Ghana’s latest budget has been met with uproar in some quarters.

There is no dismissing or diminishing the fact that under trying circumstances the ruling government has been working hard to balance its books and stabilise the economy.

There may be some disputes over the precision of measurements and accounting conventions, but the evidence does point to some clear successes on the macroeconomic front.

The strengthening cedi has of course led to a significant boost in imports, but in real terms (accounting for inflation) the increase is in line with recent trends in the current account, and is thus not exactly scary (which is what you would expect if the currency had been artificially overvalued).

The falling inflation rate may have had an effect on the growth in non-performing loans but the rate has been far from apocalyptic (which is what you should expect in a poorly executed disinflation strategy, since falling inflation implies a rising of the real value of debt).

The mounting gross international reserves may not mean much in the current context where international prices of our commodities are high, remittances are stable, and the price of our key imports (such as oil and cereals) have levelled for several months now. But this is an economy very much exposed to the vagaries of the global economy. It is therefore very good to know that if there was a sudden meltdown and a total shutdown of foreign exchange inflows, however improbable that scenario might be, we have enough forex savings to cover all our obligations for 3 months at least. In terms of our short-term obligations (which are more likely to come due) we may survive for even far longer.

Since late 2009, quantitative easing has dramatically declined, meaning the Bank of Ghana isn’t printing money willy-nilly to bail the government out of its own wanton excesses.

All this is brilliant.

So why all the fuss, then?

Observers are complaining because they are struggling to see how these macroeconomic gains are interlinked with the overall government policy agenda, and how exactly a government that has been relatively lucky in the external challenges it has faced so far intends to bring about the socio-economic transformation the good people of Ghana have been waiting for all this while.

Any careful reading of the budget cannot help but conclude that the Administration is banking on three major items to trigger any such transformation.

First is the so-called “multi-billion dollar framework agreements” with China. Next is the oil mini-boom which is expected to feed some kind of reindustrialisation of the countryside. Last, of course, is the “tax more” agenda, though senior Administration officials have spent a substantial amount of time trying to spin it as the “socially equitable” tax boost agenda.

We think it would be dangerous for the Administration to put too much store on the Chinese money.

The Chinese are known for disbursing when they will and stanching when they want. When the Bui dam project was launched the understanding was that the country’s third major hydroelectric dam and its second largest would be completed in four and half years.

Nearly three and half years later, we have been told, in the current budget, that it is barely 32% complete, with no indication whatsoever as to when we can expect the reservoir to fill up and the turbines to start turning. Nobody is dismissing the complex topographical and engineering challenges posed by dam-building, but in this particular case it is clear that the delays are predominantly resource-related.

If the Administration is minded to inquire, they may call the Liberians, Nigerians and the Chadians, and ask what the track record of disbursements in mega Chinese deals have been.

Expect the Chinese money to trickle in over the medium-term, and thus to play far less than the role assigned to it in the sweeping transformation we all agree this country urgently needs.

We were impressed by the candour and wisdom expressed in the budget with respect to the likely extent and impact of the oil-related inflows. We were surprised though that once again the figures seem muddled, thus taking away from government’s newfound prudence in designing oil revenue policy.

After very wisely perching likely oil revenues at a conservative figure of GHC584 million (approx. $390 million), which as we have said we applaud, the government still goes ahead and indicate in its growth forecasts that oil shall contribute, on its own, 5.3% to GDP growth. In a $20 billion economy, that suggests that oil’s fiscal impact shall amount to no less than $1 billion (approximately GHC1.45 billion). This is even more problematic because related activities in exploration and field development have already been accounted for under their appropriate classifications.

Simply put, the figures do not add up.

Nor is it the case that the government’s conservatism has been so austere as to leave some leeway for such accounting confusion. The truth is in fact that the incoming oil revenues have been overhyped for so long a time (as regular followers of IMANI’s commentary might appreciate) that we have lost our perspective with regard to the real facts on the ground.

When the Jubilee field development plans were first drawn up the concept was to have 60 wells of which more than half were to be production wells.

A conspiracy of the political elite has over time, in the name of “fast-tracking”, led to the emaciation of this sound plan. Today the master plan features 17 wells, nine of which are production wells.

Indeed, our understanding is that even of this number, one of the gas injection wells was not completed. Thus, to hit the so-called “optimal” production level of 120,000 barrels per day, each well will need to produce in excess of 12,000 barrels per day for this extent of output to be feasible. You don’t need to have hassled in the oil sands of Texas all your life to know that this is far from conservative.

Consider the average production per well (measured in barrels) in the following countries: Saudi Arabia -4370; Norway – 3782; Iraq – 1204; China – 47; and Russia – 179. Sure, the age profile of our wells is lower compared with the case in some of these countries, but it is obvious how aggressive the targets set for Jubilee are. The current 5000+ barrels per well per day estimate for the field is thus not exactly ultra-conservative. Nor is there any suggestion that more wells shall be sunk over the course of 2011 or even by 2012.

Moreover, the GNPC has been oddly silent on how the associated gas shall be handled and no word from the Ministry of Energy whether financing has been found for the gas processing plant itself, even though the GNPC is expected to receive more than 70% of the incoming oil revenues over 2011 and may thus be in a stronger position to attract additional funding from investors. Typical of what energy policy has become in this country since oil was discovered, transparency and policy clarity remains as elusive as a feathered banana.

For all the reasons adduced above, we are unconvinced of the impact of oil on the economy in the short-term as far as significant socio-economic improvement in the country is concerned.

That leaves us, finally, with the “revenue mobilisation agenda” detailed in the budget.

We agree with most of the comments that have been passed by other independent observers.

In our present context, what are needed are signs that the government intends to embark on a rationalisation of its expenditure through greater specialisation in those areas that improve upon its capacity to enhance citizens’ welfare and lubricate wealth-creation. Rather than tax the citizenry to its knees, the government ought to find more creative means to divest itself of some of the responsibilities it has historically performed abysmally.

More private sector participation is needed in health and education so that the middle classes are removed from the government’s burden. A significant proportion of what the Civil Service does now can be outsourced to more efficient private contractors. Much of the bureaucracy in local government, the administration of social services and even the Foreign Service can be thinned down considerably.

Underperforming state-owned enterprises like Tema Oil Refinery should benefit from open, transparent, well thought through, public-private partnerships.

The combined effect of these various actions should be a dramatic reduction in government outturn.

It shall be feasible to reduce government expenditure by 40%, keep taxes at the present level (thus provide tax relief of 10% in real terms for 2011) and employ a wider variety of creative tools to draw in more resources for enterprise development and law and order, which should ultimately boost taxes, help expand infrastructure, and thus enrich the investment climate for accelerated growth and socio-economic development.

Some of these creative mechanisms include a total refocusing of the Ministry of Trade & Industry on development financing, in which this Ministry works actively with the Foreign Ministry to serve as a bridge for international and regional development finance institutions interested in investing in individual SMEs. Anybody who has attempted to do business in this country, and the authors of this article have first-hand experience, know that government institutions are usually more a pain than a help. Only the politically connected in this country have any hope in hell of enterprise support.

It is the investment climate, law and order, and institutional professionalization that offer clear room for capacity building in the government/public sector. Without a greater emphasis on these areas and less emphasis on rhetorically pleasant but structurally irrelevant so-called “government interventions”, we shall continue to beat about the bush in this country.

And that is where the present budget fails. The tax measures seem to us and many independent observers, to be fragmented, uncoordinated, and unconnected to any wealth-creation agenda. The government insists that it has not introduced any new taxes to burden the private sector. But that is not the test. The test is whether the tax measures as presently designed shall positively influence enterprise development, and there is no sign that they would. Worst of all, the Single Spine program has now been misinterpreted to imply an across the board increase in wages, rather than an approach to removing unfair inequities in the public sector wage structure. An across the board increase? When already 70% of domestic revenues are earmarked for paying salaries, while only 12% is slated for investment?

Furthermore, in an economy where the rural economy remains impervious to taxation, “broadening the tax net” is mere rhetoric. What ought to happen is economic stimulation so that “the kind of economic activities that are taxable” predominate. There was nothing in the proposed tax measures that can remotely help to achieve this.

On the contrary, measures like abolishing tax holidays for certain potentially high-growth industries and the retirement of privileges such as the two-year concession for bonded warehouses (which can be critical for food security and trade flexibility) send all the wrong signals to domestic investors and militate against the creation of taxable employment.

Furthermore, punitive middle-class taxation fails to ensure equity because of the structure of the economy in which the formal sector is criss-crossed by trading and service-provision usually by the same white-collar workers that are presumed to form a significant portion of the middle-classes. When you increase their airfares, they pass it on to their customers and clients, or cut down on investment plans.

Hence, the fuss over the 2011 budget, friends, hence the fuss.

(This article was commissioned by the Bugle –www.theBugleGhana.com)

Courtesy of IMANI (www.imanighana.org) and AfricanLiberty.org