Seth Terkper: High Growth, Lean Deficit In 2013 Budget

Government will target annual GDP growth of around 8 percent and a leaner deficit when it unveils its budget and economic-policy statement in late February or early March. In an interview with the B&FT, Minister of Finance and Economic Planning Seth Terkper said the growth target accords with Government’s election manifesto policies, which promised at least 8 percent annual economic growth and a cap on the deficit at 5 percent of GDP within 2013-17. “Eight percent growth is what we are targetting, which is what is in our manifesto. Regarding the deficit -- to the extent that some of the elements that caused it to rise in 2012 will not be present this year, we’re going to scale it down,” he said. Last Wednesday, the Bank of Ghana (BoG) said due to the strong pick-up in crude oil output in the fourth quarter, it expects the initial 7.1 percent growth projection for 2012 to be revised upwards; but it warned of a “major challenge going forward” as a result of the massive fiscal deficit of GH¢8.7billion (12.1 percent of GDP), against a target of GH¢4.7billion (6.7 percent of GDP). The escalation of the deficit was due to excess spending on wages and energy subsidies, growth in debt-service expenditure, and a shortfall in revenues on account of lower-than-expected taxes from oil and mining companies, the BoG said. After reducing inflation and the deficit between 2009 -- 11, the government had vowed last year to maintain prudent fiscal management in the face of a fierce election battle. But analysts were not convinced, and the BoG’s disclosures now seem to vindicate their sceptimism. But in responding Mr. Terkper said: “Nobody wants the deficit to get out of hand, so I think the large deficit should be put into context. First, a chunk of the Single Spine arrears were paid last year, and we all know the costs and implications of the Single Spine policy on the budget. Then there was the currency depreciation, and we also had to borrow heavily to finance our capital projects.” According to the BoG, the excess spending on public-sector wages added GH¢1.9billion to the deficit, while unbudgeted fuel and utility subsidies boosted the gap by GH¢339million. High interest rates also led to extra spending of GH¢245million on debt-servicing, and a shortfall in corporate taxes cost the budget GH¢708.2million. More than 80 percent of the deficit was financed domestically, raising fears of the crowding-out of private-sector borrowers, particularly small- and medium-size enterprises, which the BoG said faced tight credit conditions in 2012. Industry craves tax waivers As the government weighs up measures to control spending without stifling growth, the Association of Ghana Industries (AGI) is hoping that the budget statement will come with major tax-cuts, including a waiver on pre-production taxes, reports Bashiru Adam. This, the industry lobby believes, will help lessen the impact of lack of access to credit and medium- to long-term financing for businesses in the country. “People don’t have money to produce. So if somebody manages to import raw materials and you charge all the taxes -- at times cumulatively it is about 20 percent -- and it takes time to produce before you recover some of these taxes, it becomes difficult for industry,” said Samuel Anokye, a Senior Policy Officer with the AGI. The Finance Ministry has called for “ideas and contributions” from recognised professional bodies, associations, civil-society organisations and individuals to be factored into the upcoming budget. Included in the AGI’s submission is a call on government to waive duties on specific imported raw materials which are used mainly for production -- as is the case for Free Zones companies. “The current 10 percent duty on raw materials renders Ghanaian manufacturing industries less competitive both locally and internationally. The influx of cheaper imported products into our market necessitates the waiver if our manufacturing companies are to regain their competitiveness,” an AGI memo seen by the B&FT stated. The Association suggested also that government should give tax-breaks to companies that add a hundred or more middle- to high-level and technical employees from tertiary institutions to their workforce. Property rates are another controversial issue mentioned in the AGI’s memorandum, where the lobby group accuses some District Assemblies of overcharging the tax. “In one single revision of property rates, Diamond Cement was required to pay an 887 percent increment. Such a posture is unattractive to investors and undermines government’s policy of providing incentives for industries that locate in rural and peri-urban communities.” Samuel Anokye said the Association wants government to rationalise the property-rate regime in the country and bring about uniformity in the rates in order to check excessive increases. Another tax-issue it raised is that the duty drawback introduced over a decade ago is losing its “essence”, and that government should bring back the tax-credit notes for companies that are eligible for duty drawback. “While late submission of VAT returns attracts a penalty, there is no compensation to offset the cedi depreciation and inflationary effects on delayed duty drawbacks. Government’s arrangement that taxes owed it be used to offset duty drawbacks has not been effective.” Last week, the AGI also demanded action on the Industrial Policy that was launched in 2011, asking specifically for the proposed Industrial Development Fund to be set up to finance the plans laid out in the Policy.