The new Ghanaian government of President Nana Akufo-Addo has set out its economic policy in its first budget.
Although the economy has grown strongly in recent years, the previous government appeared to spend more oil revenue than it was actually receiving. Ghanaians and economists alike were interested to see how quickly Accra planned to cut its spending deficit as the country prepares for the 60th anniversary of its independence on 6th March.
The New Patriotic Party government regained power in January on the back of pledges to bring spending under control, create more employment and boost growth. The country is currently being supported by $918m in IMF funding that will end next year.
The previous government agreed to implement a wide range of structural reforms in return for the money but progress on these to date has been limited, not least because of the elections. Finance Minister Ken Ofori-Atta said that the government’s first aim was to make sure that the national debt was brought under control.
Total public debt stood at 122.3bn cedis ($25.7bn) at the end of 2016. In February, the government announced that public finances were in a worse state than expected as it had found $1.5bn in unexpected spending by the previous administration.
Between 1 January and the budget announcement, Ghana’s cedi was the worst performing currency in the world after the Sierra Leone’s leone. The Ministry of Finance is to carry out a full analysis of the country’s debt with a view to deciding to how halt further rapid borrowing.
It will also introduce a petroleum hedging mechanism to attempt to even out fluctuations in oil prices. Ofori-Atta has set a goal of reducing the budget deficit from 8.7% of GDP last year to 6.5% this year.
This is still far too high for comfort but would represent a substantial reduction within a single calendar year. His other main goals are to achieve 6.3% economic growth for 2017, which is lower than many analysts predict, and to reduce the annual rate of inflation from 13.3% in January to 11.2% by December.
The Finance Minister said: “The budget will set the pace for job creation and accelerate growth by encouraging the private sector. We will shift the focus of economic management from taxation to production. This will reduce the cost of doing business.”
Ofori-Atta forecast that the government would earn $515m from oil production this year, the highest figure in the country’s history. Although international oil prices remain subdued, new production is still being brought on stream. In particular, the Tweneboa, Enyenra and Ntomme (TEN) project is being developed, while development continues on the Sankofa oil and gas field.
The government is attempting to marry fiscal responsibility with its election spending pledges, including promises on free high school education and tax cuts. Free secondary education will be introduced at the start of the next academic year, in September.
Government expenditure over the next year includes 94.5m cedis ($19.8m) to kick start a programme to build a dam in every village in the Northern region in order to encourage irrigation to promote food security and crop exports. Another 456.3m cedis ($95.9m) will be spent on supporting the development of at least one factory in every district in the country, although presumably most of the investment for such projects will come from the private sector.
President Akufo-Addo was elected on a platform of encouraging private sector growth, which often translates into tax cuts, but it remains to be seen whether he can do this while implementing additional spending and closing the deficit. Achieving all three simultaneously is a tall order.
Ghana was the first of the new wave of independent African nations in 1957 and as such was regarded as something of a pioneer. The optimism of the early years soon foundered on economic and political instability.
However, the West African nation now has a reputation as one of the most democratic in Africa, with several changes of government over the past two decades. Despite recent economic difficulties, Ghana enters its seventh decade as a sovereign nation in a relatively positive mood.