MID-YEAR FISCAL POLICY REVIEW OF THE 2019 BUDGET STATEMENT AND ECONOMIC POLICY
1. Right Honourable Speaker, Honourable Members of Parliament, today the 29th July 2019 on the authority of His Excellency, President Nana Addo Dankwa Akufo-Addo, I beg to move that this august House approves the Mid-Year Fiscal Policy Review and Supplementary Estimates to the 2019 Budget.
2. Mr. Speaker, on 15th November 2018, I presented to this House the Budget Statement and Economic Policy of the Government of Ghana for the 2019 Financial Year. I stand before you today to present the Mid-Year Fiscal Policy Review of the 2019 Budget Statement and Economic Policy, and a Supplementary Estimate of Government for the 2019 Financial Year.
3. Mr. Speaker, I am performing this statutory function in accordance with Article 179 (8) of the 1992 Constitution and Standing Order 143 of this august House which set out the modalities for laying Supplementary Estimates before this House, and Section 28 of the Public Financial Management Act, 2016 (Act 921) which enjoins the Minister responsible for Finance to prepare and submit to Parliament a Mid-Year Fiscal Policy Review.
4. Mr. Speaker, this statement is an abridged version of the Mid-Year Review of the 2019 Budget Statement. I would like to request the Hansard Department to capture the entire statement on the Mid-Year Fiscal Policy Review and Supplementary Estimates.
5. Mr. Speaker, I wish to update the House on key developments since the Budget presentation last year, a few of which are challenging our collective efforts to improve and expand the economy. Some of these developments have imposed significant shocks and will require decisive actions to maintain economic stability.
. In line with our objective of building a strong economy for jobs and prosperity, Government outlined a number of priority objectives for the 2019 Budget. They include:
• Maintaining macroeconomic stability; • Modernising Agriculture;
• Provision of Efficient Infrastructure;
• Private Sector Growth and Entrepreneurship;
• Social Intervention Policies; and
• Financial Sector clean-up.
7. I am happy to announce that these priority projects are on and we are delivering on the real change that Ghanaians voted so massively for in December 2016. In the last 31 months, year after year, budget after budget, together with the active support of the people and businesses, we are, building a confident, stronger and ambitious economy. The shared progress that we are making is real and the credit for this success is, in fact, a shared one with the people we are elected to lead, serve and obey.
8. However, Mr Speaker, it must be stressed that we continue to face serious risks and challenges which we must, with the support of the people, tackle head on because these risks and challenges combine to slow our efforts to improve with urgency, depth and discipline, the lives of our people, especially in the provision of public and social infrastructure, such as roads, community housing, schools, clinics, water and electricity. We believe that the accelerated progress which the people of Ghana desire and deserve will be better served if these risks and challenges are neutralised.
9. Mr. Speaker, a 2019 report of the IMF, using Ghana as a case study, pretty much captures where our economy was and where we have taken it to over the past 31 months and the greater gains we are poised to make from the decisions we have taken as a result of the competence and discipline we have applied in implementing them.
10. With your permission, Mr Speaker, I quote from the very beginning of the report: “Ghana has been hailed as one of sub-Saharan Africa’s success stories. It was the first to free itself from colonial rule, in 1957. It built a stable democracy in the 1990s, overcoming decades of political upheaval. A thriving economy fuelled by exports of cocoa, gold, and—more recently—oil helped cut the poverty rate from 53 percent in 1991 to 21 percent in 2012.
11. “But by 2015, Ghana’s economy was in trouble, hobbled by widening current account and budget deficits, rampant inflation, and a depreciating currency. Credit dried up as interest rates rose and banks’ bad loans piled up. At the root of Ghana’s woes was out-of-control government spending… In early 2015, Ghana turned to the IMF for a $918 million loan to help stabilize the economy…” [unquote]
12. The report goes on to highlight some of the achievements chalked over the past 31 months. “[quote] Ghana’s economy is on the mend. The trade and budget deficits are narrowing. The pace of economic growth is poised to rise to 8.8 percent in 2019 from 2.2 percent in 2015. The inflation rate is projected to fall to 8 percent from almost 19 percent. Cuts to wasteful spending made room for much needed social services, such as free secondary education. For Ghana’s 28 million people, it all adds up to higher incomes, better job opportunities, and more purchasing power. [unquote]“ https://www.imf.org/en/Countries/GHA/ghana-lending-case-study
13. Mr. Speaker, true to our word, we have successfully completed and exited the IMF-ECF programme with the final review completed last April. We have had to make some difficult but necessary choices to correct the mistakes that forced the previous government to seek an IMF bailout for oil-rich Ghana. We believe that the decisions we have taken so far will safeguard the long-term interest of the nation and our people and thank the people for bearing with us. Economic management, after all, is about making difficult choices. It is about putting the national interest above sometimes populist, self-serving and short-term choices.
14. The shared successes achieved so far attests to the fact that, like the good stewards mentioned in the parable of the talents in the Bible, we have prudently utilised the very limited resources that we were entrusted with to achieve much more. I stood here Mr. Speaker in March 2017, with our two fishes and five loaves, and the Lord has indeed blessed us
15. Mr. Speaker, we have been able to entrench fiscal discipline through the strategic allocation of resources, efficiency in the use of public funds, as well as enhancing transparency and accountability in our management of the public purse. Candidate Akufo-Addo promised to protect the public purse and that is exactly what we have been doing at the Treasury.
16. To highlight the point, Mr Speaker, in a space of 31 months (from January 2017 to July 27th, 2019), by reviewing contracts that were either sole-sourced or procured through restrictive tender, the Akufo-Addo administration has made savings of GH¢2.75 billion (which breaks down to GH¢800 million in 2017, GH¢1.1 billion in 2018, and GH¢1.085 billion in 2019).
17. Mr Speaker, permit me to compare these savings made by the Public Procurement Authority under this administration to what happened under the previous one, even though more contracts were awarded through sole sourcing and restrictive tender annually than any year under this government. In 2013 savings registered was zero cedis. In 2014, again, savings made amounted to zero cedis. In 2015, savings made totalled zero cedis. In 2016, again the PPA made zero cedis in savings. When it comes to how taxpayers’ monies have been managed, the facts and figures, Mr Speaker, speak loudly. We believe it is very important on days like this we show to the people of
Ghana that this government, their government, the Akufo-Addo government, the New Patriotic Party government, your government spends the taxes you pay for your benefit and for the benefit of the collective. This is because we consider the social contract between government and the people as a sacred covenant.
18. Mr Speaker, in each of the 57 or so Cabinet meetings we have attended in the last 31 months, the President is always quick to remind us, to stress to us, his ministers, the urgency in meeting the needs and aspirations of the Ghanaian people. Just last week, as we discussed the details of this statement I am reading now, the President reminded us that, in spite of all that we have managed to achieve so far, too many Ghanaians are still suffering. He reminds us that we are certainly not there yet. That our efforts to confront poverty, fix our roads, provide community housing, support our farmers, protect the vulnerable, offer better conditions of service to our nurses, teachers, security officers, get businesses operating optimally, were being checked and that we should be bolder in taking steps that will offer us the fiscal space to improve the lives of those we lead, serve and obey. Today, I will announce the calculated and balanced measures that we intend to take, with the support of this House, with, essentially, the aim of improving lives.
19. Mr. Speaker, the Akufo-Addo government leads, serves and obeys. The evidence is mightily clear that we offer better and assured leadership in managing the Ghanaian economy. All key indicators for building a stronger economy have been cured effectively and are stronger now than they were 31 months ago.
• Inflation has dropped to single digit and dropping;
• Interest rates continue to drop;
• External payments position has strengthened;
• Exchange rates have been more stable;
• The fiscal deficit has reduced to below 5%;
• Real GDP growth has rebounded and remains robust;
• Debt to GDP ratio is below 60%.
• The banking sector has been rescued, and recapitalized.
20. Mr. Speaker, as a result of the bold and decisive measures we took to fix the banking crisis, our banks are stronger and richer, and, with the cost of borrowing dropping, banks can and should, therefore, do a lot more to support the growth and expansion of business which will create more jobs under the stable environment that has been provided by Government for that exercise.
21. Mr. Speaker, we recall, the last time the NPP was in government, a government in which, you, Mr. Speaker served with pride and distinction, our financial sector expanded considerably. It was under President J. A. Kufuor that we saw increase in the number of banks. The sector became competitive, with banks chasing ordinary workers with loan offers. This resulted in one of the highest average GDP growth rates in our country’s history.
22. We know that the foundation for growing businesses and creating jobs everywhere is a vibrant, well-governed, well-resourced, competitive financial services sector, operating under a stable economic regime. That is why we could not watch the sector collapsing, even if it meant slowing down for a year or so on some of our own scheduled programmes. In the recovery process, we managed to set up the Consolidated Bank Ghana Limited and capitalised it with GH¢450 million. Just this month, CBG has released funds, totalling GH¢530 million to Cocobod for cocoa roads. We provided funding of GH¢11.2 billion to secure depositors’ funds in the failed banks. The Ghana Amalgamated Trust has provided funds, to capitalize solvent indigenous banks that were struggling to meet the enhanced minimum paid-up capital of GH¢400 million. We have recently provided an additional GH¢925 million for pay-outs to small depositors of the 386 microfinance institutions.
23. Mr. Speaker, we have restored confidence into the banking system, securing the otherwise distressed deposits of some 2,655,100 customers, as well as saving over 3,000 jobs. Today, total banks’ assets have shot up to GH¢112.8 billion. Growth of credit to the private sector is rebounding assuredly by 16.8% in June 2019. I am, therefore, happy to announce confidently that Ghana is seeing the revival of that zealous, responsive and, at the same time, responsible banking environment we had been reduced to reminiscing.
24. Mr. Speaker, the Akufo-Addo government is here to lead and also serve. We are serving the people better in keeping their lights on; in getting our children into the classrooms and feeding them there; in getting our NHIS cards to work; in reducing the cost and hassle of clearing goods at our ports, in keeping more police on our streets, in helping farmers to produce more and earn more.
25. Mr. Speaker, again, the Akufo-Addo government is an obeying government. We trust and obey for the people who chose us to lead and serve. It mean we listen and we act responsibly and decisively, in response to what the people tell us.
26. We have looked beyond the legendary Green Book of bold but many unsubstantiated claims of infrastructural projects fabricated and built but in those beautiful pages for our predecessors’ 2016 campaign. We have also heard the echoing calls of the people from across the country since the Green Book was commissioned and their cries are to have their roads fixed. My message to all those WhatsApp videos of bad roads is this: we have heard you; we have seen them and; we are sending over the motor graders, wheel loaders, asphalt mixing plants and road roller machines to fix your community roads, farm gate roads and highways. We will certainly not be able to do them all within this four-year term. But, we have planned for them and have found the money to do far more than what the Green Book authors achieved. Fellow Ghanaians, I wish to plead with you and assure you to bear with us, for your obeying government, the Akufo-Addo government, will fix your roads and we shall fix them; not with words and pictures.
27. Mr. Speaker, our underlining strategy is to grow the economy and to do so aggressively, prudently, broadly and sustainably. This is because we know that we cannot meet the needs and aspirations of our people if we do not fix and build a strong, dynamic and confident economy. But, we cannot also build if we don’t manage the growth of our expenditure and maintain the discipline and integrity that are needed to protect the public purse.
28. We believe that every generation must pay its own share of recurrent expenditure. So, for recurrent spending on education, healthcare, security and other social spending, we should not be borrowing as that unfairly shifts the burden on future generations. We also know that even for infrastructural spending, there is still a limit as to how much we can borrow at any given time.
29. We are improving domestic revenue generation. The restructuring of the Ghana Revenue Authority and the measures we have put in place to automate processes at the ports are already yielding positive results. We see a new sense of responsibility from those entrusted with collecting our taxes and we know that they will make this country proud by keeping the tax gates and ensuring that we raise the necessary tax revenues to continue to effectively fund priority programmes for the benefit of all Ghanaians. We are also determined not to spare the rod on those who offend our revenue mobilisation efforts.
30. Three months ago, I came here, together with my colleague, John Peter Amewu, to ask for approval for the amended Petroleum Agreement for AGM Petroleum in the South Deepwater Tano block. Since then, the Norwegian oil company has drilled two wells in the block – two more than the number of wells drilled under the previous administration. And, just two weeks ago AGM announced that they had discovered oil in an area called Blessing. This comes barely six months after Aker announced that it had discovered oil after a mightily successful drilling exercise in the Deepwater Tano Cape Three Points block, which was reported as the biggest find in Africa. The future is, indeed, brighter. All that I can say, Mr Speaker, is that we thank God for his blessings on Ghana.
31. Mr. Speaker, in line with our objectives for 2019, government is implementing a number of programmes to revamp economic and social infrastructure to support industry, facilitate business development and deliver social services.
32. Mr. Speaker, our industrialization and agricultural modernization drive is on track and transforming Ghana. Our social protection and intervention programmes have seen major expansion and efficiency gains.
33. Mr Speaker, Government’s flagship Free SHS programme, has changed the course of this nation forever and posterity will thank the President of the Republic of Ghana, His Excellency Nana Addo Dankwa Akufo-Addo for making it possible for our young people to realise their future dreams and aspirations through free education.
34. Access to secondary education in this country has never been higher. The innovative temporary double track system currently being implemented has helped to accommodate the numbers, affording each child the possibility of accessing secondary education. Government has responded to this increased demand with accelerated infrastructure delivery.
35. Mr. Speaker, I am happy to announce that two schemes, National Housing & Mortgage Scheme (NHMS) and Affordable Housing Real Estate Investment Trusts (REITs), under our “Decent Homes, Better Life” initiative have commenced. This initiative will provide quality affordable housing for Ghanaians, starting with public and civil servants.
36. Mr. Speaker, our remarkable achievements over the 31 months have been noticed even beyond the shores of Ghana, setting the right tone for attracting massive support for Ghana to win the bid to host the Secretariat of the African Continental Free Trade Area (AfCFTA). This is the first time Ghana is hosting a continental African institution. AfCFTA is an institution covering all African countries with a population of 1.2 billion and a GDP of US$2.5 trillion. The institution will spur trade and economic growth in Africa and with Ghana hosting the secretariat, this will advance our goal of becoming a regional economic hub.
37. Last Thursday I participated in the Investor Conference of the Ghana Trade Fair Site Redevelopment Project, which is aimed at redeveloping the Ghana Trade Fair Site into a first-class international convention and exhibition centre, supported by other infrastructure such as world class hotels, retail facilities and offices. The facility, when completed, will support international events generated by opportunities such as Ghana hosting the AfCFTA Secretariat. The Trade Fair Redevelopment Project, which is already in motion, is estimated to inject about US$2 billion in private sector investment into the economy and generate thousands of jobs for the people of Ghana, especially the community around the facility.
38. Mr Speaker, notwithstanding the significant progress we have made so far, the serious challenges we are facing in the energy sector pose grave financial risks to the whole economy. At the heart of these challenges are the obnoxious take-or-pay contracts signed by the NDC, which obligate us to pay for capacity we do not need.
39. Currently, according to the Energy Commission, our installed capacity of 5,083 MW is almost double our peak demand of around 2,700 MW. Notably, 2,300 MW of the installed capacity has been contracted on a take-or-pay basis. This means that we are contractually obliged to throw away money for this excess capacity which we do not consume. This has resulted in us paying over half a billion U.S. dollars or over GHS 2.5 billion annually for power generation capacity that we do not need.
40. Similarly for gas, Ghana has contracted for around 750 mmscf per day by 2023. This is even after this government terminated two other LNG contracts in 2017. Current demand is around 250 mmscf per day, and this is projected to rise to between 450 and 550 mmscf per day by 2023. About 640 mmscf of the contracted gas supply is on a take-or-pay basis, meaning we have to pay whether we use it or not. From 2020, if nothing is done, we will be facing annual excess gas capacity charges of between US$550 and US$850 million every year. Thankfully, we have a plan to deal with this.
41. Mr. Speaker, we cannot allow this situation to continue. There is no doubt that the situation in the energy sector is shocking the economy. We are in a state of emergency and must therefore respond with urgency and boldness. We shall from August 1st 2019, with the support of Parliament, make Take-or-pay contracts a beast of the past.
42. Mr. Speaker, the 12th June, 2019 ruling of the Supreme Court has defined the “total revenues” of Ghana of which the DACF shall be allotted 5%. Mr. Speaker, this judgement will bring an end to the long standing convention that had developed since the beginning of the 4th Republic. The Ministry of Finance has written to and is working with the Ministry of Justice and the Attorney-General’s Department to implement the judgment.
43. Mr. Speaker, I now proceed to give details of updated performance for 2018, developments for the first half year of 2019, and conclude with the outlook for the rest of the year
OVERVIEW OF RECENT MACROECONOMIC DEVELOPMENTS
Update on Global developments
44. Mr. Speaker, since the presentation of the 2019 Budget to this august House in November 2018, the global growth momentum has continued to decline, reflecting an escalation in trade tensions and tariff hikes between the United States and China, decline in business confidence, tightening of financial conditions, and higher policy uncertainty across many economies, including unresolved Brexit negotiations. Growth broadly weakened in emerging market and developing economies, influenced largely by a slowdown in global trade, concerns with the on-going US-China trade tensions, as well as worsened global financial market sentiments in the second half of 2018.
45. Mr. Speaker, inflationary pressures in advanced economies, including Ghana’s key trading partners, remain relatively subdued, reflecting low commodity prices and sluggish wage growth. Across emerging market and developing economies, the recent drop in oil prices have contributed to subdued inflationary pressures. Inflation is expected to remain stable and contained across advanced economies, reflecting the expected moderation in global growth, relatively anchored inflation expectations, and moderate wage growth.
46. Mr. Speaker, global financing conditions, on the other hand, have eased somewhat due to prospects of anticipated reduction in the US Fed rate in the second half of the year, and the general accommodative monetary policy stance across most advanced economies. Financial conditions in emerging markets also improved earlier in the year but still remain somewhat tighter than at the time of presenting the 2019 Budget in November last year.
Update of Macro Economic Developments in 2018
47. Mr. Speaker, at the time of presenting the 2019 Budget to this august House in November last year, we provided information on macroeconomic developments and outcomes for the first nine months of the 2018 fiscal year. We now have updated information through to end-December 2018. With your permission, I will proceed to present the summary on the updated macroeconomic developments in 2018. To put this review in perspective, however, I would like to restate the macroeconomic targets for 2018:
• Overall real GDP growth rate was projected at 5.6 percent;
• Non-oil real GDP growth rate was projected at 5.8 percent;
• End-period December inflation was projected at 8.9 percent;
• Overall Budget Balance was projected to end in a deficit equivalent to 3.7 percent of GDP;
• Primary balance was projected to end in a surplus equivalent to 1.4 percent of GDP; and
• Gross International Reserves was projected to cover at least 3.5 months of imports of goods and services.
48. Mr. Speaker, provisional data released by the Ghana Statistical Service (GSS) in April 2019 show that overall real GDP growth (including oil) for 2018 was 6.3 percent, 0.7 percentage points higher than programmed, albeit lower than the 2017 performance of 8.1 percent. Non-oil real GDP also increased from 4.6 percent in 2017 to 6.5 percent in 2018, and exceeded the target rate of
49. Mr. Speaker, headline inflation eased to 9.4 percent in December 2018 from 11.8 percent in December 2017, mainly on account of steady decline in non- food inflation, supported by the relatively tight monetary policy stance maintained throughout the year, as well as a supportive fiscal stance. Non-food inflation fell to 9.8 percent in December 2018 from 13.6 percent in December 2017, while Food inflation increased to 8.7 percent in December from 8.0 percent over the same period in 2017.
Monetary Aggregates and Credit
50. Mr. speaker, in spite of the contraction of private sector credit growth in the first quarter of 2018, private sector credit growth recovered as banking sector liquidity improved, reflecting the impact of the banking sector clean-up and the recapitalization exercise in 2018. Annual growth in private sector credit for 2018 was 10.6 percent compared with 13.4 percent growth a year earlier. The share of total outstanding credit to the private sector is still high at 88.0 per cent in 2018, down from 89.8 per cent in 2017. Total outstanding credit to the private sector at the end of December 2018 was GH¢37,593.2 million, compared with GH¢33,987.0 million recorded in the corresponding period in 2017.
Interest rate developments
51. Mr. Speaker, in line with Bank of Ghana’s objective of anchoring inflationary expectations and ensuring the stability of the domestic currency, the Monetary Policy Rate was lowered further by 300 basis points (bps) in 2018, from 20.0 percent in 2017 to 18.0 percent in March 2018, and further to 17.0 percent in June 2018, and remained unchanged for the rest of the year.
52. Average lending rates of banks declined broadly in line with the policy rate to 26.9 percent in December 2018, down from 29.3 percent in December in 2017. Interest rates on both short-end and medium-term government securities, however, generally trended upwards, particularly, in the second half of 2018, reflecting tight financing conditions.
Balance of Payments
53. On the external front, the trade balance recorded a surplus in 2018 for the second consecutive year, amounting to 2.7 percent of GDP, supported by strong performance in crude oil exports (which benefited from both volume and price developments) and non-traditional exports. The current account, however, recorded a deficit of US$2.1 billion (3.2 per cent of GDP) in 2018 compared to US$2.0 billion (3.4% of GDP) in 2017, as net outflows from the income account far outweighed the gains from the trade balance.
4. The stock of Gross International Reserves at the end of December 2018 amounted to US$7.0 billion, sufficient to provide cover for 3.6 months of imports of goods and services, compared to US$7.6 billion, or 4.3 months of imports of goods and services over the same period in 2017.
55. Mr. Speaker, the Ghana cedi was largely stable against the major currencies in 2018, supported by improved macroeconomic fundamentals and higher foreign exchange inflows. Despite coming under pressure between April and September, the cedi recovered in the last quarter of 2018, reflecting stabilizing global environment and improved foreign inflows from the cocoa syndicated loans and remittances, as well as drop in crude oil prices. On the interbank market, the cedi cumulatively depreciated in 2018 by 8.4 percent, 3.9 percent, and 3.3 percent, respectively, against the US dollar, the euro, and the pound sterling compared to 4.9 percent, 16.2 percent, and 12.9 percent against the US dollar, the euro, and the pound sterling, respectively, in 2017.
56. Mr. Speaker, Government’s fiscal operations in 2018 were broadly in line with expectations. The fiscal deficit, excluding financial sector resolution costs, declined further from 4.8 percent of GDP in 2017 to 3.9 percent in 2018. Altogether, this represents a cumulative decline of 2.6 percentage points of GDP since 2016. For the first time in many years, the country recorded a positive Primary Balance for the second consecutive year, reaching 1.4 percent of GDP at the end of 2018.
57. Mr. Speaker, Total Revenue and Grants for the period amounted to GH¢47.6 billion, equivalent to 15.8 percent of GDP, against the annual programme target of GH¢49.0 billion, or 16.4% of GDP.
58. Although some revenue handles such as Personal Income Tax, Corporate Income Tax, Petroleum Excise Tax, and upstream Oil & Gas receipts outperformed their respective annual targets, these were not enough to offset higher revenue shortfalls from Value Added Tax, International Trade Taxes and other Non-Tax receipts. The key reasons for the shortfalls were explained by,
i. non-implementation of Electronic Point of Sales devices (EPOs) policy;
ii. delay in the implementation of Excise Tax Stamp policy;
iii. lower recorded CIF Values of imports, and admittance of large volumes of imports into the exempt, low-rated and zero-rated tariff categories;
iv. non-realisation of some programmed Dividends from State-Owned Enterprises (SOEs);
v. non-materialisation of Gas Receipts due to intra-energy sector cross debt issues; and
vi. delay in the sale of an Electromagnetic Spectrum as well as payment of TELCOs license renewal fees.
59. Mr. Speaker, on the expenditure front, Total Expenditure (including arrears clearance) for the period was broadly contained within budgetary constraints and amounted to GH¢59.3 billion (19.7 percent of GDP) against a target of GH¢60.0 billion (20.1 percent of GDP).
Overall Budget Balance and Financing
60. Mr. Speaker, given the developments in revenue and expenditure, the Overall Budget Balance, registered a deficit of GH¢11.7 billion, or 3.9 percent of GDP, compared to the target of 3.7 percent of GDP.
61. The deficit was financed from both domestic and external sources. Total Domestic Financing amounted to GH¢8.9 billion, equivalent to 3.0 percent of GDP, and constituted 84 percent of the total financing. Foreign financing amounted to GH¢2.7 billion equivalent to 0.9 percent of GDP, against a target of GH¢4.7 billion or 1.6 percent of GDP.
62. The Primary Balance recorded a surplus of GH¢4.1 billion, equivalent to 1.4 percent of GDP, compared to the targeted surplus of GH¢4.2 billion, which is also 1.4 percent of GDP.
Public Debt Developments
63. Mr. Speaker, in line with our fiscal operations, Ghana’s gross public debt stock in nominal terms, stood at GH¢173.1 billion or US$35.9 billion at the end of 2018. This was made up of GH¢86.2 billion or US$17.9 billion of external debt and GH¢86.9 billion or US$18.0 billion of domestic debt.
Liability Management and Debt Re-Profiling Programme
64. Mr. Speaker, Government in 2018 implemented a liability management programme focusing on actively managing the public debt portfolio and minimising refinancing risk in line with the approved debt strategy. Leveraging on an improved macroeconomic environment, Government earmarked a total amount of US$1.25 billion from the proceeds of the 2018 Eurobond of US$2.0 billion for its liability management programme as follows:
• US$830.0 million was used to buy-back part of the 2022 Eurobond. This was also the largest liability management exercised by Ghana to date;
• Buybacks totalling GH¢309.0 million (US$64.1 million) were conducted to help smoothen the maturity profile of public domestic debt and to reduce refinancing risk; and
• The maturing 2-year domestic US Dollar-denominated bond of US$94.6 million was fully redeemed.
65. Mr. Speaker, Government also spent GH¢300 million to generate liquidity on the secondary market by buying back some domestic bonds. Consequently, the tenor of the domestic debt was extended to the longer end with an amount of GH¢4.2 billion.
Macroeconomic Performance from Jan – June, 2019
66. Mr. Speaker, I now report on the macroeconomic performance for the first-half of 2019. The following macroeconomic targets were set for 2019:
• Overall real GDP growth rate of 7.6 percent;
• Non-Oil Real GDP growth rate of 6.2 percent;
• End-period Inflation rate of 8.0 percent;
• Overall fiscal deficit of 4.2 percent of GDP;
• Primary surplus of 1.2 percent of GDP; and
• Gross international reserves to cover at least 3.5 months of imports of goods and services.
67. Mr. Speaker, provisional estimates released by the Ghana Statistical Service (GSS) in April 2019 show that overall real GDP recorded a growth rate of 6.7 percent in the first quarter 2019, compared to 5.4 percent over the same period in 2018. Growth in the non-oil sector was 6.0 percent compared to 4.2 percent in the corresponding period of 2018.
68. The Industry Sector recorded a growth rate of 8.4 percent in the first quarter of 2019 compared to 10.4 percent during the same period in 2018. Growth in the Services Sector rebounded strongly to 7.2 percent in the first quarter of 2019 compared to 1.4 percent recorded during the same period in 2018, while the Agriculture Sector recorded the lowest growth rate of 2.2 percent first quarter of 2019 compared to 4.7 percent during the same period in 2018.
69. Mr. Speaker, in spite of the progress made to contain inflationary pressures over the past 24 months, headline inflation rose gradually from 9.0 percent in
January to 9.5 percent in April, reflecting pass-through effects of the currency depreciation during the period. Inflation, however, declined gradually to 9.4 percent in May and further to 9.1 percent in June 2019.
70. In line with the disinflation process, the Bank of Ghana Policy Rate was further reduced by 100 basis points to 16.0 percent in January 2019 and has since remained unchanged. Over the first half year, the 91-day Treasury bill rate rose to 14.8 percent in June 2019 from 14.6 percent in December 2018. Similarly, the rate on the 182-day bills also increased to 15.2 percent from 15.0 percent for the comparative period.
71. Mr. Speaker, the recapitalization exercise undertaken by Bank of Ghana, which sought to increase the stated minimum capital of banks from GHÈ¼120 million to GHÈ¼400 million, ended in December 2018, with a total of 23 banks meeting the requirement. Following the clean-up exercise, total assets of the banking sector increased by over 12 percent between June 2018 June 2019. Total deposits also increased by over 22 percent during this period.
72. With the rebound of the sector, banks are now poised to deploy their newly-injected capital towards financial intermediation to aid the development process. Asset quality has also improved, as reflected in the declining Non-Performing Loans (NPL) ratio from 22.6 percent in June 2018 to 18.1 percent June 2019. There were also significant improvements in the banks’ profitability indicators.
Balance of Payments
73. Mr. Speaker, on the external front, provisional trade balance for the first half of 2019 show an improved trade surplus of 2.8 percent of GDP compared to a surplus of 1.9 percent of GDP in the first half of 2018. As a result, the current account recorded a marginal surplus in the first half of 2019, the first in recent times. Coupled with the with significant inflows recorded by the capital and financial accounts, the overall balance of payments yielded a surplus of 1.9 percent of GDP over the review period, compared with a deficit of 0.6 percent of GDP recorded during the same period last year.
74. The positive developments in the external sector contributed to significant improvements in the stock of gross international reserves to US$9.9 billion at end-March 2019, enough to pay for over 5 months of import of goods and services, before declining to 4.3 months import cover at the end of June 2019, largely on account of energy-related debt payments and higher repatriation obligations occasioned by domestic debt interest and coupon repayments to non-resident domestic debt holders.
75. After experiencing some temporary pressures in February 2019, the Ghana cedi largely stabilized towards the end of the first quarter of 2019, on account of improved supply of foreign exchange, partly from the recent Eurobond issue. The cedi experienced a cumulative depreciation of 8.4 percent in the year to June 2019, compared with 2.4 percent for the corresponding period of 2018. Against the pound sterling and the Euro, the cedi cumulatively depreciated by 7.6 percent and 7.9 percent, respectively.
76. Mr. Speaker, provisional fiscal data for the first half of 2019 show that revenue mobilisation fell short of target due mainly to shortfalls in customs receipts and non-oil Non-Tax revenues. Although expenditures were broadly within target, the pace of execution was faster due mainly to the need to accommodate some unprogrammed expenses on border security.
77. Mr. Speaker, these developments pushed our financing requirements above the programmed limits for the period to enable us address these additional expenditure pressures. Consequently, the fiscal deficit for the period widened from a programmed target of 2.9 percent of GDP to 3.3 percent.
78. Mr. Speaker, Total Revenue and Grants for the first half of the year amounted to GH¢22.8 billion compared with a programmed target of GH¢27.0 billion, resulting in a shortfall of 15.5 percent. This, however, represents a nominal increase of 7.8 percent over the corresponding period in 2018.
79. Non-oil Tax Revenue, comprising taxes on Income and Property, Goods and Services and International Trade, though 9.4 percent below target for the first half of 2019represents an annual increase of 14.7 percent. With the exception of Domestic VAT, Petroleum Excise taxes, Domestic National Health Insurance Levy, and GETFund Levy, all of which out-performed their respective targets for the period, most revenue lines underperformed their respective targets for the period but are expected to recover in the second half of the year.
80. Mr. Speaker, Total Expenditures (including arrears clearance) amounted to GH¢34.2 billion for the period compared with the programme target of GH¢36.8 billion.
81. Mr. Speaker, key expenditures were well contained during the period with the exception of expenses on the Use of Goods and Services which was 30.1 percent higher than target mainly on account of security related expenses to reinforce our borders. So far, expenses on the free SHS programme and some other Government flagship programmes have remained on track.
Overall Budget Balance and Financing
82. Mr. Speaker, Government’s fiscal operations resulted in a cash deficit of 3.3 percent of GDP, compared with the programmed target of 2.9 percent of GDP for the half-year.
83. Mr. Speaker, a significant portion of the deficit was financed from foreign sources (81.3%), including proceeds from the 2019 Eurobond issuance which raised a total of US$3.0 billion in 7-year, 12-year, and 31-year Eurobonds of US$750.0 million, US$1.25 billion and US$1.0 billion, respectively. Domestic financing of the deficit, including market operations, constituted the remaining 18.7 percent.
84. The Primary Balance recorded a deficit equivalent to 0.8 percent of GDP against a deficit target of 0.1 percent of GDP for the period.
Public Debt Developments
85. Mr. Speaker, the gross public debt stock in nominal terms stood at GH¢204 billion (US$38.7 billion) as at end-June 2019, representing 59.2 percent of GDP. The increase was mainly as a result of frontloading the financing requirements for 2019 in the first quarter. Debt accumulation in the subsequent quarters is expected to ease downwards and stabilise.
86. The share of the external debt stock increased from 50.2 percent at end-December 2018 to 52.8 percent at the end of June 2019, mainly driven by the issuance of Eurobonds of US$3.0 billion in March. The IMF also disbursed an amount of SDR132.84 million (US$184.30 million) in March 2019 after their 7th and 8th reviews of the Extended Credit Facility Programme. On account of these two major inflows, a net amount of US$2.9 billion, equivalent to approximately GH¢14.8 billion, was added to the debt stock. The increase in the external debt stock amounted to GH¢23.8 billion between December 2018 and June 2019, reflecting a volume transaction of GH¢14.8 billion and exchange rate depreciation of GH¢9.0 billion.
2019 Eurobond Issuance
87. In line with the approval of this august House, Government raised a total of US$3.0 billion in 7-year, 12-year, and 31-year Eurobonds of US$750.0 million, US$1.25 billion and US$1.0 billion, respectively, on March 19, 2019. The 7-year, 12-year, and 31-year bonds were priced at 7.6875 percent, 8.125 percent and 8.950 percent, respectively.
88. The 2019 Eurobond issue was significant in two respects: it was the first ever triple-tranche Eurobond offering by Ghana; and was also the largest by a Sub-Saharan African country, excluding South Africa.
REVISED 2019 MACROECONOMIC TARGETS, FISCAL FRAMEWORK AND REQUEST FOR SUPPLEMENTARY BUDGET
Revisions to Macroeconomic Framework
89. Mr. Speaker, since the presentation and passage of the 2019 Budget Statement and Economic Policy by this august House in November 2018, we have observed new trends in macroeconomic aggregates which pose fiscal risks and threaten to derail our fiscal efforts if necessary corrective policy measures are not timely applied.
90. Mr. Speaker, among other things, the following developments have warranted a revision to the 2019 macroeconomic framework:
• relatively weak performance of the Ghana ce