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Dr. Mahamudu Bawumia1

The 2015 Budget Statement was presented against the background of

weak and deteriorating economic fundamentals, including:
Declining Real GDP Growth
Increasing Inflation and cost of living
Double digit fiscal deficits for two years in a row
Large and increasing central bank financing of government
Double digit current account deficits for two years in a row
Massive increase in the public debt stock
Net international reserves at a precarious level
Government unable to meet its statutory obligations
Declining consumer and investor confidence
Exchange Rate Depreciation
Rising Corruption
A recent Issue of a $1billion sovereign bond

Visiting Professor of Economic Governance, Central University College, and 2016 NPP Vice-Presidential Candidate

A Sovereign credit rating downgrade to B- by international credit

rating agencies
Rising Cost of Doing Business
Load Shedding Dumsor
Rising Youth Unemployment
Government Failure to account for workers Tier 2 Pensions and the
Imposition of a pension fund Manager against the law

IMF bailout talks.

The expectation of Ghanaians was, therefore, of a budget that would set

out at least to address these issues and alleviate their suffering. However,
most Ghanaians have been disappointed. The 2015 budget provided no
relief to the suffering of Ghanaians after six years of NDC government.
While not providing any relief, the 2015 budget actually increased the
suffering of Ghanaians by implementing some rather harsh tax measures
and failing to address the fundamental issues of concern. After six years in
office, Ghanaians are now being asked to pay dearly for the economic
mismanagement and corruption of this NDC government which has
resulted in economic decline, high debt levels taking Ghana again towards
debt unsustainability, rising levels of unemployment, rising cost of living,

rising cost of doing business, depreciating currency, rising interest rates

and an inability to meet statutory payments, including pensions.
In a bid to raise revenue to cover the mess they have created, the NDC
government has resorted to taxing everything in sight. The budget has
demonstrated very little appreciation of the problems Ghanaian workers
and businesses are going through at the moment. Ghanaians would like to
know when the dumsor will be over, for example.

Now to some of the specifics:

The projected sharp decline in growth in 2015 is puzzling given the

estimated growth performance in 2014.

The 2015 budget shows an economy in decline. After six years in

government, during which the NDC claimed unprecedented economic
growth, the harsh truth is that real GDP growth is in decline. Real GDP
growth has declined from 15% in 2011 (with the onset of oil production to a
projected 3.9% in 2015, including oil). The budget is projecting non-oil

growth of 2.7% in 2015. These facts are as revealing as they are

disturbing. The government is claiming that the economy is recovering. If
indeed the economy is recovering as indicated by the government, and we
have turned the curve, what will be explaining the further decline in
growth in a year that should be focused on rebuilding after the challenges
of 2014? What sort of recovery sees real GDP growth decline from a
purported 6.9% in 2014 to 3.9% in 2015? The growth rate in 2015 would be
just about what it was in the year 2000 and half the rate of the 8.4%
achieved in 2008 without oil!!!! Non-oil growth in 2015 will be below the
growth rates attained in 2000! The decline in real GDP growth is reflected
in all the sectors, (Agriculture, Industry and Services). In the midst of this
deep decline in economic activity we wonder what scope exists for the
Minister of Finance to rake in revenues to support infrastructure
development and meet Governments statutory obligations.
There is, however, something that is not quite right with the real GDP
numbers. They lack credibility. How can an economy which went through
so much turmoil in 2014, with a 31% depreciation of the currency and
massive load shedding, register real GDP growth of 6.9% only to decline
sharply to 3.9% when the government claims the economy is in
recovering? Is the recovery in reverse gear? Something is not quite right

with the numbers. Our view is that the 6.9% real GDP growth reported by
the Ghana Statistical Service is, putting it mildly, counter intuitive and
needs to be re-examined. Otherwise, the government should explain the
reason for this sharp decline in real GDP growth in 2015. This is important
because if the real GDP numbers for 2014 are overstated, it would have
implications for the 2015 projections and policies. In that case, the 2015
budget would be out of gear ab initio.
This, notwithstanding, the fact remains that the economy that was inherited
by the NDC government in 2009 was growing at 8.4% without oil. Having
become an oil producer, the government has superintended over a
precipitous decline in real GDP growth from 15% in 2011 to a projected
3.9% in 2015. Let us put this into perspectivethe economy has lost steam
equivalent to 11% of GDP since 2011 suggesting that for a $50.0 billion
dollar economy, almost $5.0 billion dollars worth of economic activity has
dissipated, and this is worrying. Slow growth means higher unemployment,
higher prices and declining revenues. In this respect, the NDC
administration has woefully failed Ghanaians and one is deeply worried
about the depth to which the economy is sinking.

Ghanas Debt Sustainability is in Question

The 2015 budget sadly reported that at the same time that Ghanas
economic growth has been in sharp decline, Ghanas Debt/GDP ratio has
sharply risen to 60.8% of GDP as at September 2014. Ghanas debt stock
has crossed the 60% of GDP level that developing countries with limited
access to capital flows should worry about in terms of debt sustainability.
By the end of 2008, Ghanas total public debt stood at GH9.5 billion (33%
of GDP). In the last six years, however, the stock of public debt has risen
dramatically to GH69.7 billion (60.8% of GDP) at September 2014. This is
an increase in the stock of debt by GH56.2 billion or the equivalent of
some $27 billion, using the average exchange rate for 2009-2014 or $17.5
billion at current exchange rates2. This also represents an increase in the
stock of debt by 591% over a six year period (i.e. an average increase in
the stock of debt by 98.5% a year). This is a frightening rate of
accumulation of debt by any standard measure. On this track, Ghana is
clearly on the way back to the unsustainable debt levels that pushed us to

Using current exchange rates in determining the equivalent amount borrowed is misleading because it ignores
the value of the debt at the time it was borrowed. Using current exchange rates would underestimate the value of
the borrowing because of exchange rate depreciation. We are here concerned about the value of the projects that
could have been financed at the time the money was borrowed.

This is a worrying development because Ghana received HIPC relief just

10 years ago after a similar debt binge by the previous NDC Government. If
the current borrowing binge continues, it will only be a matter of time before
the international rating agencies will classify Ghana as a country with high
risk of debt distress. The consequences of this classification would
compromise Ghanas ability to raise further financing from the international
capital market.
The accumulation of debt by this NDC government over the last six years
has, quite frankly, been reckless. The interest payments on this debt in
2014 alone amount to four times Ghanas oil revenue in 2014! In 2015,
Interest payments alone on the debt would amount to GH9.5 billion
(compared to a total debt stock of GH9.5billion in 2008).
The increase in interest payments by 4.3% of GDP between 2008 and
2015 (i.e. from 2.8% in 2008 to 7.1% in 2015) has taken away critical fiscal
space that was available to Government. In the 2014 budget, the entire
allocations to the Ministry of Roads and Highways (GH779 million), Trade
and Industry (GH256.5 million), Ministry of Fisheries (GH279 million),
Ministry of Food and Agriculture (GH128 million), Ministry of Water
Resources and Housing (GH531 million), and Ministry of Transport
(GH89 million) amounted to a total of (GH2062 million). Interest

payments in 2014 are more than three times what was allocated to these
six key ministries combined! The story is no different for 2015.
Given the precarious nature of Ghanas debt situation, one would have
expected some decisive measures to fundamentally reduce the building
debt overhang which, if not dealt with would push Ghana into the high
debt/low growth trap. The budget basically dodged the issue.

What has the Borrowed Money Been Used For?

As stated earlier, the NDC government has borrowed an amount
equivalent, at the time of borrowing, to some $27 billion over the last six
years. In addition to revenue from oil as well as tax revenues, there is no
government in Ghanas history that has had access to this volume of
resources for development. The government has, however, not been able
to point to loan-financed development projects worth this amount of debt
accumulation, along with oil and tax revenues. Indeed, what is sad about
this whole episode of borrowing is that it has happened at the same time as
capital expenditure as a percentage of GDP has unbelievably declined!!!

The evidence is that 94% of the increase in government spending has been
for recurrent expenditure! The increase in government debt over the last
five years is an amount that could have built at least 15,000km of tarred
roads, for example. It is an amount that could have solved Ghanas energy,
water, and sanitation problems. However, the increase in oil revenues
notwithstanding, capital expenditure as a percentage of GDP has actually
been on the decline from 7.1% of GDP in 2009 to 5.2% by 2015. It is, in
fact, a travesty that Ghana before the discovery of oil was spending a
higher proportion of its income on infrastructure investment than after the
discovery of oil.
In the 2015 budget the Minister of Finance mentioned a number of
signature projects that have been financed by the borrowing. These



i. Ghana National Gas Processing Plant to help solve the energy crisis,


ii. Refurbishment and Expansion of the Ridge Hospital


iii. University of Ghana Teaching Hospital


iv. Expansion of the Kpong Water Pumping Station


v. Kwame Nkrumah Interchange


vi. Sofoline Interchange in Kumasi

vii. Tetteh-Quarshie Madina road project

viii. Achimota-Ofankor road project


ix. Construction of Affordable Housing Units by OAS Construction


x. Kumasi Central Market

xi. Kasoa Interchange


xii. 200 Buses for the Metro Mass Transit, and an additional


xiii. 295 Scania Buses for the Rapid Transport System


xiv. Parliament House- Job 600 Offices and reconfiguration of Parliament


iii. The 500-bed Military Hospital Project in Kumasi;


iv. First and Second phase of the Tamale Teaching Hospital after the


v. The Police Hospital Project;


vi. The Ashanti Regional Hospital at Sewua-Kumasi; and


vi. The Upper West Regional Hospital


vii. Kpong Intake Rehabilitation Project


viii. Accra Tema Met Area Water Supply Project




It is worthy to note that all these signature projects sum up to some

$3.5 billion out of the increase in total debt by the equivalent, at the time of
borrowing, of some $27 billion, and oil revenues. In fact, the oil revenues
alone could have financed 60% of these projects! So where is the rest of
the money? For the sake of transparency, Government should list all the
projects financed by domestic and external borrowing and the amounts
involved since 2009 to enable proper accounting for the increase in the


stock of debt and oil receipts. This again emphasizes the case for the
passage of an internationally an acceptable Right to Information Bill.

Where is the $1billion Sovereign Bond?

Government announced to the world that it was seeking the support of an
IMF supported program to help address the current imbalances in the
economy. On the basis of this, it was able to calm the nerves of investors
and issue a $1 billion sovereign bond. In the prospectus that sought to
convince investors, the Minister of Finance indicated that a substantial
portion of the amount borrowed would be used for infrastructure
development and critical projects. What projects did the Minister of Finance
have in mind? The Minister should list and provide a detailed plan of what
projects he has in mind. We are reliably informed that the amount raised
has been used to reduce Governments indebtedness at the Central Bank
and that the funds are not available anymore for the purpose for which it
was raised. This is sad and raises a whole lot of credibility issues. How can
we borrow such a huge amount to fill a gap at the Bank of Ghana, the
central bank? Is this the use to which non-concessional borrowing should


be put? This is a very serious development and Government and Bank of

Ghana should urgently comment on this.

Special Tax On Petroleum

The budget has unleashed more hardships on Ghanaians by hurriedly
passing into law a 17.5% Special Tax on petroleum products. The speed
and manner of passage of this tax in itself shows that Government is aware
of the strength of feeling against this tax and did not want the public to
debate it before passage. We should recall that this is the same
government who at the time Petroleum prices hit $147 per barrel
complained that petrol prices were too high. They went on demonstrations
using the Committee for Joint action (CJA) to protest the high price of
petroleum products. At the time, they argued that the taxes on petroleum
products should be reduced and promised to reduce petroleum prices
drastically when elected. Six years down the road, many of the CJA
demonstrators are now ministers in this NDC government and they have
forgotten all their promises to the Ghanaian people. The NDC has
demonstrated in so doing that they do not care and they cannot be trusted.


In 2008, the price of a litre of kerosene (which is largely used in rural areas)
was Ghp70. At that time it represented 31% of the daily minimum wage.
The NDC said the price was too high. Before the 2015 budget the same
litre of kerosene had increased to GHC3.23, representing 53.8% of the
daily minimum wage. It is clear that an additional special tax of 17.5% will
only further increase the burden on Ghanaians. The government, through
the NPA, in applying the automatic price adjustment formula should have
reduced the price of petroleum products following the recent global
reduction in oil prices. Rather than doing this, the NPA, with the tacit
support of Government, has refused to do so. The Automatic Price
Adjustment Formula has apparently now become an Automatic Upward
Price Adjustment Formula under this NDC government. While consumers
are still trying to figure out what is going on, they have now been hit by a
Special Tax. Ghanaians can now understand that this NDC government
cannot be trusted. Is the government going to implement a Special Wage
Increase to compensate workers?
This Special Tax on petroleum products is bound to also increase the
already high cost of doing business in the country. At the time when many
businesses are having to pay for diesel to run generators as a result of


load-shedding, they are being asked to pay more taxes on fuel. This would
increase the cost of production.
We strongly believe that that this tax measure is unwarranted. If the deep
seated waste and reported corruption in payroll administration is corrected
swiftly, enough savings could accrue to the budget and this tax measure
could have been avoided. If the leakages are not plugged, then no amount
of tax increases would solve the problem. We have reached a point in our
developmental trajectory where value for money should be demanded by
all stakeholders and partners.

VAT on Financial Services and Real Estate

In the 2014 budget the Government pushed through against sound
arguments to the contrary, a VAT on fee-based financial services. The
confusion surrounding its implementation resulted in the withdrawal of the
policy measure. In their desperation to raise tax revenues, the 2015 budget
states that this VAT on fee-based financial services will be implemented.
This is a bad policy for the economy. Ghanas financial system is
underdeveloped with only some 20% of the population having a bank
account. What the government should rather be doing is providing some

incentives for financial inclusion. The introduction of VAT on fee-based

financial services would only serve to drive people away from the banking
system with the attendant reduction in financial savings. It will also increase
the cost of doing business for the business community. For example, a
manufacturer who imports raw materials has to pay VAT on imports. If he
transfers money through the bank to pay for the imports, the manufacturer
would pay an additional VAT for the banking service. The argument is
similar for cost of doing business in the real estate industry.
Some statistics on the property market in Ghana would be instructive in
placing this VAT on real estate transactions in context. First, Ghana
currently has the highest mortgage to income ratio (at 605%) in the world.
In terms of House Price to Income ratio, Ghana is the 10th highest in the
world. In terms of housing affordability, Ghana ranks as the least affordable
property market in the world3. Given these facts, it is clear that the real
estate industry in Ghana needs help. Government should rather be trying to
encourage the development of the mortgage market through tax incentives
for real estate developers and better land administration. A 5% VAT on real
estate transactions is the wrong way to go.


The Focus on Taxation rather than Expenditure is Wrong

The 2015 budget demonstrates one thing for sure. The NDC government
has created a fiscal mess after 6 years in office but has no clue how to deal
with it. The governments focus is on raising revenue to hide the fiscal
indiscipline. However, it is clearly more of an expenditure mismanagement
problem. The budget does not address expenditure review and recomposition and measures to ensure fiscal discipline, but rather focuses on
the revenue side (raising more taxes), clearly being insensitive to the
population and taxing them to hide inefficiencies. There is a saying that if
all you have is a hammer everything begins to look like a nail! This is so
appropriate in the case of this NDC Government.

Propaganda Achievements
In search for tangible achievements by this Government, the Minister of
finance included the following as achievements:
virtually eliminating the spectre of long queues for fuel as well as the
huge budget overruns of about GH339 million in 2012 and GH135
million in 2013 that resulted from past failures to adjust prices through
the automatic adjustment pricing formula;

Who created the long queues for fuel in the first place and budget
overruns? How can you create a problem and then consider it an
achievement to revert to the status quo ante?

A demonstration of our ability to raise both domestic and external

funds to complete several projects that were put on Government
budget without adequate source of funds.
How can this be an achievement? Even as a HIPC economy, Ghana
was able to raise funds domestically and externally.
We achieved another important and significant success in launching
our third Sovereign Bond of US$1 billion in early September 2014.
Similarly, on the same day as the Bond issue, the Ghana COCOBOD
also signed an agreement for US$1.7 billion, which was the result of
another successful bid to access the international capital markets.
How can COCOBODs regular annual raising of funds for the purchase of
cocoa suddenly become an achievement by this Government?


IMF Possible Program and Related Issues

Turning to Governments budget statement, we see no elements of an
underlying agreement on an IMF supported framework. Are we likely to see
a revised budget statement if a final deal is concluded in 2015? Where is
the financing coming from to fill the budget gap? Are Donors likely to
disburse without an IMF agreement and in the midst of corruption
especially in payroll administration? Is the government planning on using
parastatals like GNPC (which has recently entered into an agreement to
borrow $700 million without parliamentary approval in violation of the
Constitution and the Petroleum Revenue Management Act) to fill the gap?
What will the government do if there is no IMF agreement? The questions
are tall and this budget is therefore clouded with so much uncertainty going

CONCLUSION: The Bottom Line

In the final analysis, the issues that matter to the Ghanaian people as far as
the 2015 budget is concerned are as follows:
1. Will the budget grow the economy? No
2. Will the budget create Jobs? No

3. Will the budget reduce the cost of doing business? No

4. Will the budget reduce the cost of living and suffering? No
5. Will the budget provide better conditions of service for teachers,
nurses, doctors, civil servants and workers in general? No
6. Will the budget allow workers to select their own Tier 2 Pension Fund
Managers and account for the deductions made? No
7. Will the budget restore the allowances of teacher and nursing
trainees? No
8. Will the budget end load-shedding (Dumsor-Dumsor)? No
9. Will the budget stop the high level of corruption? No

Will the budget help transform the economy? No

If the 2015 budget cannot answer any of the above questions in the
affirmative, then it may just be meaningless to the ordinary Ghanaian. At
the end of the day if the fundamental problems with the economy are not
dealt with, then there remains a threat to macroeconomic stability going