gOVERNMENT has downplayed Rating agency, Fitch’s prediction on the country’s debt stock portfolio.
The Finance Ministry, in a statement issued on Thursday, said it disagrees with the agency’s position that the consolidation measures announced in the budget will not effectively address Ghana’s fiscal challenges experienced in the past two years.
Below is the full statement on the Finance Ministry’s reaction
Our attention has been drawn to Fitch Rating’s publication of 25th November 2013 on the 2014 Budget titled “Ghana budget fiscal aims limited, overshoots still likely”.
We disagree with Fitch Rating’s position that the consolidation measures announced in the budget will not effectively address Ghana fiscal challenges experienced in the past two years.
Fiscal policy as outlined in the 2014 Budget continues to aim at fiscal consolidation through improved revenue mobilisation, rationalization of public expenditures, and review of financing methods.
The details of the measures are contained in the 2014 Budget. We are of the view that the measures announced in the Budget are credible to ensure that Ghana’s fiscal deficit is reduced to a sustainable level over the medium term.
Ghana does not wish to adopt abrupt measures that will affect the medium term growth prospects of the economy. The Budget also outlines various debt management strategies aimed at ensuring debt sustainability.
Although a fiscal deficit higher than what was estimated for 2013 is projected for the year, it is worth noting that significant progress has been made in addressing the issues that led to the fiscal slippage in 2012 as outlined Paragraph 9 of the 2014 Budget.
For example, corporate income tax from the petroleum sector which registered a shortfall in 2012 is now showing a positive variance, petroleum and utility prices have been adjusted upwards to reduce the burden of subsidies on the budget, and consultations have been held with development partners to ensure that grants are disbursed as planned.
As Fitch Rating rightly stated, and already noted in the 2014 Budget, the two areas that remain a challenge are wages and interest cost. Addressing these two challenges must be viewed within a medium term perspective as structural measures are needed to correct them. In this regard, the 2014 Budget outlines specific policy and administrative measures to bring the wage bill under control and to reduce the interest cost burden on the budget.
The major cause of the expected fiscal slippage in 2013 is the significant shortfall in non-oil tax revenue. As indicated in the Budget the revenue shortfall is attributed to the decline in the volume of imports and the slowdown in economic activity during the first half of the year as a result of the year-long energy crises that affected industry, and some services.
This also affected growth. In addition, falling gold and cocoa prices on the world market affected the profits of companies, particularly the mining companies resulting in significant shortfalls in corporate income taxes. We do not anticipate such constraints in 2014, at least not in the magnitudes of what occurred in 2013.
The 2014 Budget outlines tax policy measures such as an increase in the VAT rate by 2.5 percentage points and a change in the petroleum excise tax from specific to ad valorem in order to raise revenue to support the Budget in 2014 and the medium term. In addition, other tax administrative measures to improve revenue generation are outlined in the Budget.
These in our view attest to government’s capacity to significantly expand the revenue base to ensure fiscal sustainability, contrary to the view by Fitch Rating that the Government’s capacity to expand revenue as a percentage of GDP is questionable. We wish to state that the fiscal measures in the Budget are credible.
As indicated in the 2014 Budget, Ghana’s fiscal adjustment, as in all cases of adjustment across the world, is not a one-year phenomenon but is executed within the medium term.
The view by Fitch Ratings that Ghana’s credit worthiness has been eroded is questionable. Ghana does not have any debt servicing problems. All debts servicing are honored whenever they fall due. Government is mindful of the sustainability of public debt and has put in place several measures to ensure the debt suitability. More specifically, Paragraph 957 of the 2014 Budget outlines specific debt management strategies to ensure debt sustainability and efficiency in debt management.
We wish to note that the publication by Fitch focuses on headline numbers without commenting on the policies outlined in the Budget to achieve our macroeconomic objectives.
With Government’s commitment to addressing the short-term fiscal challenges, our medium term prospects for fiscal sustainability and macroeconomic stability remain very strong. Indeed Ghana has bright medium term prospects exemplified by oil and gas production, political stability, increased investor confidence, and diversified economy with growing non-oil sector.
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