Posted: Daily Guide |Wednesday, 31 March 2010
By Charles Takyi-Boadu
VICE PRESIDENT John Dramani Mahama has to some extent explained why his government has been economical in its spending pattern.
He attributes the steep cuts in government expenditure to efforts to narrow the country’s deficit, which has been pursued since the year 2009.
Speaking in Accra at an international conference organised by the Institute of Economic Affairs (IEA) and the Centre for International Private Enterprise (CIPE) under the theme ‘The impact of the global financial crisis on West African states: leveraging public-private dialogue for development’, the Vice President noted that the cut in government spending has been the result of the global economic crisis, which has limited government’s borrowing options.
Whereas stimulus packages were pursued in other countries, Mr. Mahama indicated that the option was not available to Ghana since, according to him, major sources of external finance such as Official Development Assistance (ODA), revenue from export and import duties were affected by the crisis, thereby constraining growth through its effects on government spending.
In the case of Ghana, the Vice President indicated that “These effects were so severe that in 2009 Ghana had little option but to turn to the IMF and the World Bank for financial support to close the huge resource gap in government finances and to address the balance of payment weakness”.
This, according to him, was the reason behind the government’s decision to outline a number of strategies to mitigate the effect of the crisis on the poor and restore stability to the economy, including providing deprived basic school pupils with uniforms.
Aside that, he noted that government was also compelled by prevailing circumstance to also rationalize its expenditure by cutting down on wasteful expenses, including those on foreign travel, workshops and conferences.
Furthermore, he said it informed its decision to consolidate 27 ministries into 24 in order to rationalize its expenditure, and reduce the number of ministers from 87 to 72.
The decision to increase capitation grant from GH¢3.00 to GH¢4.50 (50%), provide free exercise books to pupils in all basic schools and the review of petroleum taxes, with the aim of reducing domestic petroleum prices, were all said to have been part of measures to cushion Ghanaians.
Meanwhile, provisional estimates from the Ghana Statistical Service put the country’s real Gross Domestic Product (GDP) growth in the year 2009 at 4.7 per cent, whilst the Central Bank, the Bank of Ghana, projects a real GDP growth rate of above 6 per cent for 2010.
Vice President John Mahama thus believes that projected increased total revenue grants for the 2010 fiscal year will not only depend on tax policy and the revenue administration system, but on the overall economic activity.
For this reason, he said, “Our revenue targets could be affected if there is a downturn in economic activity as a result of the global financial crisis”.
Under the current circumstance, Deputy Minister of Finance and Economic Planning, Seth Tekper said Ghana, and for that matter the government, is planning to pass a Petroleum Revenue Resource Management Law to regulate and channel the inflow of revenues into specific expenditures.
Whilst appreciating the fact that there appears to be increases in global demand and output, translating into increased exports of primary commodities for many developing countries, he stressed the need for countries within the West African sub-region to adopt what he described as a counter-cyclical and contingency measure to avoid being swept off again should another crisis erupt.