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The economy of the Ghana has remained resilient in the wake of increased world crude oil prices and looming energy crises after the second half of 2006. Available information indicates that provisional projection for real GDP growth rate based on actual data through September, 2006 is 6.2 per cent, slightly above the target of 6.0 per cent. This is mainly driven by the significant growth experienced in industry and services sectors. The projected growth rate of 6.2 per cent in 2006 is the sixth consecutive year that the nation has experienced increasing and sustained economic growth. (see figure 2)
Real GDP Growth Rate
Agriculture
Growth in the agricultural sector, the mainstay of the economy, is projected at 5.7 per cent indicating 0.9 percentage shortfall against the target of 6.6 per cent. The contributory sub-sectors to the underperformance are the Cocoa Production and Marketing; and the Forestry and logging subsectors.
However, the fishing sub-sector has started showing signs of recovery, recording an estimated 3.6 per cent growth in 2006 from the negative 1.2 per cent growth in 2005.
Percentage Growth in Agriculture (2003-2006)
Source: Ghana Statistical Service /MoFEP
As a result of the lower than targeted agriculture growth, its share as a percentage of GDP declined from 36.0 per cent in 2005 to 35.8 per cent in 2006, while it contributed 2.1 percentage points to the GDP growth of 6.2 per cent.
Agriculture’s Share of GDP and Contribution to Overall Growth (2004-2006)
Source: Ghana Statistical Service/MoFEP
Industry
Provisional information indicates that industrial growth is projected at 7.3 per cent, with Electricity and Water as the major contributory sub-sector. The supply of electricity is generally demand-driven and with a very high demand in 2006 from the mining and manufacturing sub-sectors, the generation of electricity has risen substantially. In addition, significant government investment in the Electricity and Water sub-sector is expected to increase the overall growth in that sector.
In the Mining and Quarrying sub-sector, gold is projected to register a significant growth of about 9.0 per cent, with the other components of minerals generally projected to perform below expectation. The overall effect is an estimated low growth for the sub-sector from 6.3 per cent in 2005 to 3.0 per cent in 2006.
The Manufacturing sub-sector is projected to grow at a lower rate of 4.2 per cent in 2006, compared to the 5.0 per cent recorded in 2005.
Construction, however, is projected to grow by 8.2 per cent, exceeding the target for the year. This is attributable to the increased road construction and other infrastructural development throughout the country. In addition, a total of 1,349,644 tonnes of cement was produced during the first eight months of 2006 against 1,276,571 tonnes produced during the corresponding period of 2005, an indication of robustness of construction activities.
Growth in Industry (2003-2006)
Source: Ghana Statistical Service/MoFEP
As a share of GDP, the industrial sub-sector has improved from 24.7 per cent in 2004 to 25.4 per cent in 2006. Its contribution to the 6.2 per cent GDP growth was 1.8 per cent, with significant performance from Water and Electricity, and Construction.
Industry’s Share of GDP and Contribution To Overall GDP Growth (2004-2006)
Source: Ghana Statistical Service /MoFEP
Services
The services sector is projected to grow by 6.5 per cent, exceeding the target of 6.2 per cent for the year. This growth is largely driven by increased Government expenditure in the provision of services and the increased competition in the
Finance and Insurance sub-sector.
Growth in Services (2003-2006)
Source: Ghana Statistical Service /MoFEP
As a share of GDP, the services sector has also increased from 29.9 to 30.1 per cent. The sector also contributed 2.0 percentage points to the 6.2 per cent overall growth.
Services’ Share of GDP and Contribution to GDP Growth (2003-2006)
Source: Ghana Statistical Service/MoFEP
Real Sector Economic Activities
The robustness of real sector growth and the resilience of the economy is supported by the sector specific indicators over the nine months of 2006. With the exception of tourist arrivals, indicators such as income and corporate tax collections, workers’ contributions to SSNIT, cement production and new registration of vehicles continued to show significant growth.
On workers’ contributions to SSNIT, collections for the first eight months of 2006 was 30.5 per cent higher than in the same period of 2005 and represents about 17.5 per cent growth after adjusting for price changes.
Transport Sector
In the transport sector, a total of 42,181 new motor vehicles were registered by the Driver and Vehicle Licensing Authority (DVLA) during the review period, compared with 36,501 vehicles registered during the corresponding period of 2005, indicating a 15.6 per cent growth. In proportional terms, private motor vehicles accounted for 34.2 per cent. The others are as follows: commercial vehicles (26.8 per cent); motor motorcycles (21.9 per cent) ; buses and coaches (8.3per cent) ; rigid cargo and articulator trucks together (6.5 per cent) ; while agricultural equipment, combine harvesters, construction equipment and mining equipment together accounted for 2.2 per cent.
A total of 1,349,644 tonnes of cement were produced during the first eight months of 2006, against 1,276,571 tonnes produced during the corresponding period of 2005, thus indicating a 5.7 percentage point growth in cement output.
On employment, sample job market data on vacancies showed an increase of 12.5 per cent as a total of 6,788 job vacancies were advertised in the Daily Graphic compared with 6033 vacancies announced during the same period of 2005, suggesting an increase in job openings advertised through the Daily Graphic.
Cumulative Job Vacancies (January – Sept. 2006)
Analysis of the vacancies on sectoral basis indicated that around 85 per cent of the vacancies came from the services sector. Within the services sector, education accounted for 28.4 per cent of the total vacancies, wholesale and retail trade 11.03 per cent and Transport, Storage, and Communication 9.2 per cent). The industrial sector, led by manufacturing accounted for 14.2 per cent with agric accounting for less than 1 per cent.
The lack of reliable information on employment not withstanding, these trends in job vacancy announcements reflect, in part, the signaled and revealed demand for labour services by various establishments in the last few years.
Fiscal Developments
For the first nine months of the 2006 fiscal year, the overall Budget balance showed a deficit of ¢5,059.5 billion (4.4 per cent of GDP) compared with a deficit of ¢3,643.0 billion (3.8 per cent of GDP) in the corresponding period of 2005. The domestic primary balance also recorded a deficit of ¢3,739.7 billion (3.3 per cent of GDP) compared with a surplus of ¢653.3 billion (0.7 per cent of GDP) in the same period of 2005.
May I go on to present to this august House the details of the fiscal performance for the first nine months of the implementation of the 2006 Budget, and the projections to the end of 2006.
Receipts
Provisional fiscal outturn for January to September 2006 shows that total receipts amounted to ¢31,929.7 billion, against the outturn of ¢23,723.7 billion registered for the same period during 2005. This shows a 34.6 per cent increase over the outturn for the corresponding period of 2005. The relatively high outturn of total receipts recorded is mainly due to receipts from the Multilateral Debt Relief Initiative (MDRI) totaling ¢1,826.4 billion.
For the year 2006 as a whole, total receipts are projected at ¢41,357.1 billion, showing an outturn of 4.9 per cent below the budget estimate of ¢43,468.2 billion.
Domestic revenue as at the end of September was ¢16,696.3 billion, 7.1 per cent lower than the programmed amount of ¢17,963.6 billion. This outturn was however, 9.6 per cent higher than the amount of ¢15,235.1 billion recorded for the same period in 2005. For the year as a whole domestic revenue is projected at ¢25,421.5 billion against a budget estimate of ¢26,438.8 billion.
Of Domestic revenue, the outturn for tax revenue up to end September 2006 was ¢15,424.6 billion, against a programmed target of ¢16,408.6 billion. The performance of tax revenue, however, indicates an increase of 11.3 per cent over the performance for the corresponding period in 2005. Total tax revenues are projected to be lower than the budget estimate of ¢21,214.1 billion by ¢893.4 billion, equivalent to 3.7 per cent below the budget estimate for 2006.
Direct taxes which comprise personal, self-employed, companies taxes and others such as airport tax amounted to ¢4,699.4 billion, 10.2 per cent higher than the outturn for the same period in 2005. However, these tax types are projected to be ¢7,249.6 billion, slightly lower than the budget target of ¢7,268.6 billion for the fiscal year.
Indirect taxes for the first nine months of the year totaled ¢7,562.9 billion against a programmed target of ¢8,533.9 billion. In spite of the under performance, the outturn indicates an increase of 11.6 per cent over the outturn for the corresponding period in 2005. It is however, projected that by the end of 2006 there will be an under performance equivalent to about 12.8 per cent of the budget projection of ¢12,087 billion.
Domestic VAT for the first three quarters of the year amounted to ¢1,591.4 billion, against a programme target of ¢1,607.5. The outturn was 27.8 per cent higher than the outturn for the corresponding period in 2005. On current trends, however, the budget estimate for Domestic VAT is expected to be achieved by the end of the year.
The outturn for International Trade Taxes for the period under review was ¢3,162.2 billion, representing a shortfall equivalent to about 3.2 per cent of the programmed amount. The outturn was 12.5 per cent higher than the outturn for the same period in 2005. International trade taxes are projected to be ¢318.0 billion higher than the projected amount of ¢4,858.5 billion indicated in the 2006 budget estimate. The higher than budgeted receipts are the result of higher cocoa receipts expected for 2006.
Of the total international trade taxes, Export Duty which is mainly cocoa duties for the period under review amounted to ¢328 billion, representing a 3.1 per cent increase over the outturn for the same period in 2005. Due to improved performance of cocoa, it is projected that by the end of the year export duty will amount to ¢1,246.3 billion. This projected outturn indicates a 201.1 per cent increase over the budget estimate for the year.
For the first 9 months of the year, Import VAT totalled ¢2,404.5 billion, about 4.9 per cent higher than the outturn for the corresponding period in 2005. As result of lower import volumes, import VAT is projected to be ¢3,721.3 billion, ¢992.2 billion lower than the budget estimate for 2006.
National Health Insurance Levy (NHIL) amounted to ¢785.4 billion, 28.4 per cent lower than the programme target of ¢1,096.5 billion and 9.8 per cent lower than the outturn for the same period in 2005.
Receipts from Non-Tax Revenue for the period under review, amounted to ¢486.3 billion, exceeding the budget target by ¢27.9 billion. This outturn was, however, 5.0 per cent lower than the outturn for the same period in 2005. Non-Tax revenue receipts are, nonetheless, expected to meet the 2006 budget projection of ¢711 billion.
Divestiture receipts for the first three quarters of the year amounted to ¢6 billion and are expected to record a shortfall of ¢667.4 billion against the budget estimate of ¢673.4 billion. The shortfall is the result of the slow pace in the preparation of State-Owned enterprises (SOEs) for divestiture on the Ghana
Stock Exchange (GSE).
Total grant disbursements for the period under review amounted to ¢5,268.7 billion, indicating an 11.1 per cent shortfall under the budget target, and a 26.7 per cent increase over the outturn for the same period in 2005. Multilateral HIPC Assistance was ¢527.9 billion, 21.9 per cent lower than the outturn for the same period in 2005, while programme grants amounted to ¢1,144.9 billion, representing a 13.5 per cent increase over the outturn for the same period in 2005. The outturn for project grants was ¢1,769.4 billion, about 28.5 per cent lower than the outturn for the corresponding period in 2005.
The relatively better performance of total grants for the period under review as compared to the same period in 2005 resulted from receipts from the Multilateral Debt Relief Initiative (MDRI). For the year as a whole total grant disbursements are projected at ¢7,228.6 billion. Out of this multilateral HIPC debt relief is projected at ¢1,205.4 billion, while MDRI is expected to amount to ¢2,100.8 billion. Project grants and programme grants disbursements are expected to yield ¢2,669.4 billion and ¢1,253 billion respectively.
Total loans amounted to ¢3,352 billion against a budget target of ¢4,395.6 billion. The outturn is 8.2 per cent lower than the outturn for the same period in 2005. Project loans was below the budget target, by 26.5 per cent, while programme loans under performed by 20 per cent against the budget target of ¢1,639 billion. Total loan disbursements are projected at ¢65,759.3 billion for the year, out of which the outturn for programme loans is projected at ¢1,596.3 billion and project loans at ¢4,163.0 billion.
Exceptional Financing of the budget, which is predominantly debt relief from our bilateral partners totaled ¢746.1 billion, about a 10.7 per cent increase over the amount recorded for the same period in 2005. It is expected that the budget target of ¢1,729.1 billion will be met by the end of the year.
Payments
The provisional outturn for total payments for the first three quarters of 2006, comprising statutory and discretionary payments was ¢31,929.7 billion. This outturn compares to ¢23,723.7 billion for the corresponding period in 2005. The details are specified below.
Statutory Payments
Total statutory payments which includes interest payments, amortization, transfers to households, and statutory funds amounted to ¢8,165.1 billion, 3.9 per cent lower than the budget target for end September 2006. The outturn indicates a 6.8 per cent increase over the outturn for the same period in 2005. For the year as a whole, total statutory payments are projected at ¢13,006.5 billion, compared to budget estimate of ¢13,993.2 billion.
External Debt Service for the period under review amounted to ¢2,404.6 billion, which is 10.0 per cent higher than the outturn for the same period in 2005. The principal component of the external debt due was ¢1,814.0 billion, 18.1 per cent lower than the outturn for same period in 2005. Payments on external interest amounted to ¢588.6 billion, 6.1 per cent lower than the outturn during the corresponding period in 2005. Total external debt service is projected at ¢3,881.6 billion for the year as a whole, out of which interest payments are projected at ¢858.6 billion.
Domestic interest payments, including interests on TOR bonds, amounted to ¢1,944.8 billion, showing a 1.5 per cent increase over the outturn recorded for the same period in 2005. Domestic interest payments due for the whole year is projected at ¢2,426.8 billion.
Transfers to households, consisting of Pensions, Gratuities, transfers into the National health fund and Social Security contributions by Government on behalf of public servants, collectively amounted to ¢1,638.4 billion for the first three quarters of 2006. This compares to a payment amounting to ¢1,508.3 billion made during the corresponding period in 2005. Together these expenditure items are projected to register an outturn of ¢3,471.7 billion by the end of 2006.
During the first three quarters of the year, The Road Fund and other Petroleum-Related Funds received a total of ¢805.1 billion, of which the Road Fund received ¢billion. This indicates a 13.9 per cent increase over the outturn for the same period in 2005. For the year as a whole, projected outturn by the end December is projected at ¢1,097.8 billion.
The District Assemblies Common Fund (DACF) received a total of ¢784.9 billion, representing an increase of 11.8 per cent for the same period in 2005. Due to the projected underperformance of tax revenues it is expected that by the end of the year transfers into the Fund will amount to ¢1,046.1 billion, ¢158.3 billion lower than the 2006 budget estimate.
Transfers into the Ghana Education Trust Fund (GET Fund) during the period under review totaled ¢589.3 billion against a budget target of ¢760.9 billion. The projected outturn is ¢1,082.4 billion for the whole of 2006, based on the expected outturn for Value Added Tax receipts.
Discretionary Payments
Total Discretionary Payments for the first three quarters of 2006 amounted to ¢24,111.3 billion against a budget target of ¢22,554.8 billion.
Payments for Wages and Salaries during the period under review amounted to ¢8,422.5 billion, representing an increase of 11 per cent over the budget target of ¢7,588 billion. The outturn for wages and salaries is projected to be ¢10,972.5 billion by the end of the year against the 2006 budget estimate of ¢9,999 billion. This represents an overrun of ¢982.5 billion on the budget estimate for salaries resulting from some extraordinary pressures on the public sector labor market beginning in the second half of the year.
Administration (Item 2) recorded an amount of ¢2,134.5 billion against a budget target of ¢2,258 billion, while Service (Item 3) registered ¢873 billion. These compare with amounts of ¢1,628.4 billion and ¢716.7 billion, respectively, for the period in 2005. These expenditure items are expected broadly in line with the budget estimates of ¢2,233.5 billion ¢1,234.5 billion respectively.
Investment outlays (Item 4) for the period January September 2006 amounted to ¢4,892.2 billion, made ¢1,098 billion from domestic sources, and ¢3,810.5 billion foreign-financed sources. This is 11.8 per cent lower than total investment expenditure of ¢5,544.6 billion during corresponding period in 2005. Total Investment outlays for year are projected to be ¢9,447.5 billion, 19.6 per cent than the estimated amount in the 2006 Budget Statement.
It may be noted that in the Supplementary Budget presented to this august House in July, 2006 the receipts the Multilateral Debt Relief Initiative, were apportioned classified to be expended on Domestically Financed Capital expenditure (¢1,997.1 billion). Administration (¢46.6 billion) Services (¢425.7 billion).
To enable us monitor the use of all MDRI receipts, a line item (MDRI-financed expenditure) has been introduced the fiscal framework to enable us report transparently on use of the debt relief from the MDRI. During the period review MDRI-financed Expenditure amounted to ¢billion. It is projected that by the end of 2006 total MDRI financed expenditure will be ¢1,509.4 billion.
HIPC-financed Expenditure for the first three quarters of the year amounted to ¢1,324.3 billion, compared to ¢1,435.9 billion expended on HIPC-related projects and programmes during the same period in 2005. The relatively lower outturn for HIPC-financed expenditure is due to the fact that some HIPC relief inflows have now been classified as MDRI receipts. Expenditure on HIPC-financed projects and programmes is projected at ¢1,822.1 billion by the end of 2006, while MDRI financed expenditure is projected at ¢1,509.4 billion.
Clearance of Arrears and liquidation of Commitments
During the period under review a total amount of ¢ 250.4 billion was paid in respect of arrears clearance and liquidation of commitments carried over from 2005. The outturn for the period consisted of road arrears of ¢96.1 billion and nonroad commitments of ¢154.3 billion. It is projected that the budgets estimate of ¢347 billion will be met by the end of 2006. Of this amount ¢43.1 billion and 53.9 billion will be in respect of scheduled arrears clearance for the GETFund and DACF, respectively.
Domestic Financing of the Budget for the first three quarters of the year amounted to a net borrowing of ¢2,846.4 billion, against a budget target of ¢870 billion. It is projected that the domestic financing of the budget will register a net borrowing of ¢2,212.6 billion by the end of 2006. The major reasons for this outturn can be attributed to the unanticipated transfer to VRA as a result of the oil shock, under recovery at TOR, and the extraordinary pressures on the labour front which led to effective nominal increases in the wage bill of about 20 per cent and its consequential increase in salary related expenditures, such as, pensions, social security contributions, and allowances.
Overall Budget Balance
Given the fiscal performance for the first nine months of the year and the projections that have been made for the end of the year, the overall budget balance is projected to record a deficit of ¢5,591.8 billion, equivalent to 4.9 per cent of GDP compared to the budget estimate of 4.5 per cent of GDP. The domestic primary balance is also projected to be a deficit of 2.1 per cent of GDP against the budget estimate of a deficit of 1.4 per cent of GDP. As a result, the main fiscal anchor - domestic debt-to-GDP - is projected at 10.1 per cent against a target of 8.7 per cent for 2006.
Source: Ministry of Finance / 2007 Budget, Ghana
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