The Institute for Fiscal Studies (IFS), an economic policy think-tank, has described the 2016 budget presented by Finance Minister Seth Terkper to Parliament a fortnight ago as “uninspiring” and failing to tackle fundamental challenges of the economy.
Executive Director of the think-tank, Prof. Newman Kusi, speaking at a press conference yesterday said the 2016 budget, which was on the theme ‘Consolidating Progress toward a Brighter Medium-Term’, does not explain the nature of the progress that it purports to consolidate — other than the projected drop in fiscal deficit.
“The budget does not outline how innovation and technology-led productivity growth will be pursued to reverse the decline in agriculture, mining and quarrying, and manufacturing sectors; how to foster their inter-sectorial linkages to support economic growth; and how to achieve macroeconomic stability.
“The IFS wishes to submit that the 2016 Budget is uninspiring. It is lacking in concrete economic policies and strategies to transform the ailing economy, establish macroeconomic stability and credible fiscal consolidation. The projected decline in the fiscal deficit will not be achieved due to uncertainties surrounding the revenue assumptions and difficulties in containing expenditure,” Prof. Kusi said.
Mr. Terkper told Parliament that the economy is next year expected to grow about 5.4 percent and 5.2 percent without oil, with the government projecting end-year inflation to be about 10.1 percent and an overall budget deficit equivalent to 5.3 percent of GDP.
But Prof. Kusi questioned the basis of the 2016 projections after describing this year’s performance of some key sectors of the economy as disastrous.
The agriculture sector is projected to grow at 0.04 percent; manufacturing sector at 2 percent, and mining and quarrying sector at 3.8 percent.
He added that the “disastrous” economic performance is further compounded by inflation, exchange rate, interest rates and huge current account deficit leading to serious instability at the macro level.
“With economic growth becoming stunted and the macro situation deteriorating, and no clear policies and strategies outlined to address these challenges, it is hard to see how the macroeconomic targets set for 2016 will be achieved,” Prof. Kusi said.
Last year’s budget saw the oil revenue forecast fall by 58 percent, from GH¢4.2billion to GH¢1.8billion after the price of oil on the world market crumbled by more than 50 percent.
But the IFS Executive Director said government has not taken prudent steps to avert such negative impact should oil prices tumble again.
This year, based on a revised benchmark price of US$53.05 per barrel, government is expecting a total of GH¢2.0billion (equivalent to 1.3 percent of GDP) as petroleum revenue in 2016.
“With oil prices still experiencing volatilities and some analysts predicting that oil prices may drop to around US$20 per barrel, one would have expected government to come out with clearly spelt-out plans to mitigate effects of the oil price fall in 2016; but unfortunately there was nothing. Meanwhile, the country’s partners in the oil industry, viz. Tullow and Kosmos, have all hedged against oil price volatilities until 2018,” Prof. Kusi added.
Government expects total expenditure (excluding cost of import exemptions and arrears clearance) to increase by 10.9 percent in 2016 from 2015 with compensation of employees also expected to increase by 14 percent, interest payments by 12.2 percent, and transfers to government units (subsidies) by 39.3 percent.
Together these three expenditure items consume 93.8 percent of the projected domestic revenue for 2016, leaving only 6.2 percent to cover goods and services, capital expenditure, and payment of arrears. According to him, this may put pressure on the deficit target of 5.3 percent.
“Even if the deficit target is achieved, it may happen at the cost of a substantial build-up of arrears and a sharp decline in capital spending. Government will continue borrowing to increase the public debt stock and worsen its sustainability implications.
“In the view of IFS, the 2016 Budget in its current form cannot address all the critical economic challenges and risks currently confronting the country,” Prof. Kusi concluded.