Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖ REPUBLIC OF GHANA BUDGET SPEECH BUDGET STATEMENT AND ECONOMIC POLICY of the GOVERNMENT OF GHANA for the 2013 FINANCIAL YEAR Parliament On Tuesday, 5th March, 2013 PRESENTED TO SETH E. TERKPER Minister for Finance On the Authority Of the H.E PRESIDENT JOHN D. MAHAMA 1 Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖ INTRODUCTION 1. Mr. Speaker, I beg to move that this august House approves the Financial Policy of the Government for the year ending 31st December, 2013. 2. Mr. Speaker, my presence in the House today is to present to you, for the first time in my capacity as Minister for Finance, and on the authority of His Excellency, John Dramani Mahama, the recently elected President of the Republic of Ghana, the full-year Budget Statement and Economic Policy for 2013. This is in accordance with Article 179 of the 1992 Constitution. 3. Mr. Speaker, this presentation is an abridged version of the 2013 Budget Statement. I would like to request the Hansard Department to capture the entire Budget Statement and Economic Policy. 4. In October 2012, my predecessor, Honourable Dr. Kwabena Duffuor, appeared before this august House to lay the Expenditure in Advance of Appropriation for the first quarter of 2013. This was in accordance with Article 180 of the 1992 Constitution. Those Estimates were also the first allocation of resources to Ministries, Departments and Agencies (MDAs) to be presented on behalf of His Excellency President John Dramani Mahama. This was shortly after he was sworn-in to complete the term of our beloved late President, His Excellency Professor John Evans Atta Mills. The approval of those Estimates by this House has made it possible for government business to continue uninterrupted. 5. Mr. Speaker, from January 2009 to December 2012, the NDC government implemented cogent policies and programmes and pursued activities that were based on the strategic goals of the Ghana Shared Growth and Development Agenda (GSGDA) policy document which was approved by this august House. 6. As stated by His Excellency John Mahama in the State of the Nation address, the vision and commitment of government over the medium term is to build a prosperous and equitable society in pursuance of the common and cherished goal of ―Advancing the Better Ghana Agenda‖ for all. This vision is anchored on the commitment to Putting People 2 Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖ First; A Strong and Resilient Economy; Expanding Infrastructure; and Transparent and Accountable Governance. 7. Mr. Speaker, we have achieved macroeconomic stability and growth on the basis of strong real and external sector performance, including low rates of inflation and the build-up of substantial foreign exchange reserves. We have achieved these goals against the backdrop of the global financial crisis; we have also acted decisively to implement policies that address the challenges that occasionally confront our forward march. 8. Mr. Speaker, as we are all aware, the global economy remained fragile in 2012 following four years of weak and uneven recovery notably the persistent Euro-zone debt crises and the uncertainty surrounding the fiscal issues in the United States. Therefore, Ghana’s 2012 provisional growth rate of 7.1 percent is still high given that it is on top of the growth rate of 14.4 percent recorded in 2011 when the GDP first reflected the impact of crude oil production in commercial quantities. Moreover, the 2012 provisional growth rate compares favourably with the global growth of 3.2 percent and sub-Saharan Africa growth of 4.8 percent. [According to the IMF’s World Economic Outlook (Jan 23, 2013)]. 9. Mr. Speaker, in contrast with the gloomy global picture, Ghana recorded relative economic stability and appreciable growth rates. Gross Domestic Product (GDP) which was about GH¢30 billion in 2008 expanded to GH¢71.8 billion at the end of 2012. This testifies that output from all sectors of the Ghanaian economy (not just oil and gas) has grown in leaps and bounds. It is anticipated that the economy will achieve a growth rate of between 8.5 and 9.0 percent at the end of 2012, when the final GDP estimates are updated by end April 2013; 10. Mr. Speaker, the journey to attain macro-economic stability over the past four years has not always been smooth because we are still vulnerable to several external and domestic shocks. These require decisive and immediate correction at all times. During the first half of 2012, the cedi came under speculative attack and despite an election year, the Bank of Ghana and MOF implemented measures to stabilize the foreign exchange and reserve situations; 11. The correction of economic threats is an obligation that we cannot compromise. We need to work harder than ever to consolidate the 3 Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖ economic fundamentals that have been built over the years. With the consolidation of these fundamentals the transition from a lower middle income country to a middle income country will be easier. The Bank of Ghana and the Ministry of Finance will continue to install early- warning mechanisms and programs to carefully identify and manage all sources of fiscal and monetary risks to the budget and financial framework. 12. Mr. Speaker, in fulfillment of government promise of improving the conditions of service and productivity in the public service, the NDC government undertook to implement the Single Spine Salary Structure (SSSS); an obligation that was bequeathed by the previous Administration on the very eve of its departure from power. Nonetheless, in the interest of social and industrial harmony the government proceeded with the roll-out. Government was mindful of the need to stop the continuing exodus of quality staff, improve salary levels and attract critical skill to enhance productivity. 13. The demands and pressures that came in the wake of the implementation of the scheme compelled government to shorten the 5 year implementation stretch. This has created the situation where compensation to public sector workers grew overnight to 72.3 percent of tax revenue (including oil) as at end December 2012: a figure that is in fact higher than the 60.9 per cent in November 2012 as cited in the State of the Nation address. This outcome has crowded out the fiscal space for spending on critical social intervention and other infrastructure programmes. 14. Mr. Speaker, at this stage there is therefore need to strike a balance between (a) public sector productivity and remuneration and (b) the equally important allocation of national revenues to expenditures on goods and services, and investments. We aim at achieving this through increased national output and higher levels of revenue mobilization. 15. Mr. Speaker, one of the critical challenges that Ghana faces in the quest to give real developmental meaning to its status of a Middle income country, is the imperative need to widen the socio-economic infrastructure space, through the replacement of old and worn out ones and the building of new ones. Our efforts to attract foreign investment, create international competitiveness for indigenous private business, encourage the entrepreneurship of the youth and 4 Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖ provide gainful employment for our growing population, are contingent upon such expansion and modernization of our socio- economic infrastructure. 16. Mr. Speaker, the downside of our transition to a Lower Middle Income Country (LMIC) status is that we shall gradually lose a substantial amount of grants and concessional loans that accrue to developing countries. It means that we must rely more on our own internal resources and the capital markets for our developmental needs. 17. Therefore, Mr. Speaker, His Excellency President Mahama’s first term will be used to implement programs that consolidate our fledgling middle-income status and extend its benefits to current and future generations. Already we are on track to consolidate our LMIC status. 18. As a nation that is determined to learn from its own history (and that of others), with respect to natural resource management, we passed the Petroleum Revenue Management Act (PRMA) to direct the use of identifiable oil and gas revenues. Consequently we have been complying with the Act in the following transparent and accountable manner: Regular publication of various PRMA reports by MOF and BOG The publication of the first report of the Public Interest and Accountability Committee (PIAC) that was laid before this House in 2012; and The compilation of the first Annual PRMA Report by a Minister of Finance which I will lay before this House as part of the presentation of this Budget. 19. Obviously, there are lessons to be learnt from these reports and, therefore, while the Executive awaits the recommendations of this House, His Excellency President John Mahama has directed that we take the following appropriate steps: Track the ABFA allocations transferred to the Consolidated Fund to ensure that they are used for pre-approved programmes and activities as required by Section 21 of the PRMA; 5 Theme: ―Sustaining Confidence in the Future of the Ghanaian Economy‖ Ensure that the approved proportions of the Ghana Petroleum Funds (GPFs) are paid into the Ghana Stabilisation Fund (GSF) and the Ghana Heritage Fund (GHF) and in a manner that captures the spirit of the PRMA; Prepare a plan for using part of the ABFA to set up an Infrastructure Fund to ensure the country’s cost-effective access to the capital markets as part of the plan for enhanced financing of the country’s capital expenditure; and Ensure that the independent expert appointed under the Act works with relevant public institutions to validate the estimation of the Benchmark Revenue and improve the estimation of corporate tax revenues in particular, on account of the generous incentives that the petroleum sector enjoys under various agreements.