Govt shrinks capital budget by 7.2%

14.03.17

The Government has shrunk its capital expenditure budget by 7.2 per cent to GH¢ 9.73 billion, sparking concerns of a halt in the development of infrastructural projects as witnessed in the past. In 2014 and 2016, the top two priority areas for the Annual Budget Funding Amount (ABFA) included expenditure on Oil and Gas infrastructure and road Infrastructure. In the 2017 budget the priority areas have been re-aligned for the period 2017-2019 with the top two being agriculture and service delivery in education.

But Head of the Finance Department at the University of Cape Coast, Dr John Gatsi said in an interview March 10, that the move is an indication of a shift from infrastructure to other areas. He said the government must clearly spell out its policy for the private sector if it wants the private sector to lead in the provision of infrastructure. “If the private sector is going to spearhead the provision of infrastructure, the government must clearly state its role in that regard for a smooth take off”, he said. “There has been lots of times when development projects have stalled because the government has not provided its counterpart funding”, he added.

Private sector lead approach

Senior Economic analyst at Databank, Mr Courage Kingsley Martey, explained in an interview that the new government’s private sector led approach to infrastructure financing and the re-alignment of the priority areas in the allocation of the ABFA for the 2017-2019 period from the petroleum revenue are the two key reasons there is a decline in the projected capital expenditure for 2017. Expenditure on road and rail infrastructure has been lowered to the fourth level on the scale of prioritisation while expenditure on oil and gas infrastructure is missing completely in the priority areas.

“This partly explains the marginal decline in CAPEX for 2017 although ongoing pipeline projects would be continued as funding and contracts have already been agreed from the previous year”, Mr Martey explained. The second factor explaining the decline in CAPEX for 2017 is due to the new government's anticipated Private sector approach to financing infrastructure development in order to ease the financial commitment on the national budget. Analysts say, most of the capital projects outlined in the budget are on-going and have already been fully funded, giving the government room to substitute public funds away from capital spending to finance flagship social intervention programmes.


Recurrent expenditure

Recurrent expenditure remains a substantial burden on government’s budget in 2017, accounting for 68 per cent of the planned expenditure for 2017. This reduces funds available to undertake capital investment in critical sectors of the economy. The Government continues to face constraints in its attempt to substantially reduce Ghana’s debt burden. Fiscal deficit remains high at 8.7 per cent on cash basis and 10.3 per cent on commitments. This the Databank Senior Economist said the elevated depreciation of the cedi in recent weeks had contributed to the 29.4 per cent projected increase in total interest obligation for 2017 as external debt accounts for 55 per cent of the country’s total debt stock.

Analysts therefore expect the government to expedite action to stabilise the macro economy to reduce fiscal risks and steady the growth in interest obligations in the medium-term. IMF departure On the IMF mission's departure from Ghana on February 10, team leader Mr Joël Toujas-Bernaté said the government would have to adopt bold policies to reduce the budget deficit and manage the ballooning debt servicing costs. He acknowledged that there had been 'large fiscal slippages'. Presumably these had escaped the attention of last year's IMF missions because they bypassed the public finance management system.

Mr Toujas-Bernaté welcomed the government's decision to audit all outstanding obligations inherited from its predecessor. Making clear that his pledge to offer free secondary high school education to all Ghanaians was non-negotiable, President Akufo-Addo has affirmed that this would start with this year's intake of students in September.That could be the signal battle for the President as bankers and policy monks argue for the plan to be ramped down. The preceding government under President John Dramani Mahama allocated GH¢ 6.5 billion cedis for all levels of education out of a total budget of GH¢ 46.5 billion. But standards in the state sector have come under increasing fire for poor results.

This particularly stings a country that once had one of the highest literacy rates in Africa and Asia. Meanwhile, a highly profitable system of private schools and universities has grown, pulling in students from across the world. The fees charged are way beyond the reach of the average Ghanaian who expect Akufo-Addo to deliver on his pledge. No detailed figures have emerged for the cost of free secondary education but it will be in the hundreds of millions of cedis. The Senior Minister, Yaw Osafo-Maafo, a former Finance Minister, has suggested some education spending could be financed from the state's Heritage fund, the sovereign wealth fund into which the government has to pay a percentage of oil export revenue (Confidentially Speaking, AC Blog, 24 Jan 2017). Others are less convinced, arguing that fixing the national finances and hard-headed restructuring should precede more social spending.

Source: Daily Graphic