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IMANI’s Inputs Into the 2019 Ghana Budget Presented by IMANI President Franklin Cudjoe to Finance Ministers

IMANI believes analysing government’s budget will enhance accountability in the spending of taxpayers’ money and will lead to democratic and development outcomes in the country.

After assessing the 2017 and the 2018 budget in connection with the Government’s Medium Term Development Plan, it appears government is making diligent efforts to restructure the economy, however,

  1. The exogenous shocks appear to expose systemic inefficiencies in our development programmes.
  2. For some of the programs that government is implementing, it is difficult to see if they are clearly following up on value for money to ensure there is efficiency of cost.
  3. There should be a coordination and synchronization of government policies and programmes.
  4. There should also be a coherent strategy on the implementation of policies and programmes.

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STAKEHOLDER FORUM ON POLICIES AND PROGRAMMES

Date: 3rd October, 2018

Venue: Ministry of Finance

OUTLINE

Introduction

Sectoral Observations:

●Background

●Developments in the sectors

●IMANI’s Expectations

INTRODUCTION

IMANI believes analysing government’s budget will enhance accountability in the spending of taxpayers’ money and will lead to democratic and development outcomes in the country.

After assessing the 2017 and the 2018 budget in connection with the Government’s Medium Term Development Plan, it appears government is making diligent efforts to restructure the economy, however,

 

1. The exogenous shocks appear to expose systemic inefficiencies in our development programmes.

 

2. For some of the programs that government is implementing, it is difficult to see if they are clearly  following up on value for money to ensure there is efficiency of cost.

 

3. There should be a coordination and synchronization of government policies and programmes.

 

4. There should also be a coherent strategy on the implementation of policies and programmes.

.ECONOMY

Major Observations

Overview Of Selected Indicators

 

●Real GDP growth was 8.5 percent in 2017 compared with 3.7 percent in 2016, according to GSS.

 

●Major drivers were  increased crude oil production and relative stability in energy supply, according to BoG.

 

●It reiterates the relevance of stable energy supply to Ghana’s growth.

 

●Real GDP growth excluding oil was only 4.9 percent, according to BoG.

 

●Policies are required to diversify the economy and generate growth in other sectors as well.

Source: S & P Global rating

Agriculture Sector

 

In the 2018 Budget, GoG stated that, “our main drive for the economic sector is to improve agriculture production and productivity.“

 

The Planting for Food and Jobs

Programme is intended to improve work opportunities for all, especially women to improve their incomes and address gender inequalities in line with the Sustainable Development Goals, according to the 2018 Budget.

Selected Developments:

●Although, the government in the 2017 budget projected about 750,000 jobs would be created under the Planting for Food and Jobs program, the 2018 budget provided no details on the number of jobs

 

●What we know is that the Minister for Food and Agriculture stated that about 745,000 jobs were created in 2017, according to myjoyonline.

 

●The GLSS 7 has indicated that the rate of poverty reduction  has slowed and inequality is rising.

 

Implications:

●Planting for Food and Jobs Programme would not only create employment, but also assist in reducing poverty reduction and economic or gender inequality should they be implemented efficiently and scaled up.

●With the launch of the 2018 Ghana Census of Agriculture, it is expected that government not only formulate suitable strategies, but also ensure detailed  monitoring and evaluation critical to the success of programs and policies in the sector.

Industry – 1D1F

 

●After experiencing negative growth rates in 2015 and in 2016, the industry sector bounced back in 2017 with a growth rate of 17.7% (Source: 2018 Budget)

 

●Growth rate in Q1 of 2018 was 9.6% (Source: Bank of Ghana).

 

●Main drivers of growth: Petroleum as non-oil GDP accounted for just 58% of GDP growth in 2017.

 

●Manufacturing sector is recovering from the power crisis of 2015.

 

●Government intends to tap into the huge potential in manufacturing sector through the 1D1F program.

 

●Progress on the 1D1F has however been slow, given the target.

 

Selected Developments:

●Media reports that 15 factories have began operations under 1D1F

●332 projects identified for financial support

●Cabinet has approved incentives (including tax waivers)

●There has been some efforts to improve the business environment – taxation, starting a business, trading.

●However there is still significant levels of uncertainty and lack of predictability in the business environment – trading across borders and enforcing contracts.

Implications:

Given the long term nature of industrialisation, without increasing efforts to improve predictability in the business environment, investment flows will be below expectations even with the approved incentives.

This will greatly affect the industrialisation agenda

Service sector

●The sector continues to dominate the dominates the economy

 

●Its share of GDP estimated at 55.9%( 2018, Budget).

 

●In 2017, the sector grew by 4.3%  which was largely driven by information and communication technologies and education.

 

●Financial and Insurance activity, an important sector within the service sector experienced a positive growth of 4.7% within the same period despite existing challenges such as high non-performing loans which was estimated at 21.99% as at August 2017.(BoG, 2018).

Selected Developments:

Growth in Non Performing Loans has reduced due to the increase in loan recoveries predominantly driven by proceeds from the ESLA bonds.

 

BoG  recently embarked on some reforms to enhance stability within the financial sector. Key initiatives  included:

●Supervise the acquisition of two banks by GCB

●Consolidating five banks

●Injecting about  GHC 8.35 billion  to address the asset-liability gap.

 

Implications:

 

Given the recent developments and revelations within the financial sector, the establishment of the much talked financial stability council is critical to complement the efforts of the Central Bank.

Revenue Mobilisation

 

●According to the revised budget, revenue targets for 2017 was missed by 2.4%.

 

●In 2018, revenue target was missed by about 10% from January to May.

 

●The main ideas to drive revenue generation, as highlighted by the 2016 NPP manifesto and in the 2017 & 2018 budget, included increased tax compliance, efficient and effective revenue administration and widening the tax base to include the informal sector.

 

Selected Developments:

●The revenue shortfalls reiterates the need to formalise the economy and pursue non-tax revenue plans.

○Relative to government projections, registering and distribution of the National Identification card has been slow.

○Though the National Digital Addressing System (GhanaPostGPS) has been implemented, the utilisation rate is low.

●Import Revenues: the ceiling set for import exemptions in 2017 was GHS 934 million . However,  an outturn of GHS 2.6 billion billion was realized (exceeding ceiling by 178%) (According to Nii Noi Ashong). Such exemptions require review and ought to reflect incentives that boost production.

●GRA has secured the services of Mckinsey Group, to offer its expertise to enhance revenue administration and help boost revenue generation.

Implications:

●Slow rate of implementation of a robust National Identification system and low uptake of the GhanaPostGPS critically affects the government’s efforts to widen the tax nets.

 

●Overrunning targets for import exemptions negatively affects revenue generation and has implications for tax compliance.

 

Expenditure Management

 

●Government has been careful to spend close to its expenditure targets.

 

●Fiscal data from the Ministry of Finance suggest that the revised expenditure targets was missed by approximately 0.4% for 2017 .

 

●However, in 2018, expenditure target was missed by about 6% from January to May.

 

Selected Developments:

●In 2017, the allocation of capital expenditure of GHS 7.13 billion was revised to GHS 6.44 billion.

●Additionally, only about 2% of MoH expenditure was spent on preventive care, according to GHS annual report for 2016. This does not demonstrate commitment to disease prevention.

●There are also emerging issues such as an inadequately resourced Office of the Special Prosecutor.

Implications:

●Government aims to grow the economy at an average annual rate of at least 7.2 percent between 2017 and 2024, with a particular focus on reviving and strengthening manufacturing according to the President’s coordinated programme. Reducing capital expenditure could have an adverse implication in terms of realizing this goal.

●There should be greater allocation of expenditure to prevent illness since the alternative would be to spend on treating ailments. This may likely be more expensive.

●If institutions that are responsible for ensuring good corporate governance and preventing corruption are underfunded, there would be an incentive towards wasteful expenditure.

Debt

 

Fiscal consolidation has helped to steer the economy towards a sustainable debt trajectory as indicated by the primary balance of -0.2% as at May 2018, according to BoG. The rebasing of GDP has also reduced debt to GDP ratio from about 65.9% to about 62.2% (that is, GHS 159.4 billion / GHS 256 billion * 100).

 

Developments:

●Recent financing strategies by the government to generate much needed resources has generated some concerns about debt sustainability of the country’s debt levels:

 

●GHS 2.5 billion bond to offset energy sector debt

 

●GHS 5.7billion bond to support the newly created consolidated banks

 

●The quest for $19 billion from China Exim Bank through the stat times deal and the $2 billion Sinohydro deal.

 

Implications:

 

Though there is an impetus by government to access new longer term debt instruments, such efforts much done in a transparent manner, negotiations must be thorough. Government must also ensure value for money in the execution of projects.

Employment

 

A substantial portion of Ghana’s economic growth emanated from the extractives industry which doesn’t generate much jobs especially for the youth.

 

The Agric sector employs about 40 percent of the active labor force but, as at June 2018 its contribution to growth was only 2.8% as against 9.6% and 5.2% for Industry and the Service sectors respectively, according to Bank of Ghana

 

Selected Developments:

●Although the 2017 budget projected that about 750,000 jobs would be created under the Planting for Food and Jobs program, the 2018 budget provided no details on the number of jobs that has been created so far.

●Government launched the Nation Builders’ Corps (NABCO), which is expected to employ 100,000 young graduates

●Government also launched the the NEIP and the presidential pitch programme to promote entrepreneurial activities.

 

Implications:

●There are questions on the absence of clear  expectations for productivity and value addition from the huge investments that programmes such as NACOB is likely to make in the medium term.

 

●Government’s efforts towards  promoting and supporting entrepreneurial activities through programmes such as the NEIP and the presidential pitch programme  is commendable and must be expanded.

IMANI’s EXPECTATION: Economy

Agriculture: Scale up resources and provide innovative strategies for Planting for Food and Jobs program.

Industry: Increase efforts to improve predictability in the business environment to encourage investments (from both foreign and domestic sources).

Service: Both the proposed financial stability law and the financial stability council must be enacted and established respectively.

IMANI’s EXPECTATION: Economy

        Revenue Mobilisation

●Fast Track the implementation of the national identification system and the digital addressing system to complement other efforts to formalise the economy; this will be the only way to ensure sustainable streams of revenue and reduce the burden on other areas such as the port.

 

●Review of the tax exemption policy is expected and must be targeted at reducing the exemptions and ensuring that the exemption policies do not provide undue disincentives to trade.

      Expenditure Management

 

●It is expected that government increase allocation to the capital expenditure component in order to stimulate growth and realize its goal.

 

●Greater commitment to prevent care is also expected.

 

●Allocation to institutions in charge of preventing wasteful expenditure  is expected to increase.

●It would be a bold initiative for the government to publish all contracts for us to ascertain if they meet Value for Money objectives.

IMANI’s EXPECTATION: Economy

        Debt Sustainability

 

●It is expected that long term financing agreements will be more transparent and thorough.

 

●Government is expected to ensure value for money in awarding and designing of contracts and implementations of projects.

Employment

 

●Increased monitoring and research to provide clarity on the productivity and value addition gains from implementing NACOB.

 

●The NEIP programme must be monitored and expanded.

ENERGY

Major Observations

Energy: Power Sector

 

Across budgets from the year 2016 through 2018 and in keeping with the 2016 manifesto promises, the issue of restructuring of the energy sector debt has been prominent. The 2018 budget revealed that the energy sector debt had been reduced by 50% given payments made from proceeds of the energy bond as well as from the ESLA.

Selected Developments:

●Key concerns emerged when the government announced in the 2017 budget and made provision in the 2018 budget for reduction of electricity tariffs.

 

●Reduction in electricity tariffs may have impacts on the debt restructuring strategy by reducing available revenue to ESLA

 

●Debt causing factors for the power utilities have still not adequately been dealt with. Cyclical debt accumulation still remains:

○ECG outstanding debt of GHS957 million.

○VALCO outstanding debt of GHS29 million.

 

●Renegotiation of other Power Purchase Agreements (PPA’s) including AMERI

○Recommendation made by Energy Commission to terminate 11 of 30 PPA’s

○Cost of $402 million to terminate 11 agreements versus $586 million liability yearly(capacity charges) if PPA’s are maintained

○Reduction in capacity charges

Energy: Oil and Gas

Allocation of oil revenues through the ABFA towards priority areas is topical especially in light of the implementation of the free SHS policy and the creation of the MSDI and IPEP. Expenditure on free SHS remains largely on wages and salaries/goods and services leaving a critical infrastructure gap which without donor funding may not be plugged as per the 2018 budget.

Selected Developments:

●Total proceeds from oil and gas operations are set to increase given increased production from Jubilee, TEN fields and production from SANKOFA-GYE-NYAME (SGN) fields

 

●Global oil price has been rising from $66.67/bbl  in January 2018 to $84.98/bbl as at October 2018.

 

●This boosts revenue expectations from the oil and gas sector for Ghana

 

●While there is room for channeling oil revenues towards developmental projects, the poorly defined projects under IPEP portends the undermining of accountability and futile expenditure of oil revenues.

●Capital expenditure for the Free SHS programme has been low in the first three quarters of 2018. This usually leads to crowded expenditure in the final quarter to fulfil capital budgets

 

●This may result in expenditure on ghost projects and inefficiency in delivery of ABFA funded projects including Free SHS.

 

●Price of domestic gas from SGN has been negotiated downward from $9.8/mmbtu to $7.89/mmbtu given cost savings made on project

IMANI’s EXPECTATIONS: Energy

POWER SECTOR

 

1.There is a critical need to resolve recurring debt for the power sector utilities or at least reduce the rate of debt accumulation relative to debt restructuring efforts through the ESLA and energy bonds.

 

●Improve efficiency of power transmission and distribution, especially revenue collection

●Improve debt repayment; updates on the Cash Waterfall Mechanism (CWM) should be presented in the budget

●Excess capacity charges; further renegotiation of take or pay agreements, measures to increase power consumption, security of fuel supply and better rates for domestic fuel sources-TOR should resume refinery

●No more new capacity additions in view of existing excess capacity and capacity charges

 

OIL AND GAS

 

2.Projects under IPEP need to be clearly defined. The government should make public the standardized guidelines for the selection of projects to be funded

3.Expenditure of the capital budget for Free SHS and other ABFA projects should be spread across the year as a prudent fiscal measure

4.Reduction in domestic gas price should filter into reduced power generation costs and should feed the petrochemical industry

SOCIAL SECTOR

Major Observations

Education: Free SHS

 

●First year of Free SHS policy in 2017/2018 (figures from 2018 revised budget),

○362,118 first year students were enrolled

○Cost of GH¢899,524,466.30

○Gave 90,000 students the opportunity to go to school that would have otherwise ended their education at JHS level.

 

●For the 2018/2019 year

○490,514 qualified for free SHS, a percentage increase of 34.5% year on year.

○Lack of infrastructure and resources led to introduction of a double track education system to absorb more students.

Selected Developments:

●The double-track education system is implemented in 400 out of about 670 senior high schools in the country, with 363,294 students.

●This is estimated to cost GH¢323 million, of which 82.% will be used to cover teaching costs.

 

●While this reduces the cost by almost a third, this is a temporary measure for a problem that will become increasingly burdensome with each passing year as more students enrol.

Health: NHIS

 

●As of April 2018, the NHIS owed GH¢ 200 million out of the GH¢ 1.2 billion debt to service providers.

 

●However, this figure is in dispute, with some healthcare providers claiming that the government was 15 months in arrears of NHIS payments.

 

●Budget allocation to the NHIF increased by 4.6% from 2017 to 2018.

 

●Revised Budget 2018 stated that the NHIF was financially unsustainable

○Led to NHIF levy of 2.5% attached to VAT.

○CEO of NHIA, in July 2018, further insisted that the NHIF levy should be increased to 3.5%.

Selected Developments:

●The number of beneficiaries has increased over the years, with an estimated 69% of NHIS beneficiaries exempt from paying premiums.

 

●This puts an additional strain on the financing pool of the NHIS.

 

●Multiple studies over the years, as well as a recent government review of the NHIS, have highlighted that the current funding sources are unsustainable.

 

●In September 2018, in an effort to free up resources to start making payments to service providers for January and February of this year and to avoid falling further into debt, the NHIA introduced a directive that any claims from 2016/2017 that were  not submitted within 3 months would now not be guaranteed payment

 

●These situations  lead to low confidence in the government from service providers, resulting in them requesting patients make out-of-pocket payments, rather than use their NHIS cards.

 

Trainee Allowances

 

●In the 2018 budget

○Trainee Nurses Allowance:

■ GH¢311,988,400 was allocated

■68,000 beneficiaries

○Trainee Teachers Allowance:

■GH¢177,511,600 was allocated

■49,032 beneficiaries.

 

●Revised budget statement, as of June 2018,

○Trainee Nurses Allowance

■39% of allowance disbursed

■51,000 trainee nurses

○Trainee Teachers Allowance

■44% of the allowance disbursed.

●Sept 2018, the VP stated that the government was considering increasing allowances from GH¢400 to either GH¢450 or GH¢500.

Selected Developments:

●Introduction of allowances triggered the bonding of graduates to government service.

 

●However, the government doesn’t have the capacity or resources to employ all the new graduates.

 

●This has led to protests, especially from graduate nurses and midwives throughout the whole of 2018.

 

●In August 2018, the Coalition of Concerned Teachers also threatened to go on strike unless their salary arrears were paid by the end of October 2018.

 

●These struggles to employ and pay government teachers and nurses indicate that there  is a mismatch between the demand for graduates from the government and the supply of them.

 

●Therefore, there is no need to further incentivise students to study nursing or teaching by providing them with allowances.

IMANI’s EXPECTATIONS: Social Sector

Free SHS

 

1)Beneficiaries of Free SHS should be targeted for households who could otherwise not afford the second-cycle education.

 

2)The private SHS sector, which has the necessary infrastructure and capacity, should also be included in the implementation of Free SHS.

 

NHIS

 

1)Make it mandatory for companies to provide private health insurance for their employees. This would take part of the burden off the NHIS.

 

2)The NHIS should be targeted to provide health insurance for only the most vulnerable in society.

 

Trainee Allowances

 

1)Amend the Student Loan Trust Fund Act (Act 820) to allow trainee nurses and teachers to receive student loans instead of allowances.

 

2)Without the presence of allowances, there also isn’t a need to bond graduate number and teachers, allowing them to find employment in private facilities if they choose.

 

3)Redirect the money used for allowances to the salaries of government graduate teachers and nurses

 

 

GOVERNANCE

Major Observations

Governance: OSP

 

The government established the Office of the Special Prosecutor, by Act 663 (2018), to fight corruption.

 

Since its establishment, so far, no cases have been filed in court  by the Office of the Special Prosecutor (OSP).

Selected Developments

●In February 2018, the first Special Prosecutor was sworn into Office. Three months later, a deputy Special Prosecutor was also sworn into Office.

 

●In July 2018, the President declared that the Office of the Special Prosecutor (OSP), was fully functional due to the swearing in of the Governing Board of the OSP

 

●However, in September 2018, the Special Prosecutor, Mr. Martin Amidu, expressed his frustration with internal structures, such as lack of capital,  restricting the Office from fulfilling its mandate

 

●Lack of resources,  therefore, has  rendered the OSP  ineffective.

 

●While the President has recently responded by saying that the Office should expect to be resourced soon, it is not clear where these resources will come from or how sustainable they will be over time.

IMANI’s EXPECTATIONS: Governance

 

There should be adequate support and a sustainable financing plan in place to provide the Office of the Special Prosecutor with the resources it needs to fight corruption.

However, to fight corruption and waste, the government can simply ask all government agencies to publish all contracts , with the exception of those critical to natinal security so citizens can deduce if proper VFM considerations were made.  The Vice President recently lanuched the VFM initiative- It must have life and purpose.

.INFRASTRUCTURE

Major Observations

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Infrastructure

 

●The current government made a number of promises about developing infrastructure through the integrated development programme.

 

●It focused mainly on going digital in public service delivery with the ports automation, the national digital addressing system (NDAS) and the National Identification Scheme (NIS).

 

●This was key to the formalisation of the economy and to support revenue mobilisation strategy.

 

●However, only 2.7% of the National Budget was allocated to the Infrastructure sector in 2018.

 

Selected Developments:

●The automation process of import clearance has been advantageous considering the reduction of transaction time from 2 days to 8 hours(disputed by importers and exporters) and revenue increase by 35.4 percent according to the 2018 budget report.

 

●Allocation to public infrastructure declined in the 2018 budget, 31 percent reduction from the 2017 amount of GHS 2.624 million.

 

●This has negative implications for routine maintenance and upgrade works on roads, bridges, rail stocks, housing and dams in the country.

 

●Public-private partnerships (PPPs) have been identified as one of the alternate options to raise the investments required in bridging the country’s infrastructure deficit.

 

●However, the lack of the PPP legal framework is a disadvantage to private investment

 

●The absence of a contingency liquidity plan is exposing Ghana to considerable financial risk in the Sinohydro Bauxite-Barter  project.

 

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