Government Poverty Reduction strategy doubtful

The Minority group in Parliament has described yesterday’s budget statement as “TEAM B BUDGET; but the Finance Minister, Dr. Kwabena Duffuor, says the budget is targeted at the sustenance of the macroeconomic stability and fiscal
discipline achieved in 2009.

The budget will also position the country for a sustained growth through the modernization of agriculture, provision of key infrastructure development, oil and gas projects, private sector development, ICT and Delivery of social programs targeted at poverty reduction.

In the opinion of the Finance Minister, the fact that the government inherited distressed economy characterized by huge deficits necessitated the need for government to cut down expenditure in order to address the fiscal deficit.
Ghana’s fiscal deficit stood at GH¢2.6 billion at the end of 2008 when the NPP left office as compared to GH¢260 million registered at end 2000 when NDC left office.

Fiscal policy is one of the most powerful instruments for maintaining macroeconomic stability for growth, as well as for intra-generational and inter-generational transfers of wealth, and for correcting market failures.
Despite its potential for promoting growth, fiscal intervention, when misguided, can do more harm than good.
However, the Minister said government spending in the medium-term will need to be directed to areas considered to be key to the country’s economic growth.

“The key areas that government will focus on in the medium term to grow the economy at the rate of 8-10% per annum required to move the country to a middle income status by the year 2020 include the oil and gas industry, agriculture modernization, private sector development, provision of key infrastructure, and information and communication technology”, the Finance Minister noted.

In apparent reference to the NPP, to the Finance Minister noted: “Never in the history of our country have we faced such a huge fiscal deficit in proportion to GDP.

Having regard to the significant increases in government resources between 2005 and 2008, the huge deficit showed a serious failure of expenditure control. We were living beyond our means in a manner that we could not sustain”.

He said, by the end of September this year, arrears and unpaid bills amounted to GH¢1.7 billion in 2008, amounting to almost 22% of GDP.
Ghana’s accumulated huge arrears in 2008 threatened the execution of the 2009 budget since most of the arrears were not detected and budgeted for during the preparation of the 2009 budget.

Dr. Duffuor said a large proportion of these arrears arose from contracts that were in clear breach of the procurement law.
“The NDC Government has managed to pay a sizeable proportion of the arrears but there are still outstanding ones to be taken care of in the 2010 budget”, he declared.
Dr. Duffuor said the projected deficit of 10.2% of GDP is nearly 5% less than the deficit posted by the previous government last year, adding “We have also achieved this impressive performance against the backdrop of declining inflation, appreciating exchange rate, payment of some GH¢625 million to partly liquidate the over GH¢1.7 billion unpaid bills left by the NPP government, and significant improvement in the current account of the balance of payments”.

He noted: “The Mills administration has paid GH¢625 million this year to partly liquidate arrears left by the NPP Government, less budget deficit for 2009 would have been less than 9.4% of GDP”.
Dr. Duffuor said, notwithstanding the impressive performance of the government in the first three quarters of the year, there were some challenges that needs to be confronted if the gains are to be sustained.

The first, he said has to do with the unpaid 2008 arrears and judgment debt and the potential increases in world fuel prices.
The economy according to the Finance Minister is saddled with outstanding claims amounting to GH¢1.1 billion which should have been paid in 2008.

This is made up of GH¢830 million for energy, roads and other MDAs projects. Claims in respect of DACF, GETFund, NHIS and
Social Security contributions that were not paid by the NPP Government amounted to GH¢293.3 million.
“In addition to the GH¢1.1 billion, there were also energy related expenditures, such as TOR under-recovery and redemption of matured promissory notes, totaling GH¢626.7 million that were also left unpaid.

He, however, cautioned that there are hard times ahead since the size of these unpaid arrears and judgment debt left by the NPP Government they have serious implications for efficient and effective management of the 2010 budget and beyond.