Pursuing the growth agenda, dealing with the fiscal (2)

However, GoG may want to emulate Zambia’s tactics in external debt  renegotiation. GoG could negotiate for extended principal repayment tenors at  concessionary maximum interest rates. 

Also, GoG may propose conditional clauses in external credit restructuring deals wherein GoG is willing to adjust interest rates upward when the economy  outperforms its projections.

This can influence external creditors to accelerate  processes towards a debt restructuring agreement.

It must however be noted that the government’s posturing on actual cost-cutting and demonstration of disciplined austerity measures within public sector spending will largely influence the ongoing negotiations with the external debt parties. 

Budget Deficit 

The public debt stock ended 2022 at GH¢434.6 bn (71.2  per cent of GDP), showing an increase of 24 per cent Y-o-Y.

The debt stock (GH¢434.6 bn) at the close of 2022 represented a decline from GH¢575.7 bn in November (94.3% of GDP) 2022 due to the appreciation of the cedi against the dollar.

Domestic debt at the close of 2022 amounted to GH¢194.3 bn (31.8 per cent of GDP), indicating a YTD increase of 6.2  per cent.

Domestic debt accounted for 33.5 per cent of the total public debt stock which is  lower than the 51.6 per cent recorded in the previous year.

This was driven mainly by increases of GH¢5.2 bn, GH¢5.5 bn and GH¢299.9 million in short, medium, and long-term securities, respectively.

A total of GH¢82.9 bn of domestic debts were restructured under the Domestic Debt Exchange Program (DDEP) in Q1 2023 with about 85% of the eligible debt holders participating to enable  Ghana access the US$3 bn IMF program. 

On a YTD basis, total external debt increased by US$453.8 million to US$29.2 bn. External debtconstituted 66.5 per cent of total public debt in Q4 2022 compared to 48.4 per cent in 2021. External debt  increased by GH¢127.0 bn to GH¢321.4 bn (56.4 per cent of GDP) as of 2023 Q1. 

Total interest payments steadily increased on average at GH¢23.7 bn per annum between 2017  and 2022. In H1 2023, there was a sharp decline from GH¢44.0 bn in 2022 to GH¢15.14 bn  attributable to the government’s freeze on external interest payments and restructuring of domestic debts. 

Government expects to conclude negotiations with external creditors while preparing to restructure approximately US$809 million of cocoa bills and US dollar-denominated bonds issued domestically in phase 2 of the DDEP.

Performance of key initiatives 

1. One District One Factory

In pursuance of the government’s industrialization drive, the One District, One Factory (1D1F) program is running uninterrupted with an increasing level of interest from the private sector. 

Despite the tough business climate, a total of 126 factories are currently operating at various levels of capacity across all 16 regions of the country.

These factories together provide employment to an estimated 160,000 workers comprising both direct and indirect jobs.

Of this number, a significant percentage of the employed in the agro-processing industry across some 58 districts nationwide are youth. 

2. Planting for Food and Jobs Phase II

Phase 2 of the Planting for Food and Jobs (PFJ) Initiative has been launched after the limited success of thefirst phase in improving food security and employment in the agricultural value chain.

The Ministry of Agriculture and Fisheries has redesigned the program, with a focus on providing subsidized farm machinery equipment to farmers.

In H1 2023, over 150 farmers and agricultural cooperatives received farm machinery equipment at a cost of US$29.9 million.

A second tranche of about 700 units of farm equipment and machinery will be distributed to beneficiaries by the end of the year.

The second phase of the PFJ Program also includes three additional focus areas: the rollout of an Inputs Credit System, Storage and Distribution Infrastructure, and a Commodity Trading and Digitized Platform.

3. Agenda 111

The Government’s Agenda 111 which is a hospital construction infrastructure project designed to address the infrastructure deficit in the health sector is underway.

The project is progressing at a slower pace given theconstraints on public expenditure.

Total payments to contractors under the program stood at US$189.34 million as of May 2023, with 83 active project sites in all 16 regions of the country. 

The majority of the 83 ongoing construction projects remain below 50 per cent completion rate. 

4. Infrastructure for Poverty Eradication

In keeping with the Government’s commitment to the provision of critical and strategic infrastructure under the Infrastructure for Poverty Eradication Program, the Government working through the local development authorities has successfully completed and handed over to the beneficiary communities a total of 340 projects.

Another 297 projects under the IPEP are at various stages of completion nationwide and continue to be funded in accordance with the fiscal consolidation plan.

5. YouStart

The Initiative was introduced to equip participants with entrepreneurial skills, and investment readiness tools aswell as coaching and mentoring services.

The program has impacted 26,626 beneficiaries nationwide through business advisory support services since its inception last year. 

As of end-June 2023, beneficiaries spread across all 16 regions have received basic and intermediate training in entrepreneurship. 

The initiative will partner with Participating Financial Institutions, National Entrepreneurship and Innovation Program (NEIP) and Ghana Enterprises 

Agency (GEA) to provide soft loans and managerial skills training for founders of youth-led  enterprises. 

6. Strategic Anchor Industries Highlight

Under Ghana’s Integrated Aluminium Industry Plan, the Ghana Integrated AluminiumDevelopment Corporation (GIADEC) has selected two investors who are collaborating with the corporation to deliver a total of two mines and an alumina refinery.

Work is expected to begin on the three latest mid-2024 and all three projects are expected to go a long way to address the perennial challenge of low investment in the upstream and midstream sections of the aluminium value chain.

This is anticipated to help Ghana extract and refine its significant bauxite deposits to maximize revenue.

7. GhanaCARES

The multifaceted GhanaCARES (Obaatanpa) program is on track to foster commercial agriculture build technological capability and advance digitalization.

A key initiative under the Program is the establishment of economic enclaves which would serve as ‘growth poles’ to stimulate economic development in select locations.

The goal ofthe Economic Enclave Program (EEP) is to provide agriculture infrastructure and land development support toentrepreneurial youth and the formal private sector. 

The Government anticipates that by the end-2023, the EEP will have fully seeded 7,500 acres of rice, recruited qualified private sector entrepreneurs as anchor farmers, embarked on value chain activities such as rice millingand packaging in Kasunya; and developed and seeded 1,500 acres of lands in Kumawu and Banda (Oti Region) respectively.

The government is taking steps to provide ancillary services such as housing, training facilities, irrigation canals, farm roads, and electricity in the enclaves to enhance production and value-addition with private sector participation. 

The successful implementation of the EEP would gradually drive down the food component of inflation, employ the youth, improve food security and reduce the forex market 
volatility

Outlook

Total revenue and grants have been revised to GH¢134 bn (15.8 per cent of GDP), down from the initial budget target of GH¢144 bn (18.0 per cent of GDP). By these projections, the  government intends per cent to achieve over 55per cent of its revenue target in H2.

Total Non-Oil Tax Revenue was revised to GH¢103 bn (12.0 per cent of the revised GDP), 3.0 per cbe above the 2023 Budget targetof GH¢100 bn (12.4% of GDP). The revision reflects revenue performance for the first half of the year.

Total expenditure outrun reached GH¢93 bn in the first half of the year representing 48 per cent of the budget for the year. 

It is projected to reach GH¢190 bn by the close of the year 2023. Out of this, GH¢51 bn relates to employee compensations, whiles GH¢45 bn is expected to be spent on interest payments.

Capital Expenditure was also revised downwards by 23.0 per cent to GH¢20 million (2.4 per cent of revised GDP), from the 2023 Budget estimate of GH¢27 bn (3.3 per cent of GDP).

Foreign Financed Capital Expenditure was revised downwards to GH¢9 bn from GH¢16 bn to reflect exchange rate developments, while domestic-financed Capital Expenditure remained unchanged at GH¢11 bn. 

It is predicted that economic activity in Sub-Saharan Africa and worldwide will decrease due to ongoing external pressures. To recover and stabilize in the medium term, it is important to increase revenue and rationalize expenditures. 

The IMF program will also help establish a framework for implementing austerity measures to strengthen recovery efforts and expedite macroeconomic recovery efforts.

The Overall balance on commitment basis is a deficit of GH¢48,951 million (5.7 per cent of the revised GDP). 

The corresponding Primary balance on commitment basis is estimated at a deficit of GH¢4,085  million (0.5 per cent of Revised GDP compared to a deficit of 3.7 per cent of  GDP at the end of 2022), down from a surplus of GH¢5,594 
million (0.7 per cent of GDP) originally programmed in the 2023 Budget.

The following macroeconomic targets were set for the end of the year Overall, Real GDP growth is expected to drop to 1.5 per cent. Non-Oil Real GDP is expected to grow at a rate similar to overall GDP.

End-of-period headline inflation is projected at 31.3 per cent  Primary Balance on Commitment basis of a deficit of 0.5 per cent Gross International Reserves to cover at least 0.8 months of imports.