Full text: Finance Minister’s statement on measures to address economic difficulties

PRESS STATEMENT ON THE ECONOMY PRESENTED BY KEN OFORI-ATTA HON. MINISTER FOR FINANCE THURSDAY 24TH MARCH 2022

A.   INTRODUCTION

1. Good afternoon,  Ladies and Gentlemen of the  Press and fellow citizens. Thank you for availing yourselves.

2. I  am  here today to  announce to  you  measures to  address  the economic difficulties we are facing due mainly to recent global and domestic events. These difficulties have manifested in:

i.    rising fuel prices;

ii.    rising inflation and cost of living;

iii.    exchange rate depreciation;

iv.    rising interest rates; and

v.    revenue mobilization challenges.

3. Cabinet had its first regular quarterly retreat for 2022 from 18th to 20th March at  Peduase, concluding in Accra on Monday, 21st   March. During the retreat, Cabinet deliberated extensively on a number of issues  and  approved  a  number of measures to support  current efforts to address the challenges we are facing. Also on Monday, March  21st   2022,  the  Bank  of  Ghana  announced  a  number  of complementary, monetary measures to address the rising cost of goods and services on the market and the worrying performance of the cedi against major currencies such as the Pound Sterling, Euro and Dollar.

4. Ladies and Gentlemen, it is important to stress, right from the onset, that the difficulties we are facing in Ghana are not peculiar to Ghana.

It  should  also  be  stressed  that  several  governments  in  both developed  and  developing  countries  are  busily  coming  out with various prescriptions to bring their economies back on track, after the devastating impact of COVID-19 which distorted global supply chains, and the ongoing Russia-Ukraine war.

A: GLOBAL AND DOMESTIC ECONOMIC DEVELOPMENTS

5. If we look at the world today, there are two clear forces shaping global events: the impact of the novel coronavirus pandemic and the crisis in Ukraine. With the virus, the records show that our decision to focus first on protecting lives and then livelihoods has paid off. By February, globally some 7.03% of those infected by Covid-19 had died. For Africa the figure was 4.03% (251,444 people).  In comparison, less than 0.89% (1,445 people) of infected people died in Ghana.

6. Against all odds, but due to firm leadership, bold initiatives and responsive citizens, Ghana has so far “collectively” managed the virus remarkably well. But, we knew that Ghana, like most countries in the world, had a tall list of coronavirus-induced bills to pay from 2020 and 2021 and came out with plans and policies to boost investor confidence and job prospects for

2022 and beyond. As you recall, we lost Ghs13.1 billion of revenue and had to increase our expenditure by GHS14.2 billion with combined fiscal impact of GHS26 billion (6.8% of GDP)

7. For government, 2022 was now the time to go full steam ahead in healing the economy to create jobs, especially for our young generation. This was evidenced by our growth figures, averaging 5.2% in 2021 up from 0.4% in 2020 and a startling 6.6% growth in the 3rd quarter of 2021. We outlined our comprehensive recovery programme, the GhanaCARES ‘Obaatanpa’ programme to focus on the real sector to do just that. Our GHS10 billion YouStart  programme  will  be  the  most  historic  intervention  for  youth employment in our country.

8. However, three (3) things that we did not (and could not) predict hit us:

(1) that Parliament would approve Government’s 2022 Budget Statement and its expenditure plans and then turn around to vote against one of the key revenue generation measures that was being introduced, the e-levy.

(2) That the unyielding stance of the Minority in Parliament against the E- levy would gravely affect investor confidence in our capacity to implement our programmes and settle our debts, triggering a downgrading by credit rating agencies, and now leaving the cedi vulnerable as we could not access the International Capital Market.

9. Ladies and gentlemen, the third  hit was the  launch of the attack on Ukraine by Russia on February 24, 2022. The war in Ukraine could not have come at a worse time for the global economy. Already global efforts toward  economic   recovery  from  the  devastation  wreaked   by  the Coronavirus pandemic were being disturbed by supply chain disruptions, surging   inflation,  and   uncertainties   in  the  financial   markets,  with anticipated hikes in interest rates.

10. After February 24 we saw a sharp hike in global oil prices, food price shocks   (especially   wheat),   oil   and   gas   price   hikes,   capital   risk aversion/flight  to  safety,  affecting  private  capital  flows  to  emerging markets as a whole, and all with serious macro-economic implications. For  example,  crude  oil  prices  (per  barrel)  increased  by  75.3% from US$74.17 in Dec 2021, when the 2022 Budget was passed to US$130 on 7th March 2022, before ‘moderating’ to US$115 as today 24th March 2022. Crude  oil  prices  crossed  the  US$100  mark  for  the  first  time  since September 2014. We  recall that  prior to the  pandemic, we  had  built resilience through the  implementation  of  bold  and  prudent  economic measures.

11. By  April  2019,  we  had  successfully  completed  that  four-year  IMF programme. We did so and more by:

i.    achieving  an  annual  average  real  GDP  growth  of  7  percent between 2017-2019 – from 3.4 percent in 2016;

ii.    maintaining  a  fiscal  deficit  below  5  percent  of  GDP  for  three consecutive years;

iii.    maintaining a positive primary balance for three (3) consecutive years which put our debt on a sustainable path;

iv.    lowering lending rates by over 10 percentage points;

v.    restructuring the banking sector to protect the savings of 4.6 million depositors   and   strengthening   the   financial   sector.   So   far, government has spent over GHS25 billion since 2018 to clean-up the financial sector;

vi.    reducing  inflation  from  15.4  percent  in  December  2016  to  7.6 percent in 2019 and preserving the integrity of the local industry;

vii.    improving the gross international reserves to reach US$8.6 billion or about 4 months of import cover by February 2020;

viii.    introducing the most ambitious social welfare policy ever seen in

our country: the Free SHS;

ix.    constructing  and  rehabilitating  more  roads  and  cumulative  of 6,250km, completing 6 of 11 interchanges and flyovers than any government in history;

x.    employing more new teachers,  nurses, doctors, Agric extension officers and young graduates than any government in history;

xi.    saving the entire financial sector from an inherited, neglected crisis that has cost Government some GHS25 billion so far;

xii.    instigating  more value-for-money audits on  public  procurements than any other government in history; and

xiii.    investing more resources in the Police, Military, governance and

anti-corruption institutions than ever before.

12. It  is this  proven  record of fixing what  is  broken that gave  the  NPP government the confidence to tackle head-on the devastation unleashed by Covid-19 and it is this same can-do and will-do attitude that gives us hope that we shall overcome the current crisis. We are not a people to bow to the spirit of despondency and despair.

13. As well as threatening global peace, the conflict in Ukraine has had a far- reaching impact. We do not know how long the conflict will last, but it is clear that it has already forced many countries, in Europe and beyond, to adjust their economic plans for 2022 and Africa is likely to be amongst the worst hit outside of Ukraine. UNCTAD’s rapid assessment of the war’s impact on trade and development shows a rapidly worsening outlook for the world economy, with the situation especially alarming for African countries.

i.    the  Russia-Ukraine  war  has  also  compounded  the  global supply  chain  and  trade  disruptions  brought  about  by  the COVID-19  Pandemic  as  well  as  adversely  impacted  the dreaded  3  Fs-  food  security,  fuel  price  escalation,  and financing conditions thus impacting living conditions with the capacity to derail global recovery efforts in 2022;

ii.    global  inflation trending  upwards  has  led to  Central  Banks raising  interest  rates  globally  resulting  in  tight  financing conditions   and   reversal   of  capital   inflows   especially   in Emerging Markets. For example, the U.S. Federal Reserve Bank announced a hike in interest rates by 0.25 percentage points on 16th  March and has signaled more of such to follow. Similarly, the Bank of England has raised its policy rate by another 25 basis points to 0.75 percent on 17th  March, 2022;

iii.    We have seen the highest inflation in US, UK, Germany, and other  advanced  countries  since  1974.  The  US’s  inflation increased by 6.5 percentage points from 1.4% in Jan 2022 to 7.9% in Feb 2022. Similarly, inflation in Germany increased by 4.1 percentage points from 1% in Jan 2022 to 5.1% in Feb

2022. Similar trends are observed in UK inflation and across the EU countries;

iv.    Since the Covid-19 pandemic struck, more than 60% of African Sovereigns  have  suffered  downgrades  across  the  region.

Ghana witnessed a downgrade from Fitch On 21st  January 2022   to   ‘B-‘   with   a   Negative   Outlook   whilst   Moody’s downgraded Ghana to ‘CAA1′ with a Stable Outlook On 4th February 2022, even though S&P affirmed Ghana’ rating at ‘B- ‘  with  a  Stable  Outlook  on  7th    February  2022.  These downgrades   have   had   implications   for   market   access, exchange rate depreciation, capital flight and increased cost of financing;

14. Ladies  and  Gentlemen,  on  the  domestic  front,  the  challenges include  the  impasse  in  Parliament  which  is  adversely  affecting government business such as the passage of some revenue bills including the E Levy bill. This is creating uncertainty which has been highlighted as a key risk by the Ratings Agencies and affected our credit  spreads,  limiting  our  access  to  the  International  Capital Markets.

15. The  adverse  global  developments  are  impacting  severely  on exchange rate depreciation and domestic inflation as investors take refuge  in  safer  assets,  by  stocking  up  on  the  dollar,  which  is considered the safest currency to hold. The dollar has in recent weeks gained its highest level since Covid-19 two years ago.

16. The cedi has not been spared. Cumulatively, our local currency has depreciated by 15.6% against the US dollar, and 13.4% and 13.3% respectively against the Pound Sterling and Euro, in the year to 23rd March 2022. This, understandably, is causing a lot of anxiety among traders and consumers alike. However, we also need to recognize that,  in  spite  of  it  all,  the  cedi  has  held  under  these  extreme challenges  better  than  it  did  between  2014  and  2015.  This  is because the fundamentals are stronger. The Bank of Ghana has announced measures to address the exchange rate depreciation and we believe in the propriety of the measures they outlined on Monday.

17. The rising international price of crude oil and the exchange rate depreciation   are   also   affecting   the   ex-pump   prices   of   fuel domestically as it feeds into high transportation fares, and hence inflation. For example, the average ex-pump price of diesel for three OMCs (Goil, Total, and Vivo) increased by 59.7% from GHS6.7 per litre on First January 2022 to GHS10.7 by 21st March 2022.  Ghana is not alone here. From Angola, and Malawi, through Nigeria and Rwanda, to Senegal, down to Zimbabwe, fuel prices are soaring. Some neighbouring countries are not only dealing with rising petrol prices,  but  also scarcity on  petroleum  products,  leading to  long queues at filling stations.

18. It remains the case, however, that one of the biggest drivers of price increases  in goods and services  in Ghana,  is a fuel  price  hike. Inflation has surged to 15.7% at the end of February 2022. Food inflation  increased  from  12.8%  in  December  2021  to  17.4%  in February 2022, while non-food inflation rose from 12.5% to 14.5% over the same period.

19. Ladies and Gentlemen, provisional data on the stock of debt as at the end of December 2021, show that, the stock of public debt increased to GH¢351.8 billion (80.1 percent of GDP), compared with GH¢218.2 billion (61.2 percent of GDP) at the end of December 2020. Of the total debt stock, domestic debt was GH¢181.8 billion (51.7 percent), while the external debt was GH¢170.0 billion (48.3 percent).

20. Ladies and Gentlemen, the global and domestic developments I have outlined above, are affecting the effective implementation of the Budget.  Urgent and decisive actions are, therefore, required to address  the  challenges  and  ensure  the  achievements  of  the objectives and targets of the 2022 Budget, including unleashing the entrepreneurial verve of the Ghanaian youth.

21. Whilst we are in the process of revising the 2022 fiscal framework to reflect current developments with the view to go to Parliament to seek approval for the revisions during the Mid-Year Review in July, Government   will   pursue   additional   measures   to   ensure   the achievement of the fiscal deficit target of 7.4% of GDP.

B.   MEASURES TO ADDRESS THE CHALLENGES

22. Ladies and Gentlemen, Government had already started the new year with spending cuts as Parliament failed to approve key revenue streams  at  the  appropriate  time.  In  January  2022,  Government announced   and,   immediately,   began   implementing   a   20% expenditure cut as part of fiscal stabilisation and debt sustainability measures.

23. This  has  been  done  through  the  quarterly  expenditure  ceiling allotments  to   MDAs.   Quarter   1  allotment   is  currently   under implementation whiles  Q2 allotments will  be  issued shortly. The ministry has strengthened its Expenditure Monitoring systems and processes to ensure effective implementation of these measures. In addition, Government has decided to take the following measures to ensure the achievement of the fiscal deficit target of 7.4% of GDP for 2022:

C.  Expenditure Cutting Measures

i.    Discretionary spending is to be further cut by an additional 10%. The Ministry of Finance is currently meeting with MDAs to review their spending plans for the rest of the three (3) quarters to achieve the discretionary expenditure cuts;

ii.   these times call for very efficient use of energy resources. In line  with  this,  there  will  be  a  50%  cut  in  fuel  coupon allocations   for   all   political   appointees   and   Heads   of government institutions, including SOEs, effective  1st  April 2022;

iii.  with immediate effect, Government has imposed a complete moratorium on the purchase of imported vehicles for the rest of the year. This will affect all new orders, especually 4-wheel drives. We will ensure that the overall effect is to reduce total vehicle purchases by the public sector by at least 50 percent for the period;

iv.  again, with  immediate effect  Government  has  imposed a moratorium  on  all  foreign  travels,  except  pre-approved critical/statutory travels;

v.   Government will conclude on-going measures to eliminate “ghost”  workers  from  the  Government   payroll   by  end December 2022;

vi.  Government will conclude the renegotiation of the Energy Sector IPPs capacity charges by end of Q3-2022 to further reduce excess capacity payments by 20% to generate a total savings of GHS1.5 billion;

vii. impose a moratorium on establishment of new public sector institutions by end April, 2022;

viii. prioritise ongoing public projects over new projects. This is to enhance the efficient use of limited public funds over the period by finishing ongoing or stalled but approved projects;

ix.  reduce expenditure on all meetings and conferences by 50%, effective immediately;

x.   Finally, Cabinet approved that Ministers and the Heads of SOEs to contribute 30 percent of their salaries from April to December 2022 to the Consolidated Fund; We would like to thank   the   Council   of   State   in   their   leadership   in complimenting the Government on this policy.

xi.  pursue a comprehensive re-profiling strategies to reduce the interest expense burden on the fiscal; and

xii. liaise with Organised Labour and Employers Association to implement with immediate effect, the measures captured in the   Kwahu   Declaration   of  the   2022   National   Labour Conference,  including  reforms  towards  addressing  salary inequities / inequalities (e.g. Article 71 Office Holders), the weak link between pay to productivity and the sustainability of the payroll.

xiii. Let me say this, President Nana Addo Dankwa Akufo-Addo has absolutely no intention to roll back on a major policy like Free  SHS.  We  see  education  as  the  best  enabler  for sustainable economic growth and transformation and will do more to improve on it for it to serve more and better our children.

24. All of these measures are aimed at ensuring that we achieve the 7.4% deficit target set in the 2022 budget.

D: Fuel Price Mitigation Measures

25. Ladies and gentlemen, the rising prices of fuel at the pumps is influenced largely by the rising crude oil prices on the international market and the exchange rate depreciation. Though the rise in crude oil prices should have been to our benefit on net basis, Ghana’s import of petroleum products amounts to 5.2 times the value of the proceeds from its crude oil exports. In 2022, we exported $3,947.70 million of which Ghana’s portion was $513 million. However, we imported $2,719.00 of crude oil and finished products. The purported windfall gain in foreign exchange is a mirage. From January to date, the average ex-pump price of diesel and petrol have increased by 57% and 45% respectively.

26. Unlike in other countries where the hike in crude oil prices and exchange  rate  volatility  are  leading  to  shortages  in  supply  of petroleum  products,  government  is  implementing  measures  to guarantee constant supply of petroleum products. To mitigate the impact of the rising price of petroleum products at the pump, for the next three months, government has decided to reduce margins in the petroleum price build-up by a total of 15 pesewas per litre with effect from 1st April. The details are as follows:

i.       BOST margin reduced by 2 pesewas per litre

ii.      Unified Petroleum Pricing Fund (UPPF) margin reduced by 9 pesewas per litre

iii.      Fuel Marking Margin (FMM) reduced by 1 pesewa per litre

iv.     Primary Distribution Margin (PDM) reduced by 3 pesewas per litre

27. Ladies and gentlemen, these  reductions  in  margins are expected to reduce prices of petrol by 1.6% and diesel by 1.4%. We anticipate that the measures taken to strengthen the currency will help further stabilize the prices at the pump.

28. Ladies and gentlemen, the NPA is in discussion with the OMCs to reduce their margins within the spirit of burden-sharing.

29. The Government will do all it can to ensure consistent supply of fuel and manage the rate of ex-pump price increase by ensuring that BoG has access to adequate foreign exchange.

E: Revenue Measures

30. Ladies and gentlemen, cutting down on expenditures alone will not  be  enough.  Our  focus  is  therefore  twofold:  to  control expenditure and to raise more revenues domestically. As such, we will, therefore:

i.    Begin the implementation and collection of the revised Property Rate by end of April 2022;

ii.    implement       the       E-VAT/E-Commerce/E-Gaming initiatives by end of April 2022;

iii.    roll out the simplified tax filing mobile application for all eligible taxpayers by July 2022;

iv.    impress upon Parliament to fast track the passage of the E-Levy Bill, Tax Exemptions Bill, and Fees and Charges Bill;

v.    prioritise the Revenue Assurance, Compliance, and Enforcement  (RACE)  Programme  to  plug  revenue leakages especially at the ports and the infamous fuel bunkering and small scale mining exporters cabal;

vi.    government will partner the private sector to introduce digital systems to monitor quarrying, sand winning and salt winning to get more revenues from our natural resources; and

vii.    immediately enforce the “No Duty – No Exit” policy at the  MPS  Terminal  at  the  Tema  Port  to  improve revenue collection.

Financing and Currency Measures

i.    GoG to conclude external financing arrangement of up to  US$2  billion  in  the  next  2-6  weeks  in  line  with approved external financing for 2022 and for liability management;

ii.    MoF  will  work  with  the  Central  Bank  to  review  the foreign    exchange    retention    policy    to    ensure multinational companies in the extractive sectors retain foreign  exchange  earnings,  from  the  sale  of  our resources, in the country.

31. Additionally,  the  following  measures  will  be  implemented  over  the medium-term:

i.    Wean-off public tertiary  institutions from government payroll and provide them with a fixed amount “block grant” instead.

ii.    Pursue  reforms  to  address  structural  challenges  in public  financial  management  including  procurement and  commitment  control,  payroll  management  and human resource management.

C.   CONCLUSION

32. It is too early to say the COVID-19 pandemic is over. But it is good to acknowledge that Ghana has handled it excellently. We have emerged from its deadliest and most economically damaging phase. If  the  measures  we  have  outlined  in  our  economic  recovery programme  are  executed  as  planned,  the  Ghanaian  economy should   return  to  pre-pandemic   levels  across   most  economic indicators by the end of the year.

33. On the other major event driving the global economy, we recognize that the world is four weeks into this terrible war, and it is quite clear that both the occupation of Ukraine, and the range of sanctions imposed on Russia, will have profound effects both in the short and long-term for global markets. The longer the conflict goes on for, the greater will  be  the  disruption  to  the  global  economy.  We  shall continue to  monitor the  situation very  closely  and  make further adjustments if and when needed.

34. We may have no control over the trajectory of the conflict, but it only reminds  us  how necessary it  is for Ghanaians to assert greater control over our own destiny. That we can do if we share in the sacrifices  before  us  to  strengthen  our  capacity for  greater  self- reliance,  even  in an  interdependent world.  Government  remains optimistic that our economy will grow even bigger this year. The challenge now is to marshal this economic growth before us in the right direction, and ensure that it benefits Ghanaians across board.

35. Ladies and Gentlemen, we are confident that these measures will address the immediate and short-term challenges confronting our nation. Government remains resolute and committed to entrenching the structural transformation of our economy in the long term.

36. To this end, we are aggressively pursuing key interventions such as 1D1F, GhanaCARES and the YouStart programmes to improve our ability to locally produce more goods and optimise the opportunities AfCFTA offers us. It is important that, as a country, we reduce our dependence  on  imports  and  increase  local  production.  Public institutions  are  reminded  of  Government’s  policy  to  buy  locally produced  goods.  It  is  critical  that  Ghanaians  reconsider  their preference and consume more locally produced goods to support the economy and guarantee decent jobs for our people.

37. Ladies   and   Gentlemen,   your   Government,   the   Akufo-Addo administration, is determined to turn things around and has the skills, discipline and compassion to do it. But to do so, we must not allow our fortunes to be misdirected by speculators and naysayers – those who only thrive when we allow avoidable uncertainties to hold sway in the  affairs  of our  nation.  Government will,  by this,  appeal to Parliament to put the nation first and work in partnership to serve the people of Ghana right. Paraphrasing Psalm 122:7, I pray that peace be within the walls of Parliament and sobriety within its towers.

38. Ladies   and   Gentlemen,  these   measures   outlined  today  will significantly   improve   the   macro-fiscal   situation   towards   the restoration of confidence and safeguard the  achievement of the

2022 budget deficit target of 7.4% of GDP. These measures have been carefully designed to ensure that growth and spending on social protection are not compromised.

39. Ladies and Gentlemen, these are truly challenging times globally. No country has been spared. Government, therefore, calls on all Ghanaians to stand together. Together, we shall surely overcome.

40. Ladies and Gentlemen and people of Ghana, we can do it together. This is not the first time an NPP Government, working together with the people of Ghana has succeeded in overcoming an economic challenge of this nature. We have demonstrated time and time again our ability to overcome.

41. First, in 2001, the NPP Government led by Former President Kufuor, together with the people of Ghana, brought the country out of severe economic difficulties. Second, in 2017, the NPP Government led by President Nana Addo Dankwa Akufo-Addo, together with the people of Ghana, brought the country out of the economic doldrums in which we were at the end of 2016. This third time, still under President Akufo-Addo, working together with the people of Ghana, will not be an exception.

42. Ladies and Gentlemen, I have had the privilege of engaging in a number of townhall meetings from Koforidua to Takoradi, Tamale, Wa and Ho, and the resolve of our people to burden-share for a better life for all is palpable. In particular:

i.    They want everyone to pay taxes;

ii.    They want Government to be accessible;

iii.    They want Parliament to get on with its work;

iv.    They want employment for our youth;

v.    They want Agriculture and industry to thrive; and

vi.    They want  us to tackle  our  debt  problem  and  raise  more revenue and to prosecute offenders.

43. Ladies and gentlemen, our Mid-Year review will reveal the success of what we have done. This will ensure that the structural reforms are  crystalised,  reduce  fiscal  dominance  and  ensure  fiscal  and monetary policy coherence.

44. Let me end by a quotation from Jeremiah 29:7

“Seek the peace and prosperity of our nation. Pray to the Lord for it, because if it prospers, you too will prosper’

45. Together, we will confront the macro-economic challenges head on, stabilise  the  economy  and  set   it  on  the   path  of  economic transformation for all.

46. Ladies  and  Gentlemen,  fellow  Ghanaians,  I  thank  you  for  the attention.

47. God Bless our Homeland Ghana!

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