MACROECONOMIC AGENDA

TOP MACROECONOMIC ACHIEVEMENT FOR 2009 AND 2010

1. Sustained reduction in inflation

Inflation rates have over the last 15 months reduced consistently. and the trend has continued into October 2010. From a high of 18.1% in December 2008 the rate of inflation as at October 2010 is 9.38%. This is indicative of the fact that the fiscal-monetary policy mix and corrective measures put in place to put the economy back on track are working.

 2. Improved gross international reserves

Gross International Reserves in January 2009 was US $2 billion covering 1.8 months of imports. Currently, it is US$ 35 billion covering 3months of import cover.

 3. Currency Stabilisation

The Ghana Cedi has stabilised over the months; an indication that the effects of both monetary and fiscal policies are yielding positive results. The stability of the cedi is the longest since the re-denomination exercise. The latest survey shows a more positive assessment of the general macroeconomic outlook and a rebound in both business and consumer confidence.

 4. 2010 Macroeconomic Performance

Provisional figures indicate that as at September 2010, the economy expanded by 5.9% against a GDP target of 6.5%.

 5. Single Spine

Single spine salary implementation is vigorously underway.

 6. Revenue Agencies Integration

The revenue agencies have been integrated, which translate into greater efficiency in revenue collection. Today, we have a Ghana Revenue Authority, which brings together the operations of VAT, CEPS and IRS.

 7. Domestic Financing

Domestic financing is on track. We have not borrowed more than is constitutionally required from the Central Bank. This constitutional requirement was fiouted in the past

 8. Convergence Criteria

For the first time in 9 years, Ghana has met three out of the four primary convergence criteria of the West Africa Monetary Union.

 9. TOR Debt

Despite the introduction of the TOR debt recovery levy by the previous  government, TOR and its creditors almost collapsed due to the failure of the  Kufuor-Ied administration to pay the debt. The funds that accrued under the levy were misapplied and misappropriated. The Mills-led administration has however cleared over 50% of the debt with an amount GHC 445 million.

 10. Foreign Direct Investment

Foreign Direct Investments in Ghana in 2009 amounted to $551.30 million, according to the Ghana Investment Promotion Centre (GIPC). The amount represents 88.92% of investments recorded by the centre in that year. (A GNA report citing the quarterly update report of the GIPC says the Centre recorded a total of257 investment projects with a total estimated value of US$ 619.99).

Medium-Term Framework

The NDC Vision

The vision of the NDC Government is to adopt carefully designed policies and programmes that will stimulate and develop the immense talents and resourcefulness of Ghanaians and make them the main drivers and beneficiaries of the national development agenda, with special emphasis on the rural and urban poor.

In pursuit of this vision, the government will,

• make macro-economic stability an important goal;
• provide the policy and programme framework for enterprises to re-tool, adopt modern technologies, access capital, and overcome historical and structural constraints that impede competitiveness;
• forge a partnership between the government and the business sector, to enhance and promote national economic growth;
• devise and implement an urgent national action plan for the modernization of agriculture at the production, harvesting and marketing levels.
• These will include rationalizing access to agricultural lands; making strategic investments to reduce the risks inherent in agriculture (irrigation and agro-processing); and expanding availability of agriculture-related infrastructure; and
• apply fair and equitable social distribution mechanisms that enhance the welfare of all citizens, especially the weak and the vulnerable in society.

Economic Objectives

Against the backdrop of the current economic situation, our main strategic policy objectives are outlined below.

The broad policy objective of the NDC government is to lead this economy into middle income status that registers in the lives, livelihoods and incomes of ordinary people by the year 2020. We plan to accomplish this objective through the adoption of prudent policy measures, better policy coordination, and better management of the national economy.

Growth

Growth will be pursued through proper coordination of related policy areas such as:

• improving and sustaining macroeconomic stability;
• resource mobilization to support accelerated economic development
• expanded development of production infrastructure in, among others, energy, transport, water and communications;
• creating employment, through support for micro small and medium enterprises of various categories;
• modernizing agriculturBe and the rural economy;
• resuscitating manufacturing activities;
• developing the complement of human capital critical for managing the various aspects of national development; and
• promoting Regional Integration.

Fiscal Policy

The NDC Government believes in funding development and the provision of essential services through efficient, effective, and equitable taxation of all citizens. We will seek to improve tax revenue collections by introducing reforms in tax administration, and enhancing tax incentives.

Government will reform the National Revenue Authority to ensure integrated tax administration. This will, among others, facilitate the sharing of information among the revenue agencies to achieve more accurate assessments, widen the tax net and avoid duplication of efforts.

The administrative reforms will include adequate and reliable funding of the revenue agencies, a comprehensive computerization of the direct and indirect tax systems, human resource capacity building, increased tax awareness and publicity programmes to enhance tax consciousness, to increase tax mobilization from the informal sector.

Tax policy will be used to encourage people to work hard by creating adequate incentives for work and increased productivity, in order to increase disposable incomes of individuals.

In the medium term, emphasis will be placed on prudent expenditure management with the view to reducing unproductive expenditures to the barest minimum.

Monetary Policy

Monetary policy will support fiscal policy, focusing on sharply reducing inflationary pressures and stabilising price and exchange rate expectations on the market. The Bank of Ghana (BoG) will direct monetary policy towards reducing the end period inflation, and strengthen its inflation targeting framework.

The flexible exchange rate regime will be maintained and foreign exchange interventions will only be used as an instrument to smooth out volatility in the foreign exchange market.

Measures will be introduced to encourage further development of the market for bonds and other long-term securities, mobilize savings for investment and restructure the financial system to enhance the flow of credit to the productive sectors.

Medium-term Macroeconomic Targets

In line with the medium term policies, the following are the main macroeconomic targets:

• average real GDP growth of about 8 per cent;
• average consumer price inflation of a single digit;
• gross international reserves of not less than three months of import cover;
• overall budget deficit equivalent to 3.0 per cent of GDP;
• Stabilization of the total public debt at no more than 60 per cent of GDP.

Structural Policies

Structural reforms will be pursued and strengthened in the medium term. In anticipation of revenue inflows from oil production, policies will be mapped out to ensure the maintenance of fiscal and debt sustainability.

Tax Administration

One of the major challenges facing Ghana is how to broaden the tax net. The fact that the vast majority of Ghanaians are in the informal sector makes revenue generation a daunting task. Tax Administration will be strengthened to realize efficiency gains and broadening of the tax base.

Tax exemptions constitute a significant proportion of about 9.0 per cent of total tax revenue. Revenue loss from exemptions granted in duties and taxes continue to rise. Government intends to review the exemptions regime as a whole to reduce the scope and to eliminate abuses in the administration and application of the facility. As a start, all exemptions resulting from the clearance of goods on “permit” will be curtailed. Work on the remaining types of exemptions will continue in order to achieve a comprehensive review in the medium term.

Despite the above measures to rationalize and enhance revenue collection, government will look for opportunities to provide tax incentives to the private sector in key sectors of the economy.

Public Sector Reforms

Government will review the reforms of the public sector and pursue an action plan to restructure subvented agencies that are no longer relevant to the government‟s objectives. In this regard, there will be partial or full commercialization of selected subvented agencies.

Public Sector Wages

The Government recognizes the wage issue as a major challenge and is, hence, committed to the public sector reforms that link wage settlement to increased productivity.

These reforms are expected to solve the problems at the labour front, resulting partly from a distorted public sector salary structure which is also poorly administered.

Significant progress has been made with the development of a draft framework for a comprehensive salary structure, the Single Spine, for all public sector workers (excluding Article 71 Constitutional Office Holders). The agreed processes will be discussed by all stakeholders, in order to arrive at a consensus on implementation. The Single Spine structure aims to attain equity and transparency in public sector salaries while minimising leakages associated with the current pay system.

We are committed to a programme for the distribution of the benefits of growth that will be targeted at providing the basic needs of the people. The programme will focus on the following:

   1. adequate nutrition and access of every person to potable water;
   2. access to preventive and curative medicine;
   3. affordable and adequate housing for low income workers and residents of rural and peri-urban communities;
   4. employment opportunities for all those who are willing and able to work;
   5. sustainable pension options for all citizens;
   6. a fundamental reform and restructuring of the economy through the modernization of agriculture and processing of agricultural and mineral products.

We will invest in local communities as part of our rural modernization and urban regeneration strategy to cover the following:

   1. construction and rehabilitation of rural roads;
   2. provision of clinics and health posts;
   3. provision of schools and community libraries;
   4. extension of electricity to all communities with a population of over 500;
   5. construction of houses for teachers and health workers in the rural areas; and
   6. provision of social amenities in urban communities with high levels of poverty.

SHORT-TERM MACROECONOMIC POLICIES

0ur policy in 2009 will be reinforced to ensure macroeconomic stability in the context of a deteriorating international environment so as to provide a temporary cushion to the domestic economy. Subsequently, the stable economy will enhance accelerated growth which will ensure the attainment of a middle income status by 2020. This strategy will be accomplished through fiscal discipline hinged on prudent public expenditure management, strict adherence to public procurement rules, efficient and effective domestic revenue mobilization, and encouraging the private sector to participate in our accelerated growth agenda through Public Private Partnerships (PPPs).

The fiscal outlook is very critical to Government in achieving its objective of maintaining long-term fiscal and debt sustainability. There will be a decisive policy to improve expenditure management, enhance public financial management, restructure State-Owned Enterprises (SOEs) particularly the utility companies and ensure the success of the public sector reforms.

In spite of the fiscal outturn for 2008, Government is committed to managing the macroeconomic situation to ensure that the macroeconomic targets change in the right direction in the short to medium term.

Macroeconomic Policies, Strategies And Targets For 2009

In the 2008 Manifesto of the NDC, we pledged that an NDC Government would “establish a lean but effective  and efficient government by cutting out ostentation and profligate expenditure; rationalizing ministries and ministerial appointments; and promoting service, humility and integrity as canons of government”.

This is one of the main policy directions that this Budget seeks to achieve. As a first step towards the creation of a lean government, the total number of Ministries has been rationalized, reducing them from 27 to 23.

Based on the 2008 fiscal outturn, and the world economic outlook already outlined in Chapter Two of this Statement, our broad economic and financial objectives for 2009 include:

• real GDP growth of 5.9 per cent;
• average inflation target of 15.3 per cent;
• end period inflation of 12.5 per cent;
• an overall budget deficit equivalent to 9.4 per cent of GDP;
• gross international reserves of more than two months of import cover of goods and services.

Considering the harsh global environment, these macroeconomic targets may look rather ambitious. However, we believe that Ghana‟s situation could be more favourable than other sub-Saharan African countries and emerging economies in general. We are, therefore, optimistic that these targets are achievable.

Fiscal Policy Challenges

For 2009 in particular, and the medium term in general, the Government will be committed to correcting the large fiscal imbalance experienced since 2006 by focusing on, among others, tackling underlying issues to enhance domestic revenue mobilisation; rationalizing subsidies to State-Owned Enterprises (SOEs), particularly, in the energy sector; and rationalizing public sector wages and other expenditures.

OUTLOOK FOR 2009

GDP Growth For 2009

GDP growth for 2009 is targeted at 5.9 per cent. This is informed by the global economic meltdown with a resultant forecast of 0.5 per cent growth and 3.5 per cent for emerging economies. Our relatively higher GDP growth target is driven in part by our commitment to the agricultural sector which is relatively more insulated against global developments. The private sector is also expected to contribute significantly to the growth

Agriculture Sector growth rate is targeted at 5.7 per cent and will be based on the following measures among others:
Increases in the area under cultivation of maize, rice and groundnut by about 24 per cent, 9 per cent and 1 per cent respectively;
Government intervention in post-harvest handling of agricultural production, storage and processing facilities; and
Improvement in the performance of local breeds of livestock.

Industry Sector growth is projected at 5.9 per cent and the Services Sector is expected to grow at 6.6 per cent.

Resources Mobilsation And Allocation For 2009

Resource Mobilisation

The total resource envelope or total receipts for the 2009 fiscal year is projected at GH¢9,793.1 million, equivalent to 45.8 per cent of GDP. The projected receipts for the year represents 2.7 per cent increase over the outturn for 2008.

The apparent marginal increase in projected total receipts for 2009 over the outturn for 2008 can be attributed to the exceptionally huge inflows from divestiture receipts and the draw-down on receipts from the sovereign bond in 2008. This led to the large amount of total receipts recorded during the year. In 2009, however, these exceptional receipts will not recur.

Domestic revenue, consisting of tax and non-tax revenue, is projected at GH¢5,935.1 million, a 23.6 per cent increase over the outturn for 2008.

Total tax revenue comprising revenues from the Internal Revenue Service (IRS), Customs Excise and Preventive Service (CEPS) and Value Added Tax Service (VATS) is projected at GH¢5,117.1 million, representing 23.9 per cent of GDP. The 2009 estimate for tax revenue shows an increase of 19.0 per cent over the outturn for 2008.

Out of the projected tax revenue, direct taxes are estimated at GH¢1,554.5 million, accounting for 30.4 per cent of total tax revenue. This amount indicates a 24.0 per cent increase over the outturn for 2008.

Indirect taxes are projected to increase by 25.1 per cent from the 2008 level to GH¢1,917.4 million in 2009. The estimate for 2009 is made up of GH¢1,418.5 million for total VAT, with petroleum and excise taxes yielding GH¢436.2 million and GH¢62.7 million, respectively.

International Trade taxes, comprising import and export duties, are projected at GH¢922.5 million, representing 4.3 per cent of GDP and 17.8 per cent of total tax revenue. The estimate indicates a 28.2 per cent increase over the outturn for 2008. Import duties constitute about 95 per cent of the projected international trade taxes for 2009.

The National Health Insurance Levy (NHIL) is estimated to yield an amount of GH¢375.2 million, representing 1.8 per cent of GDP and an increase of 17.9 per cent over the outturn for 2008. The yield from the NHIL includes an amount of GH¢117.4 million from the Social Security and National Insurance Trust (SSNIT).

Non-Tax Revenue is projected at GH¢590.9 million, equivalent to 2.8 per cent of GDP. Out of this amount, GH¢386.9 million is to be retained by the MDAs and GH¢204.0 million will be lodged for general government budgetary support.

Grants from development partners are projected at GH¢1,301.9 million, equivalent to 6.1 per cent of GDP. This is made up of project and programme grants of GH¢683.1 million and GH¢395.6 million, respectively. Highly Indebted Poor Country (HIPC) Assistance from multilateral institutions and, Multilateral Debt Relief Initiative (MDRI), are expected to yield GH¢130.0 million and GH¢93.3 million, respectively.

Total loans are estimated at GH¢1,029.2 million, equivalent to 4.8 per cent of GDP. This is made up of Project and Programme Loans of GH¢792.5 million and GH¢236.7 million, respectively.

Exceptional financing made up of HIPC relief from our bilateral partners, is projected at GH¢134.7 million.

Resource Allocation

Madam Speaker, total payments for 2009 is projected at GH¢9,793.1 million. Of this amount, GH¢3,012.7 million, equivalent to 14.1 per cent of GDP or 30.8 per cent of the total payments, is estimated for statutory payments and GH¢6,780.4 million, equivalent to 31.7 per cent of GDP as discretionary payments.

Statutory Payments

Statutory payments, comprising all expenditure items which are mandatory, are estimated at GH¢3,012.7 million. The estimate for statutory payments indicates a 27.8 per cent increase over the outturn for 2008.

External Debt Service is estimated at GH¢855.1 million, out of which GH¢537.9 million is estimated to be used for interest payments and the remaining for amortization.

Domestic interest payments for the 2009 fiscal year are estimated at GH¢507.7 million.

Central Government transfers to the District Assemblies Common Fund and Ghana Education Trust Fund are estimated to be GH¢345.7 million and GH¢275.1 million, respectively, and an amount of GH¢375.2 million will be transferred to the National Health Insurance Fund.

The Road Fund is expected to receive an amount of GH¢123.3 million, while GH¢3.5 million will be transferred into the Petroleum-related Fund, for the funding of exploration and other petroleum-related activities.

Transfers to Households, which is made up of an amount of GH¢211.9 million for Pensions, GH¢95.6 million for Gratuities and GH¢219.7 million for Social Security contributions by Government on behalf of its employees, will amount to GH¢527.2 million, equivalent to 2.5 per cent of GDP.

Discretionary Payments

Total discretionary payments is estimated to be GH¢6,780.4 million, equivalent to 68.9 per cent of total payments. The estimate is 5.6 per cent lower than the outturn recorded in 2008. The low projection is mainly explained by the

non-recurring expenditures including the sovereign bond proceeds which occurred in 2008.

Personal emoluments (item 1) for 2009 is estimated at GH¢2,533.8 million, representing 11.8 per cent of GDP, 42.5 per cent of domestic revenue, and 37.9 per cent of total discretionary payments.

In 2009, some salary related allowances which are currently classified as part of administration expenditure (item 2) have been consolidated with the basic salary. This partly explains the increase in the wage bill from 11.5 per cent of GDP in 2008 to 11.8 per cent of GDP in 2009.

Of the estimated GH¢2,533.8 million, the allowances are estimated at GH¢324.0 million equivalent to 1.5 per cent of GDP. Thus, in 2009 the estimated wage bill excluding the allowances is equivalent to 10.3 per cent of GDP. This compares with the outturn of 11.5 per cent of GDP for 2008.

Administration and Service (Items 2 and 3) expenses for MDAs are estimated at GH¢266.3 million and GH¢149.0 million, respectively. The two together represent 1.9 per cent of GDP, 7.0 per cent of domestic revenue, and 6.1 per cent of discretionary payments. The estimates for items 2 and 3 are 36.0 per cent lower than the outturn for 2008.

The consolidation of category 1 allowances as part of personal emoluments for 2009 explains the reduction in the estimate for items 2.

As part of Government‟s policy to reduce the budget deficit through expenditure rationalization, service activities in the areas of foreign travels, workshops and seminars are to be curtailed. This accounts for the reduction in item 3 expenses.

Domestic-Financed Investment (excluding those financed from statutory funds) are projected to be GH¢305.8 million, equivalent to 1.4 per cent of GDP and 4.5 per cent of discretionary payments.

An amount of GH¢1,475.6 million, equivalent to 6.9 per cent of GDP and 21.8 per cent of total discretionary expenditures is estimated for Foreign Financed Investment.

Other transfers are estimated at GH¢905.7 million, out of which GH¢35.0 million will be used to mitigate the impact of petroleum price liberalization, while an amount of GH¢19.0 million is being projected for reimbursement to ECG in respect of subsidies to lifeline consumers of electricity. An amount of GH¢386.9 million of internally generated funds is expected to be retained by MDAs, while import duty exemptions (classified as tax expenditure) are estimated at GH¢464.8.

Total receipts from the HIPC debt relief initiative is estimated at GH¢264.7 million. As has been the practice, 20 per cent of receipts from the HIPC debt relief initiative will be used for the reduction of domestic debt. In 2009, 50 per cent of the HIPC relief totaling GH¢131.8 million will be distributed to MDAs, MMDAs and other institutions for the implementation of activities aimed at reducing poverty and improving the economic and social conditions of Ghanaians. The remaining 30 per cent will be used as general budgetary support.

MDRI-financed expenditure is projected at GH¢93.3 million.

An amount of GH¢344.5 million has been provided in a reserve fund for the payment of judgment debts, payment into the Northern Development Fund, and purchase of strategic oil stocks, among others.

A total amount of GH¢533.5 million has been set aside for the settlement of payments that were due but not made in 2008.

Overall Budget Balance and Financing

The 2009 budget envisages an overall budget deficit equivalent to 9.4 per cent of GDP.

The overall budget deficit is expected to be financed from both domestic and foreign sources. Net Domestic Financing of the budget is estimated at GH¢1,392.2 million, equivalent to 6.5 per cent of GDP. Financing from foreign sources are projected at GH¢626.0 million, equivalent to 2.9 per cent of GDP.

EXTERNAL OUTLOOK FOR 2009

Public Debt and Financing Strategy

The core strategy for public debt management is to control the rate of growth of total public debt. Public debt is largely expected to be kept at sustainable levels, and consequently, total public debt to GDP ratio is expected to be below a targeted limit of 60 per cent in the medium term.

External Debt Management Strategy

The external debt strategy will be to seek for soft loans for mainly social projects, and access commercial facilities for economically viable, self-financing and strategic projects. There will be significant efforts to attract products that involve liability sharing between government and the private sector in the form of Public Private Partnerships (PPPs) and prudent levels of contingent liabilities and on-lending facilities.

The following strategic risk benchmarks will be pursued as a forward looking risk management strategy in the medium term.

Foreign Currency Risk Benchmarks
Foreign currency debt obligation will be aligned to the country‟s foreign exchange receipts in order to minimize exposure to major foreign currencies.
Interest Rate Risk Benchmark

The current structure of interest rates does not suggest any eminent interest rate risk. However, the floating rate component which could pose danger in times of crisis would be closely monitored and kept under the internationally accepted range of 25 to 35 per cent.

HIPC AND MDRI – Receipt Account

During 2009, it is expected that a total of about GH¢358 million (US$238.67 million) will be lodged in the debt relief accounts, consisting of GH¢264.73 million and GH¢93.27 million for HIPC and MDRI, respectively.

The Government of Spain has committed to deliver additional debt relief in the form of debt-for-development to contribute to the socio-economic development of Ghana. The total amount of debt relief involved is US$44.36 million. This is to be provided over a seven year period, and will be deposited in a Ghana-Spain Debt for Development Swap Trust Fund. The use of funds and selection of projects will be agreed by a Joint GOG- Spanish Committee to be set up.

Domestic Debt Management Strategy

Effective domestic debt management will be one of the critical aspects of the Government‟s economic programme during this fiscal year and in the medium term.

The increasing size of the domestic debt and its debt service burden points to an urgent need for Government to pursue sound and effective strategies to reduce the domestic debt to sustainable levels. Over the medium term, it is envisaged that debt management strategies will be supported by continuous fall in interest rates, a stable exchange rate environment and a reduction in fiscal deficit.

Debt management strategies over the medium term are intended to achieve the following four broad objectives:

• satisfying the government‟s annual financing requirements;
• minimizing borrowing and debt service costs;
• achieving a balanced maturity structure of debt; and
• deepening a well-functioning Government of Ghana securities market by providing key pricing and hedging tools.

Primary Dealer System and Secondary Market Development

The primary dealer system will be reviewed under the current benefits and obligations with probationary Primary Dealers (PDs) in the new system.
A feedback system and rules book will be developed during the year.

Improvement of Issue Calendar

It has been difficult to pre-commit to a specific issue programme in advance. The goal is to reduce the frequency of government debt issue and to make public, in advance, the specific instruments and size. This would provide the market with a clear indication of when an instrument will be issued and some broad guidance on the likely amount.

Monetary Policy

The Bank of Ghana will focus on reducing the rate of inflation to 12.5 per cent by the end of 2009 and further to 10.0 per cent in  2010 and 8 per cent in 2011. Underlying this medium term forecast of inflation is a fiscal consolidation path which will stabilize domestic debt and help anchor inflation expectations.

Price and Monetary Outlook

The medium term inflation forecast shows inflation declining to 12.5 per cent in 2009 to 8 per cent in 2011. The key challenges underlying the forecast is the fiscal policy stance and in particular wage policy in 2009 and a resurgence in prices of crude oil currently forecasted to rebound in 2010. The Bank of Ghana will use its inflation targeting framework to guide inflation expectations in line with the forecast.

External Outlook

The overall objective for the external sector will be to build up adequate reserves to cushion the economy from external shocks. The reserve build up in 2006-2007 served the economy well and allowed it to withstand the oil and food price shocks in 2008 to a large extent. This objective of shoring up reserves is in a context of a global economic crisis with potential risks to our sources of foreign exchange, exports, remittances and aid flows.

The balance of payments projections for 2009 indicate that exports will decrease by 7.6 per cent to US$ 4874.06 million. Cocoa exports are expected to decline by 2.8 per cent to US$1459.58 million reflecting a price decline of about 9 per cent. Gold exports receipts are expected to decline by 11.78 per cent due to a significant decline in gold export prices by 16.0 per cent. Private inward transfers are projected to decline by 7.5 per cent to US$ 1.7 billion.

It is anticipated that imports will also slowdown in 2009 by 16 per cent to US$8605.2 million reflecting a 15 per cent slow down in non oil imports and a 20 per cent slow down in oil imports. The slowdown in oil imports is due to a 41 per cent drop in oil prices to a projected $60 per barrel for 2009.

The overall current account balance (including official transfers) is projected to improve by 35 per cent driving the current account deficit GDP ratio from 20.87 per cent in 2008 to about 15 per cent in 2009.

This sharp improvement in the current account is expected to impact positively on the gross international reserves to cover two months of imports by the end of 2009.

SECTORAL PERFORMANCE AND OUTLOOK

The economic and social objectives that we have set for ourselves will be accomplished through well thought out policies programmes and projects which have already been clearly identified and articulated in our manifesto. These are reflected in the four broad thematic areas namely:

• transparent and accountable governance;
• a strong economy for real jobs;
• investing in people; and
• expanding infrastructure.

The agenda to fundamentally reform and restructure the economy is impinged on the philosophy of growth with stability. Emphasis will be placed on accelerated agricultural modernization, improved rural economy, and food security. On the industrial front, the policy is to implement growth enhancing science and technology driven measures to ensure global competitiveness. Government will create the necessary environment for private sector operation with a view to encouraging Public-Private Partnership in service delivery.

The programmes and activities of the Ministries, Departments, and Agencies (MDAs) are designed to achieve these broad goals. The MDAs are thus called upon to ensure speedy, effective, and efficient execution of the programmes as outlined in their budgets.

If you permit, I will now present the broad programme activities under the sector Ministries.

MACROECONOMIC PERFORMANCE FOR 2009

Overview Of Economic Performance

The broad economic and financial assumptions that underpinned the elaboration of the 2009 Budget included the following:

• real GDP growth of 5.9 per cent;
• average inflation target of 15.3 per cent;
• end period inflation target of 12.5 per cent;
• an overall budget deficit equivalent to 9.4 per cent of GDP; and
• gross international reserves of more than two months of import cover of goods and services.

The Bank of Ghana revised the average inflation target to 19.1 and the end period inflation target of 14.6 per cent. As a result of the good policies adopted by the NDC Government, there has been a quick turnaround and macroeconomic indicators have improved within a short period of time. Preliminary real GDP growth based on a mixture of some provisional actual data and projections up to September 2009 provided by the Ghana statistical Service is estimated at 4.7 per cent. This is significantly higher than the expected average growth in most sub-Sahara African countries, as the sub-Sahara African region as a whole, is expected to register no more than 1.1 per cent growth in 2009. The real growth achievement is in spite of the austere measures that we have instituted during the year to correct the macroeconomic imbalances that were inherited by the NDC Government.

The fight against inflation has been very challenging. End-period consumer price inflation, however, declined from a peak of 20.6 per cent in April 2009 to 18.0 per cent at end October 2009. Domestic interest rates have remained stable, with the 91-day treasury bills discount rate hovering around 25 per cent since January 2009.

Considering the harsh global economic and financial situation, and the worse-than-anticipated domestic economic situation, these macroeconomic targets really were overambitious, just as we stated in the 2009 Budget Statement. However, even though we project that targets will be missed, Ghana’s situation is more favourable than other sub-Sahara African countries and emerging economies in general.

Real Sector Developments

Real GDP growth rate based on preliminary data for some of the sectors in the National Account through September 2009 is estimated at 4.7 percent. This performance is mainly driven by the lowerthan- expected performance of the Industry and Service sectors, coupled with the slowdown in aggregate demand due partly to the economic slow down during the first two quarters of the year.

The recent Bank of Ghana Composite Index of Economic Activities (CIEA), however, shows that output growth is much closer to the trend rate of about 6 percent.

The sectoral components of the growth are outlined below.

Agriculture Sector

The Agricultural sector grew by 6.2 percent, against a target of 5.7 percent. The high growth was led by the Crops and Livestock sub-sector largely on account of expansion in areas of cultivation and good rainfall pattern this year in the farming areas of the country. The Cocoa Production and Marketing sub-sector also saw significant improvement in growth due to increase in producer price, effective disease and pest control and application of fertiliser and good husbandry practices. The sub-sector’s growth target of 3.5 per cent was exceeded by 1.5 percentage points. The Forestry and Logging sub-sector recorded a growth rate of 3.5 per cent, whilst the Fishing sub-sector grew by 5.0 per cent.

Industry Sector

The Industrial sector grew by 3.8 per cent down from an annual growth target of 5.9 percent. The lower than expected performance of the sector was driven, primarily, by activities in the construction subsector, the largest contributor to industrial output, which experienced output contraction by one per cent against a growth target of eight percent.

The Electricity and Water sub-sector registered the highest growth in the Industry Sector, posting a provisional growth rate of 9.0 per cent against a target of 5.0 percent. The two hydro plants at Akosombo and Kpong recorded production increases above 15 per cent which supported the industrial sector growth.

The Mining sub-sector grew at a remarkable rate of 8.0 per cent. The good performance of the mining subsector is partly due to the rise in demand for gold which has pushed gold prices to unprecedented high levels. Mining companies in the country have responded positively to the price hikes by increasing production.

Services Sector

The Services Sector, which has recently become a major source of growth of the Ghanaian economy, grew by 4.6 per cent against a target growth rate of 6.6 percent. The lower-than-expected growth performance of the sector is mainly explained by the poor performance of Wholesale & Retail, Restaurants & Hotels and the Government Services sub-sectors.

Fiscal Developments

This report is based mostly on provisional actual data for the first three quarters of 2009. Projections up to the end of the year are, therefore, based on the best information available, taking into consideration the annual budget estimates and the outturn as at end-September 2009.

Although there were shortfalls in revenues and grants during the first three quarters of the 2009 fiscal year, rigorous expenditure management led to the achievement of an overall budget deficit of GH¢1,376.7 million, equivalent to 6.4 per cent of GDP. This was against a target deficit of GH¢1,683.3 million, equivalent to 7.8 per cent of GDP. The domestic primary balance recorded a deficit of GH¢241.2 million, equivalent to 1.1 per cent of GDP, against a target deficit of GH¢518.2 million, equivalent to 2.4 per cent of GDP. This compares with a deficit equivalent to 7.1 per cent of GDP in the same period of 2008. This indicates much improvement in the domestic effort in budget implementation.

Receipts

The provisional fiscal outturn during the first three quarters of the year shows that total receipts amounted to GH¢6,266.4 million, 12.8 per cent below the budget target of GH¢7,189.9 million. For the year 2009 as a whole, total receipts are projected at GH¢8,659.3 million, 13.8 per cent below the budget estimate of GH¢10,045.9 million. Total revenue and grants amounted to GH¢4,518.6 million, 11.9 per cent below the budget target of GH¢5,129.9 million. It is projected that by the end of the year, total revenue and grants will be GH¢7,216.1 million, 3.5 per cent below the budget estimate of GH¢7,474.2 million. The shortfall results from under-performance in Grants of GH¢84.2 million and Domestic revenue shortfall of GH¢173.9 million.

As at the end of September, 2009 domestic revenue comprising tax and non-tax revenue was GH¢3,713.4 million, 11.3 per cent lower than the budget target of GH¢4,186.1 million. The outturn was, however, 12.2 per cent higher than the amount recorded during the same period in 2008. For the year as a whole, domestic revenue is projected at GH¢5,998.2 million against a budget estimate of GH¢6,172.1 million. The shortfall of GH¢173.9 million is as a result of the underperformance of tax revenue.

The outturn for tax revenue during the period was GH¢3,249.0 million, against a budget target of GH¢3,633.5 million. Total tax revenues are projected to be lower than the budget estimate of ¢5,210.9 million by GH¢160.3 million. The shortfall in tax revenue is due to the lower-than-expected performance of indirect and international trade taxes.

Direct taxes, comprising personal, self-employed, company taxes and others such as airport tax and mineral royalties for the first three quarters amounted to GH¢1,139.6 million. This reflects a 2.8 per cent increase over the budget target of GH¢1,108.5 million, and 26.8 per cent higher than the outturn for the same period in 2008. Given the strong performance, direct taxes for the year are projected to yield GH¢1,719.3 million, 9.8 per cent higher than the budget target of GH¢1,565.4 million.

The performance of direct taxes is the result of improved administrative measures that were implemented in the course of the year. These measures include computerisation of personal income tax payments and compliance enforcement. Indirect taxes totalled GH¢1,129.5 million, against a budget target of GH¢1,350.9 million. In spite of the drop, the outturn indicates an increase of 5.9 per cent over the out turn for the corresponding period in 2008. It is, however, projected that by the end of 2009, indirect taxes will amount to GH¢1,729.3 million, 10.8 per cent below the budget estimate of GH¢1,938.8 million.

The projected underperformance is due to the poor performance of domestic VAT and petroleum taxes. Domestic VAT amounted to GH¢304.8 million, against a budget target of GH¢386.8 million. Based on the performance for the period under review, domestic VAT is projected at GH¢489.3 million, 15.2 per cent lower than the budget estimate of GH¢577.2 million.

The projected shortfall is due to a slowdown in economic activity than was anticipated during the first half of the year. Import VAT recorded a yield of GH¢571.5 million, about 4.6 per cent lower than the budget target. This outturn was, however, 25.7 per cent higher than the outturn for the corresponding period in 2008. It is projected that, import VAT will turn around, and the additional collections during the fourth quarter will offset the underperformance recorded during the first three quarters of the year to yield GH¢883.3 million.

The projected outturn will be 2.4 per cent higher than the budget estimate for 2009. Revenue from petroleum taxes as at the end of September, 2009 was GH¢216.7 million. This was 32.3 per cent lower than the budget estimate of GH¢320. 124 million. The low performance of petroleum taxes was due mainly to the lower volumes of petroleum products lifted and the reduction of taxes on petroleum products in March 2009, in the face of rising world crude oil prices and a fast depreciating Cedi at the beginning of 2009. As a result, petroleum taxes are projected at GH¢298.9 million, 31.5 per cent lower than the 2009 budget estimate of GH¢436.2 million.

The outturn for International Trade Taxes, made up of import and export duties, was GH¢543.1 million, indicating a shortfall of 16.2 per cent against a budget target of GH¢647.7 million. International trade taxes are projected to be GH¢862.6 million, 10.8 per cent lower than the estimated amount of GH¢967.5 million for the year. The projected lower performance is driven by the underperformance of import duties. Of the total international trade taxes, import duties amounted to GH¢536.3 million, 16.3 per cent lower than the budget target, but 14.1 per cent higher than the outturn for the same period in 2008. The low performance of import duties is mainly as a result of the non-restoration of food tariffs on rice, wheat and crude vegetable oil and the rise in the volume of non-revenue yielding imports, as well as low import volumes in general, resulting from the slowdown in economic activity during the first half of 2009. Given the performance of import duties for January to September, it is projected that import duties for the year as a whole, will be GH¢815.6 million, 11.4 per cent lower than the estimated amount for the year.

National Health Insurance Levy (NHIL) during the period under review amounted to GH¢229.6 million. This was 15.5 per cent lower than the budget target of GH¢271.6 million. The shortfall in NHIL is the direct result of the lower outturn for VAT collection which is also the base for the computation of the NHIL. Receipts from the National Health Insurance Levy is projected to be GH¢392.0 million at the end of 2009. Receipts from non-tax revenue for the first three quarters of 2009 amounted to GH¢352.7 million, against a budget target of GH¢412.2 million. Of this amount, GH¢119.3 million was lodged into the Consolidated Fund. The remainder was retained by Ministries, Departments and Agencies for their programmes. Non-tax revenue receipts are expected to meet the 2009 budget projection of ¢743.8 million by the end of the year. The strong performance in non-tax revenue collection is the result of additional payments by COCOBOD from their income surplus.

Total grant disbursements as at end-September 2009 amounted to GH¢805.2 million, indicating a 14.7 per cent shortfall in the budget target, but a 19.3 per cent increase over the outturn for the same period in 2008. Under grant disbursements, multilateral HIPC assistance was GH¢75.3 million, while programme grants amounted to GH¢252.7 million.

The outturn for project grants was GH¢425.1 million, about 4 per cent lower than the budget target and 36.2 per cent higher than the outturn for the corresponding period in 2008. Total grant disbursements at end-year are projected at GH¢1,217.9 million, 6.5 per cent lower than the budget estimate for 2009. Of this amount, multilateral HIPC debt relief and MDRI are projected to meet the 2009 budget targets of GH¢130.0 million and GH¢93.3 million, respectively.

Disbursement of project grants are projectedto be on target, while programme grants disbursements are expected to reflect a 21.3 per cent drop compared to the 2009 budget estimate. Total loans for the period under review amounted to GH¢866.2 million, 23.2 per cent below the budget target of GH¢1,127.7 million. Project loans were on budget target of GH¢604.7 million, while programme loans underperformed by 50 per cent against the budget target of GH¢523.1 million. Total loan disbursements are projected at GH¢1,308.5 million for the year, 6.8 per cent lower than the 2009 budget estimate. Out of the expected loan disbursements, programme loans are projected at GH¢550.8 million and project loan disbursements are projected to be GH¢757.7 million.

Exceptional Financing of the budget, which is debt relief from our bilateral development partners was GH¢49.8 million, 49.4 per cent below the budget target. However, it is expected that the budget target of GH¢134.7 million will be met by the end of the year.

Payments

Total payments comprising statutory and discretionary payments amounted to GH¢6,266.4 million, equivalent to 29.6 per cent of GDP, against a budget target of GH¢7,189.9 million equivalent to 33.2 per cent of GDP. This outturn compares with GH¢7,154.7 million, equivalent to 40.6 per cent of GDP for the corresponding period in 2008.

Statutory Payments

Total statutory payments which include interest payment, external debt repayments and payments to statutory funds amounted to GH¢1,914.0 million, 5.8 per cent lower than the budget target for end September 2009. The outturn indicates an 18.7 per cent increase over the outturn for the same period in 2008. For the year as a whole, statutory payments are projected at GH¢3,230.1 million, compared to a budget estimate of GH¢3,156.0 million. The higher than programmed outturn is the result of higher domestic interest payments due to higher domestic interest rates.

External Debt Service up to the end of September 2009 was GH¢540.1 million, against a budget target of GH¢573.3 million. Principal and interest payments were GH¢356.6 million and GH¢174.5 million, respectively. External debt service payment is projected at GH¢855.1 million for the year as a whole. Domestic interest payments amounted to GH¢514.7 million, 27.7 per cent higher than the budget target. As a result of higher-than-anticipated interest rates, domestic interest payments due for the whole year is projected at GH¢750.1 million, 20.4 per cent higher than the 2009 budget estimate. The prevailing macroeconomic environment and the financing of the budget deficit was not conducive for a sharp decline in domestic interest rate as anticipated. The cost of borrowing by government, therefore, increased significantly.

Transfers to households, consisting of Pensions, Gratuities, transfers into the National Health Insurance Fund, and Social Security contributions by Government on behalf of public servants, collectively, amounted to GH¢484.5 million during the first three quarters of the year. This was against a budget target of GH¢532.7 million. Together, these expenditure items are projected to register an outturn of GH¢891.5 million by the end of 2009, 3.0 per cent below the estimate in the 2009 budget.

Transfers into the Ghana Education Trust Fund (GETFund) during the period under review totaled GH¢130.4 million, against a budget target of GH¢185.2 million. The shortfall was due to the low performance of domestic Value Added Tax. Based on the expected outturn for Value Added Tax receipts, payments into the GETFund for the year as a whole is projected at GH¢265.9 million.

The District Assemblies Common Fund (DACF) received a total of GH¢153.5 million, against a budget target of GH¢243.6 million. The lower outturn for the payments into the DACF was partly as a result of the underperformance of tax revenues. It is expected that by the end of the year transfers into the Fund will amount to GH¢340.7 million, 2.0 per cent lower than the 2009 budget estimate of GH¢352.7 million.

Transfers into the National Health Insurance Fund (NHIF) was GH¢201.5 million. For the year as a whole transfers into the NHIF is projected at GH¢392.0 million.

During the first three quarters of the year, the Road Fund and other Petroleum-Related Funds received a total of GH¢90.7 million, of which the Road Fund received GH¢87.5 million. For the year as a whole, payments into the Road Fund and Petroleum-Related Fund are projected to meet the 2009 budget estimate of GH¢123.3 million and GH¢3.5 million, respectively.

Discretionary Payments

Total discretionary payments for the review period amounted to GH¢4,352.5 million, equivalent to 20.1 per cent of GDP.

Payments for Wages and Salaries up to the end of September 2009 amounted to GH¢1,726.7 million, equivalent to 8.0 per cent of GDP. The outturn was 5.9 per cent lower than the budget target of GH¢1,834.3 million. The outturn for wages and salaries is projected to be GH¢2,265.9 million by the end of the year against the 2009 budget provision of GH¢2,291.4 million for the payment of wages and salaries.

Items 2 and 3 expense recorded an amount of GH¢416.2 million against a budget target of GH¢299.6 million. Of this amount, item 2 was GH¢302.8 million, while item 3 was GH¢113.4 million. As part of expenditure rationalisation measures adopted in the face of shortfalls in revenue outturn, Administration and Service are projected at GH¢648.9 million, 16.8 per cent below the 2009 budget estimate of GH¢780 million.

Total investment outlays (Item 4) amounted to GH¢189.9 million, 9.6 per cent higher than the budget target of GH¢173.2 million. Item 4 for the year is projected to be GH¢260.1 million.

Foreign-financed capital expenditure was GH¢1,029.8 million, 1.7 per cent below the budget target, but 45.5 per cent higher than the outturn for the same period in 2008.

HIPC and MDRI-financed expenditures up to the end of September 2009 amounted to GH¢198.1 million, compared to GH¢196.1 million expended on HIPC and MDRI-related projects and programmes during the same period in 2008. Expenditure on HIPC and MDRI-financed projects and programmes are expected to meet the 2009 budget projection of GH¢235.0 million.

From January to September 2009, a total amount of GH¢227.3 million was paid in respect of arrears clearance and liquidation of commitments carried over from 2008. The outturn for the period consisted of road arrears of GH¢27.4 million and non-road commitments of GH¢199.8 million. It is projected that arrears clearance will amount to GH¢626.5 million which consists of GH¢135.0 million and GH¢491.5 million of road and non-road arrears clearance, respectively.

Overall Budget Balance and Financing

The overall budget deficit of GH¢1,376.7 million, equivalent to 6.4 per cent of GDP that was attained during the first three quarters of the year was financed from both domestic and foreign sources. Net domestic financing of the budget amounted to GH¢826.3 million, equivalent to 3.8 per cent of GDP, compared to a budget target of GH¢828.3 million. Financing from foreign sources totalled GH¢550.4 million, equivalent to 2.6 per cent of GDP.

Although expenditure management has been very rigorous payment of high domestic interest, judgement debts, as well as, the projected shortfalls in revenues and grants, are expected to result in an overall end-year budget deficit of GH¢2,213.3 million, equivalent to 10.2 per cent of GDP.

The deficit will be financed from both foreign and domestic sources. Foreign financing is projected at GH¢905.3 million, equivalent to 4.2 per cent of GDP. As a result of the projected increase in the overall budget deficit, domestic financing of the budget is expected to be higher than the projection in the 2009 budget. Consequently, the net domestic financing of the budget for the year as a whole is projected at GH¢1,304.4 million, 26.3 per cent higher than the 2009 budget estimate of GH¢1,032.8 million.

PUBLIC DEBT MANAGEMENT

Gross public debt rose by about US$458.7 million to US$8,517.7 million at the end of September 2009. The increase in the total public debt during the period under review was the result of an increase in external debt. Total public debt amounted to 59.7 per cent of GDP as at end September 2009.

External Debt

Medium and long term external debt stock stood at USD$4,644.2 as at end September 2009, compared with the end December 2008 stock of US$4,035.1 million. The increase in the external debt stock by US$609 million in 2009 was mainly due to the project financing disbursement for the West African Gas Pipeline, Bui Dam project and borrowings to improve electricity subtransmission and expansion. During the first three quarters of 2009, 14 new loans including mixed credit facilities were signed.

The total committed loans amounting to US$921.13 million was contracted mainly for the energy, roads and highway, communications and health sectors. Twenty grant agreements were also signed during the period. A total grant amount of about US$459.5 million was acquired to support the education, health, roads and highways sectors.

Domestic Debt

Debt securities issued for the first three quarters of the year amounted to GH¢5,308.2 million, compared to GH¢3,848.3 million for the same period in 2008. Total maturities amounted to GH¢4,752.3 million, resulting in a net sale of GH¢556.8 million compared to the net sale of GH¢359.4 million for the same period in 2008.

The domestic debt stock rose from GH¢4,893.5 million as at end December 2008 to GH¢5,446.4 million by end September 2009. This represents an increase of 11.3 percent over the review period. The domestic debt to GDP ratio, however, declined from 27.9 per cent in December 2008 to 25.1 per cent by end September 2009.

Marketable debt arising from the issuance of government securities to finance the budget rose from GH¢3,375.1 million as at end December 2008 to GH¢4,401.5 million by end September 2009, constituting an increase of 16.6 per cent. The non-marketable debt also increased by GH¢69.9 million. The banking sector’s share of domestic debt stock fell from 67 per cent in December 2008 to 65.6 per cent in September 2009. Over the same period, the non-bank share in domestic debt stock increased marginally from 24.0 to 25.2 per cent. Government’s exposure with respect to foreign investor holdings decreased marginally from 9 per cent in December 2008 to 8.9 per cent in September 2009. Total maturities up to end September 2009 was GH¢4,752.32 million compared to GH¢1,756.31 million for the same period in 2008. The sharp increase in maturities in 2009 is mainly due to the high issuance of discount securities with shorter maturities.

Monetary Developments

Inflation

inflationary pressures which characterized the latter part of 2008 and early 2009 have receded. Reaching a peak of 20.7 per cent in June 2009, Government’s fiscal consolidation stance, tight monetary policy and improved food harvest have contributed significantly to a reduction of inflation to 18.0 per cent by end October, 2009. Food inflation which was 19.3 per cent in April fell consistently to 13.5 per cent by end October, 2009. The good harvest and continuation of Government’s tight fiscal stance is expected to reduce the inflation rate further to below the upper boundary of 17.5 per cent by December 2009.

Exchange Rates

The volatility in the exchange market eased in the third quarter of the year. This development in the financial market is very encouraging to Ghanaian businesses and potential investors.

The Cedi appreciated relative to the US Dollar for three consecutive months from August to October, 2009. This helped to partly correct the excessive depreciation during the first quarter of the year. This shows the restoration of confidence in the performance of the economy and positive expectation on the market.

It is gratifying to know that the Standard Bank Carry Trade ranking for October 2009 rates Ghana as the most preferred country to trade out of a basket of 24 emerging countries currencies. The research shows that the strong positive characteristics of Ghana’s carry trade are directly associated with the positive economic fundamentals, both short and longterm, that exists for the country, and the balance of payment improvements, as well as the fiscal prudence of the government over the first half of the year.

Interest Rates

Interest rates generally moved upwards in the first three quarters of 2009 in line with the shift in the key policy rate of the Bank of Ghana. The Bank of Ghana raised its prime rate from 17 per cent in December 2008 to 18.5 per cent in February 2009 and maintained it in the subsequent Monetary Policy Committee meetings to September 2009.

The benchmark 91-day Treasury bill rate firmed up marginally to 25.9 per cent in quarter 3 compared with 25.3 and 25.8 per cent in quarter 1 and in quarter 2 respectively. The 182 day treasury rate similarly edged up to 28.9 per cent in quarter 3 2009 compared with 28.6 and 27.1 per cent in quarter 2 and in quarter 1 respectively. The 1-year-note rate was unchanged at 21.0 per cent in quarter 3 2009 after recording 20.0 per cent in quarter 1 2009. The 2-year fixed rate note however moved to 25.5 per cent in quarter 3 2009 from 21.0 per cent recorded in both quarter 1 and in quarter 2 2009.

Money Supply

The annual growth of broad money supply (M2+) slowed down significantly from 40.2 per cent in December 2008 to 25.8 per cent in September 2009. The slowdown in growth of total liquidity reflected mainly in deposits. Total deposits rose by 26.5 per cent over the 12-month period to September 2009, from 48.5 per cent in September 2008. The growth in currency outside banks similarly eased from 27.8 per cent at the end of 2008 to 22.7 as at end September 2009.

Domestic Credit

Provisional data on growth of DMBs credit to the private sector and public institutions over the 12-month period to September 2009 shows a general slowdown (both in nominal and in real terms).

Provisional estimates show that total DMBs credit to the private sector and public institutions over the 12-month period to September 2009 increased by GH¢1,389.5 million (26.1 per cent) compared with GH¢1,740 million (48.6 per cent) recorded for the same period in 2008. Of the increase in credit during the 12 months to September 2009, 85.4 per cent was to the private sector.

Outstanding DMBs credit to the private sector in September 2009 was GH¢5,688.4 million compared with GH¢ 4,884.3 million at end 2008 and GH¢ 4,510.2 million at end-September 2008. Real annual growth of DMBs credit to the private sector slowed down further to 6.5 per cent at end-September 2009 down from the end- 2008 level of 25.4 per cent and 32.7 per cent at end- September 2008.

Distribution of the annual credit flow to the private sector saw some significant shifts in certain sectors during the period. The proportion of credit flow to the services sector declined from 23.0 per cent at the end of December 2008, to 18.7 per cent in September 2009. Similarly, the share of manufacturing fell slightly to 10.4 per cent in September 2009 from 11.6 per cent at the end of September 2008.

On the other hand, the share of commerce and finance rose from 14.2 per cent in September 2008 to 16.5 per cent in September 2009. The share of construction firmed up marginally from 6.5 per cent at end-2008 to 7.2 per cent in September 2009.

Credit to electricity, gas and water increased from 2.3 per cent to 4.1 per cent. Transport and communication from 2.9 per cent to 3.9 per cent over the same period. Mining and quarrying from 2.6 per cent in September 2008 to 3.0 per cent in September 2009.The share of Agricultural sector rose to 4.4 per cent in September 2009 from 3.9 per cent at end-September 2008.

Financial Markets

Money Market

Market demand for government securities generally continued to shift towards the short-dated instruments in the first half of 2009 but reversed moderately in Q3 2009.

In September 2009, the share of short-dated securities in the outstanding stock of government securities declined moderately from 62.0 per cent at end-Q2 2009 to 60.7 per cent There was also a significant shift in preferences in favour of the 182-day Treasury bill instrument, making it the most dominant on the market at end-Q3 2009 with a share of 39.8 per cent.

The holding profile of government securities showed an increased share of the DMBs, which rose from 40 per cent at end 2008 to 43.5 per cent in September 2009. The share of individuals (including foreign investors’ holdings) eased to 26.2 per cent at end September 2009 compared with 27.4 per cent in December 2008.

The Stock Market

On the activities of the capital market, the observed downturn in stock market activities over the first half of 2009 can be explained largely by developments in the economic environment. The unstable economic environment in the first half of the year consequently weakened interest in equities in favour of money market instruments. This trend reversed in the third quarter of 2009. The stock price index, measured by the GSE All-Share index, declined by 39.7 per cent in September, 2009 to 4,139.5, against 63.5 per cent increase in the index over the same period in 2008.

The market slump was reflected in very low trading activities. The volume of shares traded fell to 76.3 million valued at GH¢60.2 million from January to September 2009. Market capitalization stood at GH¢15,914.1 million representing a decline of 11.1 percent.

External Sector Developments

Balance of Payments

Ghana’s balance of payments improved significantly over the first three quarters of 2009, recording an overall deficit of US$29.5 million, compared to a deficit of US$716.8 million in the first three quarters of 2008. The satisfactory performance

was due to a sharp improvement in the current account which narrowed from a deficit of US$1,030.0 million in the first three quarters of 2009, compared to a deficit of US$2,730 million during the same period of 2008.

There was marked improvements in the trade deficit from almost US$3,759.4 million recorded in the first nine months of 2008 to US$1,773.8 million, showing a marked improvement.

Exports

Export earnings are provisionally estimated at US$4,229.7 million in the first three quarters of the year, reflecting a 3.8 per cent increase over the 2008 level. The increased revenue from exports was accounted for mainly by price increases in the country’s major exports, mainly – cocoa beans and gold.

The value of exports of cocoa beans increased from US$976.9 million in the first three quarters of 2008 to US$1,061.2 million in 2009 mainly on account of an increase in export prices. Although the average realized prices increased by 30.2 per cent, export volumes declined by 16.6 per cent to 382,424 tonnes, from 458,426 tonnes in 2008. Export of cocoa products increased by 23.7 per cent in the first three quarters, from US$175.3 million in 2008 to US$216.8 million in 2009.

Gold exports registered a marginal growth of 3.5 per cent during the first three quarters of 2009, raising revenues to US$1,812.0 million. Whilst the exported volume of the metal remained almost stable at 1.9 million fine ounces, average realized prices increased by 3.0 per cent from $889.6 per fine ounce in 2008 to $916.3 per fine ounce in 2009.

On the other hand, timber export revenues declined from US$234.8 million recorded in the first three quarters of 2008 to US$168.6 million over the same period in 2009. The decline was reflected in both export volumes and prices by 24.3 per cent and 5.1 per cent, respectively. Export volume during the first three quarters of 2009 was 319,988 cubic metres, compared to 422,663 cubic metres in 2008. Average prices significantly fell to US$526.91 per cubic metre in 2009 compared to US$ 555.4 per cubic metre in 2008.

Imports

The value of imports declined by 23.4 per cent from US$7,834.1 million in 2008 to US$6,003.5 million in the first three quarters of the year. Total oil imports are estimated at US$1,083.9 million compared with US$2,017.6 million in 2008, reflecting a drop of 46.3 per cent. The value of crude oil imports declined substantially from US$ 1,1190.1 million in 2008 to US$294.8 million over the period, partly on account of lower prices. Non-oil imports declined by 15.2 per cent, from US$5,816.5 million in 2008 to US$4,919.6 million in 2009. Imports of capital goods fell by 25 per cent, intermediate goods by 11.3 per cent and consumption goods by 12.9 per cent.

International Reserves

Gross international reserves rose from a stock US$2,036.2 million at the end of 2008 to US$2,317.1 million at the end of September 2009. This translates into a cover for 2.4 months of imports of goods and services.

The Balance of Payments projections point to a further improvement on account of the impact of the projected cocoa loan drawdown and expected donor disbursements of US$275 million in the fourth quarter of the year. Gross

international reserves are projected at US$2,727.0 million for end 2009, enough to cover 2.5 months of imports of goods and services, compared to 2.1 months of import cover at the end of 2008.

MACROECONOMIC FRAMEWORK FOR THE MEDIUM-TERM

Medium-Term Policies And Structural Reforms

For the medium-term (2010-2012), government’s objective of ensuring macroeconomic stability with sustained growth will continue to be pursued. This objective will be accomplished primarily by:

• pursuing prudent macroeconomic policies;
• modernisation of agriculture;
• provision of infrastructure including ICT;
• development of the private sector; and
• development of the oil and gas industry.

The growth objective is expected to move the economy to achieve 8 per cent real GDP growth rate as indicated in the Manifesto of the National Democratic Congress (NDC). The following targets and interventions will form the basis of policy formulation in the medium-term:

• real GDP growth of 8.0 per cent;
• average inflation of less than 10 per cent;
• gross international reserves of not less than 3 months of import cover for goods and services;
• overall budget deficit of about 3.0 per cent of GDP;
• prudent debt management to ensure sustainable public debt levels;
• social interventions to reduce poverty and unemployment; and
• embark on a rigorous anti-corruption campaign.

In the medium term, government will continue with the fiscal consolidation measures that were initiated in 2009, policies will be instituted to reduce  inflation and stabilise exchange rates, while pursuing strategies to increase economic growth. This requires an expansion of the resource envelope to finance critical investments in support of the growth agenda.

Structural Reforms

A number of fiscal reforms were initiated in 2009, and these will continue in the 2010 medium-term. Together with the introduction of new measures, these reforms are expected to strengthen the conduct of fiscal policy. Measures will be implemented to enhance revenue mobilisation, and expenditure management will continue to be improved with the introduction of the Ghana Integrated Financial Management Information System (GIFMIS).

Tax Administration and Management

A review of the nature and scope of tax exemptions and discretionary waivers have been completed and the elimination of several of these exemptions will commence in the 2010 fiscal year. To address declining collections from the excise tax regime, the associated specific taxes will be changed to ad valorem starting from the 2010 fiscal year.

Drawing on international experience, and in fulfillment of our Manifesto promise to reform the National Revenue Authority to ensure integrated tax administration, legislation to establish the Ghana Revenue Authority (GRA), involving a consolidation of the current three tax agencies, has been drafted and submitted to Cabinet. Approval will be sought in early 2010, with a view to establishing the new revenue authority to strengthen tax administration.

The first phase of the tax administration reform programme will focus on broadening the operations of the existing Large Taxpayer Unit (LTU) to ensure that the largest companies receive genuinely integrated, one-stop tax coverage from a restructured LTU under the GRA. The second phase will focus on effective integration of the IRS and VATS within the GRA and establishment of a small and medium taxpayer unit. In parallel with these reforms, the VAT threshold will be substantially increased, in a phased manner.

Expenditure Management

Cash management has improved significantly with the introduction of some reforms in 2009. More frequent and up-to-date monitoring of revenues, expenditures, and cash balances has proved critical in setting monthly cash ceilings for MDAs. Based on this monitoring process, releases were authorized depending on the level of revenue inflows. The next phase of the cash management reform will involve improvements in expenditure projections provided by MDAs and aligning them with revenue inflows.

Treasury Single Account

Since May 2009, a number of MDA accounts at the Bank of Ghana have been closed and a Treasury Single Account opened to link all government accounts to ensure efficient monitoring and use of cash balances. The remaining accounts are now monitored on a daily basis.

This has resulted in some cost savings, with idle cash balances reallocated to finance pressing expenditures, thereby reducing the need for new debt issuance during the weekly treasury bill auctions.

Liquidity management will be improved if the accounts of the statutory funds such as the GETFund and DACF area maintained at the Bank of Ghana other than in the Commercial Banks as currently pertains. To this end, measures will be taken to consolidate all these balances at the Bank of Ghana.

Financial Management and Information System

The Budget and Public Expenditure Management System (BPEMS) which came to a halt after being rolled out to 8 pilot ministries is being upgraded and expanded under a user driven Ghana Integrated Financial Management Information System (GIFMIS). The first phase of the implementation of the new integrated system focuses on installing the hardware and software systems for 8 pilot ministries and 6 Departments and Agencies.

The second phase will involve full adoption of GIFMIS by the pilot users, and integration of the payroll management module. Extension to other users is planned for the third phase through end-2011. The project is being led by users rather than by IT professionals, with the involvement of affected MDAs from the outset in the project steering committee. Even though funding will be a challenge, government has received commitments from a number of development partners.

Public Sector Reform and Payroll Management

144. Madam Speaker, a headcount of employees of the Ghana Education Service was conducted in July-August 2009, with data collected from 25,000 educational establishments. Following cross-checks and appeals, salary payments will be suspended for absentee staff by end-2009. Following good progress on the headcount, the audits will be rolled out to other ministries (other than the health service, which was covered in late-2007) next year.

Progress in migrating all the remaining 54 subvented agencies onto the computerized payroll database of the Controller and Accountant General’s Department has been slow. The target deadline for full migration of end- September was not met due to problems in establishing computer connectivity to the larger agencies and postponement by some agencies. Efforts to ensure compliance have been reinvigorated, and non-compliant MDAs will be sanctioned appropriately. The current stand-alone database will be integrated by late-2010 into the upgraded GIFMIS.

Implementation of the New Pension Scheme and its impact on the budget

His Excellency, the President, Professor J.E.A Mills launched the new Pension Scheme on 16th September, 2009, to be implemented from 1st January, 2010.
While the main beneficiaries of the new pension scheme will be workforce who will be contributors to the scheme, the whole economy stands to benefit tremendously with the annual injection of over GH¢1.0 billion voluntary contribution into the Ghanaian economy.

Some of the benefits that will accrue to the country as a result of the implementation of the Scheme are outlined below:

• availability of a huge pool of long-term funds for investment which will accelerate national economic development;
• effectively pooling together and mobilising substantial funds not previously available as savings for investment purposes on a bigger scale;
• such significant amount of resources will add impetus to the further development of the Ghanaian financial markets;
• as a long-term investment fund, it will lead to increased demand for quality bond, equities and other investment products; and
• create new challenges and opportunities for the financial services sector to be created.

Additionally, the implementation of the Scheme is expected to lead to increase in demand for trust and custodial services, investment management and scheme administration and an expected boom in the housing industry with workers taking mortgages, using their future lump sum as collateral.

Budgetary Implications for the Scheme

With the new pension scheme, Government as an employer will contribute 13 per cent for the employees under the mandatory first and second tier scheme, which represent 0.5 percentage additional points cost compared to the existing Scheme.

For new entrants who otherwise would have been under Cap 30 scheme, Government as an employer will spend 13 per cent of the employee’s salary for the first and second tier mandatory schemes, thus saving between 11 per cent and 16 per cent of employee’s salary.

For existing workers under Cap 30 scheme, Government as an employer will contribute 13 per cent of employee’s salary after unification in 4 years time saving between 11 per cent and 16 per cent.

In all the situations, the employees’ benefits will be greatly enhanced.

Energy Sector Reforms

The energy sector provides one of the greatest risk to the economy. To minimize this risk, a study on the Energy Sector Financial Recovery Plan has been finalized and discussed with stakeholders. An implementation plan is being prepared.

MACROECONOMIC POLICIES, STRATEGIES AND TARGETS FOR 2010

The NDC Government’s vision of improving and sustaining macroeconomic stability will continue in fiscal year 2010. Consequently, the following macroeconomic targets, consistent with the macroeconomic framework, will be pursued:

• Real GDP growth of 6.5 per cent;• Overall fiscal deficit equivalent to 7.5 per cent of GDP;
• Average inflation rate of 10.5 per cent;
• End of period inflation of 9.2 per cent; and
• gross international reserves of not less than 2.5 months of import cover.

REAL SECTOR

GDP is projected to grow at 6.5 per cent in 2010. To achieve the real GDP growth rate target, the Agriculture, Industry, and Services sectors are projected to grow at 6.0 percent, 6.6 percent, and 6.8 percent, respectively.

The Crops and Livestock sub-sector, the largest contributor to agriculture output, is expected to witness the highest growth in the sector to close the year at 7 per cent on the backdrop of improved productivity through adoption of high yield crops, improved seedlings, irrigation, use of anti-pesticides and spraying
technologies.

Government’s agricultural modernization strategy is expected to contribute positively to the performance of the Crops and Livestock Sub-Sector. The favorable price of Cocoa on the world market together with domestic strategies to boost production in the sub-sector are expected to lead to significant output expansion in 2010 and 2011.

The increase in producer price of cocoa to farmers, the highest in several years will also encourage higher production to support the projected real GDP growth. The 6.6 per cent projected growth of the Industry sector is mainly on account of a pick- up in construction activities related to railways, roads, and oil and gas.

The projected growth rate of 6.8 per cent for the services sector is expected to be driven mainly by improved performance in the Transport, Storage & Communication; Wholesale & Retail Trade, Restaurants & Hotels, and the Finance sub-sectors as the impact of the global financial crisis abate.

RESOURCE MOBILISATION AND ALLOCATION FOR 2010

The classification of resources mobilisation and allocation for 2010 is based on the standard Government Finance Statistics (GFS), as against the Payments and Receipts reporting framework which has been the reporting format for the last few years.

Revenue and Grants

Total revenue and grants for the 2010 fiscal year is estimated at GH¢9,628.5 million, equivalent to 37.1 per cent of GDP. The expected revenue and grants for the year represent 33.4 per cent increase over the projected outturn for 2009.

Domestic revenue is estimated at GH¢8,264.0 million, a 37.8 per cent increase over the projected outturn for 2009.

Tax revenue is estimated at GH¢6,072.2 million, representing 23.4 per cent of GDP. The 2010 estimate for tax revenue shows an increase of 20.2 per cent over the projected outturn for 2009. Of the total tax revenue, direct taxes are estimated to increase by 30.0 per cent to GH¢2,235.4 million in 2010. This indicates that direct taxes will account for 36.8 per cent of total tax revenue. Improvement in tax administration and an increase in mineral royalties from the current 3.0 per cent rate to 6.0 per cent in 2010 will drive the expected sturdy performance in direct taxes.

Indirect taxes are projected at GH¢2,119.7 million, representing 34.9 per cent of total tax revenue and a 22.6 per cent increase over the projected outturn for

2009. Reduction in import exemptions granted on import VAT and a proposed change in excise regime from specific to ad valorem, are expected to lead to the strong performance in indirect taxes. The estimate for 2010 is made up of GH¢1,675.4 million for total VAT, with petroleum and excise taxes expected to yield GH¢352.4 million and GH¢91.9 million, respectively.

International Trade taxes, are estimated at GH¢1,141.4 million, representing 4.4 per cent of GDP and 18.8 per cent of total tax revenue. The estimate reflects a 32.3 per cent increase over the projected outturn for 2009. The increase in international trade taxes is expected to be predominantly driven by import duties, estimated to constitute about 95.5 per cent of the estimated international trade taxes for 2010.

Import duties are estimated to increase from the 2009 projected outturn of GH¢815.6 million by 33.6 per cent to GH¢1,089.6 million in 2010. This is mainly on account of the restoration of tariffs on rice, wheat, yellow corn and crude vegetable oil which were removed in May 2008 as well as the reduction in import exemptions.

Export duty from cocoa is estimated to yield GH¢51.8 million, indicating a 10.2 per cent increase over the projected outturn for 2009.

The National Health Insurance Levy (NHIL) is estimated to yield an amount of GH¢480.9 million, representing 1.9 per cent of GDP and an increase of 22.7 per cent over the projected outturn for 2009 on account of high expected VAT receipts. The expected yield from the NHIL includes an amount of GH¢142.4 million contribution from the Social Security and National Insurance Trust (SSNIT).

Non-tax revenue, comprising fees and charges by Ministries Departments and Agencies (MDAs), dividend received from public enterprises and other internally generated funds (IGFs) is estimated at GH¢1,916.4 million, equivalent to 7.4 per cent of GDP and representing 23.2 per cent of domestic revenue. As a result of huge expected dividends and income surpluses from some State-Owned Enterprises (SOEs), non-tax revenue is estimated to increase by 157.6 per cent over the projected outturn for 2009.

Grants from development partners are estimated to increase from the projected outturn for 2009 by 12.0 per cent to GH¢1,364.5 million, equivalent to 5.3 per cent of GDP. The expected grants for 2010 will contribute 14.2 per cent to the estimated total revenue and grants. This is made up of project and programme grants of GH¢832.9 million and GH¢131.6 million, respectively.

Highly Indebted Poor Country (HIPC) Assistance from multilateral financial institutions and, Multilateral Debt Relief Initiative (MDRI), are expected to yield GH¢131.6 million and GH¢93.9 million, respectively.

Expenditure

Total expenditure for 2010 is estimated at GH¢10,777.7 million, equivalent to 41.6 per cent of GDP. The expected expenditure for the year represents a 23.0 per cent increase over the projected outturn for 2009. Of this amount, GH¢7,625.0 million, equivalent to 29.4 per cent of GDP or 70.7 per cent of the total expenditure, is estimated for recurrent expenditure; GH¢2,839.5 million, equivalent to 10.9 per cent of GDP for capital expenditure; and GH¢313.1 million equivalent to 1.2 per cent of GDP for HIPC and MDRI-financed expenditures.

Recurrent Expenditure

Personal emoluments (item 1) for 2010 is estimated at GH¢3,113.0 million, representing 12.0 per cent of GDP. The amount represents 37.7 per cent of domestic revenue, 28.9 per cent of total expenditure and 40.8 per cent of recurrent expenditure. The ratios reveal the extent of the burden of the public sector wage bill on domestic resources.

As a result of the planned implementation of the Single Spine Pay Policy (SSPP) in 2010, some salary related allowances which are currently classified as part of Item 2 under goods and services (administration expenditure) have been consolidated with the basic salary. This partly explains the increase from the projected 10.5 per cent of GDP in 2009 to the estimated 12.0 per cent of GDP in 2010.

Of the estimated GH¢3,113.0 million, the allowances are estimated at GH¢466.9 million equivalent to 1.8 per cent of GDP. Thus, in 2010 the estimated wage bill excluding the allowances is equivalent to 10.2 per cent of GDP. This compares with the projected outturn of 10.5 per cent of  GDP for 2009.

Goods and Services (Items 2 and 3) expenses for MDAs are estimated at GH¢635.1 million, representing 2.4 per cent of GDP and 5.9 per cent of total expenditure. Of this amount, expenditure on goods (item 2) is estimated at

GH¢408.6 million, while services expense (item 3) is estimated at GH¢226.5 million. The expected amounts indicate a 15.6 per cent reduction in administration expense and 34.3 per cent increase in service over the respective projected outturns for 2009. The estimated huge increase in service expense is on account of provision made to enable the Electoral Commission conduct the district level elections, as well as to equip the Ghana Police Service with resources to ensure public safety.

Transfers to households, which are made up of an amount of GH¢254.2 million for Pensions, GH¢103.7 million for Gratuities, GH¢233.4 million for Social Security contributions by Government on behalf of its employees, and GH¢480.8 million for the National Health Insurance Fund will amount to GH¢1,072.2 million, equivalent to 4.1 per cent of GDP and 20.3 per cent increase over the projected outturn for 2009.

As a result of the anticipated implementation of the Single Spine Salary Structure which consolidates some category of allowances as part of the basic salary, social security payments are estimated to increase by about 21.6 per cent over the projected outturn for 2009.

Other transfers are estimated at GH¢900.1 million, out of which GH¢41.5 million will be used to minimise the impact of petroleum price liberalization, while an amount of GH¢25.9 million is being estimated for reimbursement to ECG in respect of subsidies to lifeline consumers of electricity. An amount of GH¢595.7 million of internally generated funds is expected to be retained by MDAs, while import duty exemptions (classified as tax expenditure) are estimated at GH¢237.2 million.

Total interest payments for the 2010 fiscal year are estimated at GH¢1,346.2 million, representing a 26.1 per cent increase over the projected outturn for 2009. Of this amount, GH¢307.9 million will be expended on external interest, while GH¢1,038.3 million will cover domestic interest payments.

An amount of GH¢558.3 million has been provided in a Reserve Fund for the payment of judgment debts, payment of Ghana Telecom severance awards and redundancy package, and the setting up of an escrow account for the uptake of gas from the West African Gas Pipeline, among others. This amount has been put in the classified reserve fund because most of the activities expected to be funded from this amount are multisectoral, and payments will be effected when they fall due in the course of the year.

Capital Expenditure

Total capital expenditure (development expenditure and net- lending), made up of expenses on domestic and foreign-financed capital projects as well as net lending, is estimated at GH¢2,839.5 million, 16.5 per cent higher than the projected outturn for 2009.

Domestic-financed capital expenditure, comprising statutory payments into the Ghana Education Trust Fund, the District Assemblies Common Fund, Road Fund, Petroleum-Related Funds, and other discretionary cash expenditure (item 4) is estimated at GH¢1,311.1 million.

On account of the high estimate for discretionary cash expenditure (item 4) and the expected increase in overall tax revenue, domestic-financed capital expenditure is projected to increase by 32.2 per cent over the projected outturn for 2009, representing 46.2 per cent of total capital expenditures.

Transfers to the District Assemblies Common Fund and Ghana Education Trust Fund are estimated to increase by 27.5 per cent and 22.9 per cent to GH¢434.5 million and GH¢326.7 million, respectively.

The Road Fund is expected to receive an amount of GH¢145.2 million, while GH¢5.2 million will be transferred into the Petroleum-related Fund, for the funding of exploration and other petroleum-related activities.

Statutory funds introduce extreme inflexibility in the management of the budget, giving no room for policy manoeuvre. Given the important social interventions that need to be scaled up and/or implemented, some key government programmes will have to be offloaded from the core budget to the statutory funds, in order to create space for the utilisation of discretionary expenditure in other priority areas.

Other discretionary cash expenditure (Item 4) is estimated to be GH¢399.5 million, equivalent to 1.5 per cent of GDP and 53.6 per cent higher than the projected outturn for 2009. The increase in other cash expenditure is to enable government embark on certain specific infrastructure projects in the water, roads and rail transport sectors.

Based on expected inflows from the disbursement of project loans and grants, foreign-financed capital expenditure is estimated at GH¢1,528.4 million equivalent to 5.9 per cent of GDP.

Total receipts from the HIPC debt relief is estimated at GH¢339.4 million. As has been the practice, 20 per cent of receipts from the HIPC debt relief will be used for the reduction in domestic debt. The remaining GH¢209.3 million will be distributed to MDAs, MMDAs and other institutions aimed at reducing poverty and improving the economic and social conditions of Ghanaians.

MDRI-financed expenditure is expected to increase by 11.3 per cent over the projected 2009 outturn to GH¢103.8 million.

The stock of arrears from 2008 was GH¢1,700 million. Of this amount, GH¢1,226 million is projected to be paid by the end of 2009, leaving GH¢474 million to be paid under the 2010 budget. It is also estimated that 2009 commitments totalling GH¢280 million will be paid in 2010. A total of GH¢754 million is, therefore expected to be used for the clearance of these arrears and commitments.

Overall Budget Balance and Financing

Given the revenue and expenditure estimates, the 2010 budget will result in an overall budget deficit of GH¢1,945.1 million, equivalent to 7.5 per cent of GDP.

Financing of the deficit will be from both domestic and foreign sources. Domestic financing of the deficit is estimated at GH¢1,261.8 million, equivalent to 4.9 per cent of GDP, and financing from foreign sources are estimated at GH¢683.3 million, equivalent to 2.6 per cent of GDP.

Of the total foreign financing, loans are estimated at GH¢1,110.9 million, out of which GH¢695.5 million will be for projects, and GH¢415.4 million for general budget support, with amortisation estimated at GH¢557.7 million. Exceptional financing, made up of debt relief from our bilateral development partners, is estimated at GH¢130.0 million.

Debt Management

Grant financing and concessional loan financing will constitute the core component of external support in the medium term. Non-concessional financing will be used for projects contracted by government that may require state guarantees and where there is no scope for concessional or grant financing; the impact on debt sustainability is manageable; and the project evaluations show a high rate of social or economic return.

To strengthen Ghana’s external debt management in the medium term, a number of measures will be adopted. These will include the establishment of clear objectives for debt management in terms of the cost and risk of the debt portfolio, and identifying potential funding sources.

The current legal framework will be amended to provide the scope for issuing new financial instruments and improve reporting on debt management issues.
Government will also streamline the institutional framework for debt management.

Strategies for domestic debt management would include the smoothening out of Government borrowing requirements, extending the maturity profiles of debt instruments and adopting a switch auction programme to enhance liquidity of the securities market.

Multi Donor Budgetary Support Programme

The Multi-Donor Budget Support (MDBS) programme was instituted in 2002 to provide a framework for pooling financial resources from Development Partners (DPs) to support Government in planning and implementation of the national budget. Cumulatively, MDBS has supported the national budget with financial resources amounting to US$2.0 billion since its inception six years ago.

Government is committed to the MDBS programme and is eager to foster greater collaboration with Development Partners (DPs) in all aspects of policy dialogue that seek to facilitate economic growth and development. More importantly, Government is fully prepared to re-invigorate the Sector Working Groups as a way of taking ownership of the programme.

For the 2010 fiscal year, the government commits to engaging with all development partners more frequently, in order to deepen the level of policy dialogue and encourage frank and open discussions on all matters.

MONETARY POLICY, EXCHANGE RATE POLICY AND FINANCIAL SECTOR ISSUES

The Medium term objective for the financial sector is to continue implementing measures to deepen the financial markets and improve the efficiency of government debt operations.

The Bank of Ghana will continue to strengthen its monetary policy framework to reduce inflationary pressures. The Bank will also adopt policies and programmes to enhance the institutional framework for its supervisory functions to ensure safety and soundness of the banking industry.

The Bank of Ghana will continue to maintain a flexible exchange rate regime with a view to enhancing the competitiveness of the Ghanaian economy. In the area of supervision and regulation of the financial system, the Bank of Ghana will implement the Basel II framework in collaboration with the Deposit Money Banks.

Balance of payments

The Balance of Payments objective for the year 2010 will continue to aim at building up adequate reserves to cushion the economy from any exogenous shocks.

The balance of payments projections for 2010, point to a 6.0 per cent growth in exports to US$6.1 billion. Earnings from cocoa beans exports are projected to grow by 2.8 per cent as a result of an expected increase in export volumes. Gold exports are also expected to rise by 14.5 per cent on account of a projected increase in both prices and exported volumes.

Imports are also expected to increase by 16.8 per cent to US$10.1 billion in the year 2010, a reflection of a 15.5 per cent and 22.0 per cent rise in the value of projected non-oil and oil imports respectively.

The current account balance is projected to record a deficit of US$2,362.1 million, which will be financed by an expected net inflow of US$2,437.0 million from the capital and financial account, leading to a projected modest balance of payments surplus of US$74.9 million.

Gross international reserves are projected to increase to a stock level of US$2,803 million at the end of 2010,enough to cover 2.5 months of imports of goods and services.

SECTION FIVE: SECTORAL PERFORMANCE AND OUTLOOK

ECONOMIC SECTOR

The economic sector is made up of agriculture; lands and natural resources; trade and industry; tourism; energy; and environment, science and technology.

Performance in 2009

FOOD AND AGRICULTURE

• The main focus of Government policy for the economic sector in 2009 was as follows:
• Food Security and Emergency Preparedness
• To enhance food security and effectively prepare the nation for emergency situations, measures were put in place to increase food production during the year. Areas under cultivation for the major food crops were expanded. As a result, maize and rice production increased by 5 per cent and 20 per cent, respectively. The production of groundnuts and cowpea also increased by 3 per cent each while sorghum and millet increased by 20 per cent each.
• To boost meat production for food, about 25,000 chicks(cockerels).