalent 3.6% of GDP

► Domestic primary budget surplus of 3.0% of GDP

► Gross official reserves equivalent to 2.3 months of imports and services.

My Comments

On another note, the minority opposition NDC, through its minority spokesman on finance, former deputy Minister of Finance, Hon Moses Asaga has described the budget as a killer budget because it fails to address the allegedly increasing living hardships that the economy has bestowed on the people of Ghana in recent times. He further inferred that the ruling NPP has failed the people of Ghana on its campaign promises.

I find it preposterous that anyone, politician or otherwise would believe that in two years the NPP would wave its magic wand and there would be milk and honey flowing on the paved streets of Accra. A rather heated debate on the popular Front Page radio program (Joy Fm 99.7) almost went ballistics when it degenerated into a verbal slugfest between participants Hon Moses Asaga, Mr Osei Akoto (Special Assistant to the Minister of Finance).

Certainly the opposition NDC who habitually look for any reason to berate the NPP for anything, once again couldn’t let pass the opportunity, and of course the NPP side accordingly had to remind the NDC of the legacy they left behind and how it has made recovery such a daunting challenge.

Doubtlessly, Accra has seen some further progress since 2000. A clear indication of confidence in the economy is the sudden surge of shops in the urban areas. Woolworth, the giant South African retailer opened two shops in Accra and in Osu, the main shopping line and Accra’s burlesque answer to London’s Oxford Street, the shops have expanded significantly.

Coca Cola the big bottler has invested significantly and other brewers such as Guinness have indicated their intentions of investing some more in Ghana. But there has been a lot of noise that the ordinary man will be worse off with the 95% increase in petrol prices more than a month ago. In Ghana, any increase in petrol prices is a windfall for any one selling anything, as it is an opportunity to double and triple prices. But the increase in petrol prices means more than that, it brings us closer to paying a real price for fuel (?4,444.44 approximately $0.51 for a liter of petrol) whilst putting a cap on the humongous debt being piled up at the virtually bankrupt refinery. There is a lot of activity in the road sector with road projects being reactivated or commenced. Streetlights are springing up on any decent road in the city and a cursory observation indicates that there is some serious work going on somewhere. There is now state run public transport (bus) system crisscrossing the city. The police force has been strengthened with vehicles and equipment, and the rising armed robbery scourge has seemingly been nipped in the bud. It looks like things are looking up and people are waking up. Things are being done properly and that is a serious change. But it is easy to take all these developments for granted and forgetting that it may be the result of sacrifice and hard work.

My personal assessment of the budget is that, it is aimed at realistically addressing the inherent problems of the economy. Macro economic stability is still a clear objective whilst there are also great indications of growth stimulus through tax and capital support for local industry. New remedies for revenue collection have been mentioned whilst expenditure will be tight. The government is also clear on the importance of the finance industry to development therefore has made moves which are geared towards developing a market for longterm capital. The biggest challenge will be how to diffuse the heat that will emanate from the reality checks in the economy, just last week there were peaceful demonstrations from the labor front urging the government to quickly resolve the fixing of a minimum wage. The budget eventually stated a 31% increase in the daily minimum wage from ?7,100 to ?9,200 for the first time the minimum wage has been increased to more than a dollar (approximately ?8,600).

There is still a lot more mileage to cover but so far so good for the NPP government. The privatization program which virtually ground to a snail rest pace needs to be renergised and completed. The capital markets will certainly get a significant boost if the 10 companies (including Barclays Bank Ghana and Coca Cola Ghana) the government has put to sale are at least listed on the Ghana Stock Exchange. But the recognition that the government needs to support venture and private equity funds is commendable and may be the stimulus needed to stoke and re-energize the struggling embers of corporate Ghana, which is significantly dominated by SMEs with no access to capital.

Any comments are welcome.