First, we think that, while the early presentation of the government’s budget is a good idea, it seems to be providing the pretext for grievous lapses in the handling of budgetary issues.

We find the Honourable Minister’s admission that “When the Budget Statement and Economic Policy of the Government of Ghana for 2006 financial year was presented in November last year, the information on the economy’s performance for the entire year was not available”, rather strange, especially, as we find that, even though the accumulated proceeds from the adjustments of petroleum prices in 2005 was known by the time the 2006 Budget was being prepared, it was not factored into the budget.

Also, surprising was the fact that, the Minister could not project (even vaguely) how much money would be available in January 2006, from the IMF and in July 2006, from the World Bank, even with the Multi-donor Budget Support system (and its predictability of donor resource flows). Ghanaians were, therefore, made to believe that unexpected money had suddenly become available. Surprisingly, this money that had become available included both domestic and external loans that were being negotiated. As was the case in 2003, the 2006 Budget approved by Parliament in December 2005 now appears to have been “an interim” Budget and one wonders whether the government can justify an early presentation of the 2007 Budget to Parliament for approval.

The supplementary budget reviewed the macroeconomic performance of the 2005 fiscal year as well as provisional outturns for the first quarter for 2006, and indicated, as has become fashionable with finance ministers in Ghana, that the economy was on track. The performance of the economy showed little progress, as GDP growth rate increased from 5.6% in 2004 to 5.9% in 2005, four months gross international reserves and 2% overall budget deficit. There was, however, an increase in inflation from 12.6% to 15.1%. The main stay of the economy, the agricultural sector, also experienced a decline by as much as 2.4%. This was attributed to the low growth recorded in the Crops and Livestock sub-sector and the negative growth of the Fishing sub-sector. The CBA has had occasion to caution the government about its exclusive concentration on the Cocoa sub-sector to the near neglect of the other agricultural sub-sectors. The CBA has particularly drawn government’s attention to the GPRS diagnosis of the poverty situation in the country that admits that food crop farmers are the poorest in the country. The government appears, however, to have ignored these promptings, which perhaps explains the sector’s failure.

Fortunately, the improved performance of the Industry and Services sectors helped to bring about the increase in the GDP growth rate. It is noteworthy that the Minister did not find it necessary to revise the macro-economic indicators, obviously for fear of not achieving higher indicators at the end of the year. The deliberate refusal to spend (called fiscal prudence) and to fulfil budget promises, for example, the upgrading of 31 model SSS and a number of classroom blocks approved in previous budgets, has led to a reduction in domestic debt to GDP ratio and the accumulation of gross international reserves to cover a four-month period. This clearly offers nothing to boast about.

On revenues, the CBA has called on government to review its tax policies so as to mobilise more domestic resources, not only to reduce its dependence on foreign financing but also focus more on direct taxes, which are more equitable and less burdensome on the poor and marginalized in society. Unfortunately, the government has continued to reduce corporate and individual marginal tax rates, ostensibly to attract foreign direct investments and, now, to induce compliance.

We certainly do not need to reduce the tax rates to induce compliance, in the same way we do not reduce prison sentences to bring down crime rates. The revenue and law enforcement agencies must simply be up and doing. Too much dependence on petroleum and other indirect taxes, which constitute about 67% of tax revenue, is taking its toll on the real incomes of citizens. If we are paying full cost for petroleum products, including a debt recovery levy, then it is not clear why the government claims to be still borrowing for TOR and issuing bonds amounting to ¢805 billion. The CBA calls on the government to come out clearly on the use of monies generated from petroleum taxes and the TOR debt situation.

The CBA is also concerned about the low national expenditure on investments in the first quarter of 2006, which amounted to ¢1,701.7 billion, far below the corresponding period in 2005, which was ¢2,154.4 billion. This was in spite of the fact that the implementation of the 2006 Budget started at the beginning of the year. In addition to the low investment expenditure in the first quarter of 2006, it is also noteworthy that the donor component is very high (¢1,331.6 billion), while the domestic component is very low (¢370.1 billion), just about 22% domestic-financed investment. This trend was not different in 2005 as less than 60% of the projected domestic-financed investment was realized.

These trends emphasize the need for more focus on domestic revenue generation that is equitable and able to raise the needed revenue for investment and recurrent expenditures. One way to increase domestic investment outlays is to reduce some recurrent expenditure on items like the free and unlimited fuel allocations to some public officials, especially with the recent increases in fuel prices.

Another worrying issue in the Supplementary Budget was the amount of net domestic financing of the Budget. The Minister actually sought Parliament’s approval for two loans, one domestic, to implement the supplementary estimates. Yet, the case for the supplementary estimates was that money had become available and needed to be utilized. In fact, the domestic debt stock at the end of the first quarter of 2006 actually increased over that of the same period in 2005. This has been attributed to low tax revenues and slower than anticipated donor inflows during the quarter. Ghanaians would recall that, as far back as 2003, the government projected a zero domestic debt but actually realized a net repayment (¢228.9 billion) in respect of domestic financing of its budget. Yet, today, government projects a net borrowing of ¢215 billion, in spite of the decision to use 20% of HIPC debt savings to write down the domestic debt, also since 2002. Compounding this situation is the fact that the external debt stock (¢5,980.7 million) has not changed much since 2001, in spite of the HIPC debt relief. We are now being told it has drastically reduced due to 100% multilateral debt cancellation.

We were unimpressed with the oversimplified manner in which the Minister sought to measure the employment level in the country. We note that, the mere citing of adverts in one newspaper (the Daily Graphic) as proof of increasing employment opportunities is an inadequate indicator for the measurement of the overall employment creation in the country. The CBA calls on government to come out with a more comprehensive means of reporting on national employment, especially on net employment. The labour Department is grossly under-resourced otherwise its data, if supplemented by statistics from the Ghana Statistical Service, could prove more comprehensive.

The Minister for Finance and Economic Planning asked for approval to raise and spend an extra amount of ¢4,280.3 billion, comprising accumulated revenues from adjustment of petroleum prices (¢27.4 billion), expected assistance from the Millennium Challenge Account (¢311 billion), Multilateral Debt Relief Initiative (2,103.6 billion) as well as external and domestic loans (¢1,317 billion) and the offloading of shares in state-owned enterprises. However, the CBA has some concerns with the planned expenditures and their effect on the development of the country.

Firstly, some planned expenditures targeted some projects, which are already ongoing such as the Achimota-Ofankor road, the CAN 2008 projects and the first phase of the upgrading of the Senior Secondary Schools that started as far back as 2003. The questions are: What has necessitated the request for additional resources? Have the cost of these projects been reviewed upwards? Also, allocations were proposed and approved by Parliament for various programmes, which were unclear, and need further elaboration. These included allocations to the Judiciary, and Ministry for Tourism and Diasporan Affairs for unnamed programmes, among others.

Secondly, the government asked for approval for ¢457.3 billion to support a new microfinance programme that will be launched later in the year. Why is this micro-finance programme placed under the Office of Government Machinery? In the past, there was a similar programme under the office of the Senior Minister. The practice of putting these programmes under politicians have the potential of confirming allegations of the government putting resources aside for party faithfuls in preparation for 2008 elections. The past problems with recovery of loans from the Poverty Alleviation Fund should serve as a lesson for any micro-finance project. The appropriate agencies should be used for the execution of this programme.

Thirdly, much as it may be necessary to celebrate Ghana’s 50th Independence anniversary, the amount of ¢ 182.9 billion voted for this celebration is worrying as children and other patients continue to be detained in hospitals while others die from curable diseases for lack of money to pay for health services.

As has been the case in the past, the CBA makes these comments in good faith and in the interest of the poor and marginalized people in this country. We hope the government would see sense in our comments and those of other analysts and commentators and take a second look at some of its planned expenditures.

Vitus Azeem (Coordinator - CBA)