Economy in gaping hole; While the Minister of Finance presents his half-yearly budget

Finance Minister Ken Ofori Atta is scheduled to appear before Parliament on Monday, July 29, 2019 to present this year's mid-year budget review.

This submission is consistent with the constitutional mandate that the Minister report on the performance of the economy before the beginning of the second half of the year.

The presentation of the mid-term budget review, scheduled for 22 July 2019, has been postponed to 29 July and the reasons for the development have not yet been disclosed.

In last year's mid-year review budget, the government exempted certain taxes, including a 50% reduction in the value of the reference ports.

But all this did not make any significant difference in the economy.

In any case, some members of the business community believe that the economy was tense this year, compounded by the recent decline in the value of the cedi against the dollar, the late payment of debts of the previous regime and other commitments such as payment for free SHS, National Health Insurance Scheme (NHIS) and statutory payments to the District Assembly Common Trust (DACF) and the Education Trust Fund in Ghana ( GETFund).

When the government took office in 2017, it had raised issues of over-indebtedness of the Mahama administration, which had resulted in a protracted debate between the government and the minority.

This government also used what the previous government had done by borrowing, which created the economic challenges the country faces.

The parliamentary minority issued a statement outlining some of the economic problems that the current administration should take into account when reviewing the mid-term budget.

The minority statement was in part: "Ghana is currently at high risk of debt distress because our debt-to-GDP ratio and our debt service have both exceeded their limits. Ghana's outstanding debt over the last two and a half years has increased considerably. Surprisingly, all additional borrowed funds were used for consumption, which poses serious liquidity problems for capital expenditures. Faced with this obvious challenge, the minority urges the government to show restraint and curb its voracious appetite for borrowing.

Low revenue performance has created new challenges for the government and has compromised its ability to meet critical spending and commitments. This liquidity crisis is largely self-inflicted by the populist and unrealistic tax measures adopted by the Akuffo-Addo government. The minority warns the government to quickly restore the credibility of the policy, because our investors are watching it closely and will react soon if the economy is constantly showing signs of loss of income ", said the minority.

They also threatened to boycott this year's budget review if their mutual funds, health insurance debt and other government debts were not released.

The government has also had to pay more than 2 billion GH ¢ since the beginning of the year following the various agreements signed between 2014 and 2016 with the country's independent electricity producers.

The bills are starting to weigh heavily on government spending, which was expected to cost US $ 400 million in the first half of this year to keep the light on, government sources told Ghanacrusader.

This amount, which far exceeds the government's annual spending on its flagship program, the free high school program, has been attributed to the many power purchase agreements that have led to overcapacity payments.

challenges

This is one of the many challenges that the government faces as it seeks to create fiscal space for it to embark on its planned social intervention programs.

"What further aggravates the situation, is the agreement" to take or pay "which forces the country to pay for the electricity produced, whether it is used or not," said a source.

This is one of the challenges that should be at the center of discussions when Finance Minister Ken Ofori-Atta will present the review of the mid-year budget to Parliament on Monday, July 29, 2019.

Although data on budget execution in the first half of the year have not yet been released, preliminary figures from the Ministry of Finance showed that revenues were below Target of 17.54% in the first quarter compared to under budget spending. objective of 4.21% during the same period.

This resulted in a budget deficit of 1.6% of gross domestic product (GDP), above the target of 1.4% of GDP set for the period.

Energy Minister Peter Amewu told parliament in March this year that the country is "paying $ 25 million a month for unused electricity" because the agreements Electricity purchases (PPPs) prohibited the state from paying for all megawatts produced, whether or not they were consumed or not.

Cost reduction

In order to reduce reliance on liquid fuels and the resulting costs, the Sankofa Offshore Cape Three Points Project (OCTP) has been developed to use gas for power generation as a cheaper and cleaner substitute for fuels. liquids.

OCTP Sankofa gas is ready, but the facilities to recover it are not, which has resulted in the payment of $ 28 million per month to Eni Ghana.

OCTP, operated by Eni Ghana, began operations in mid-2018 and reached an agreement to produce the lean gas for subsequent collection by the Ghana government.

Unlike crude oil and liquefied petroleum gas (LPG), which can be stored and could be transported to the international market, the lean gas is not.

As a result, when developing a natural gas field, investors (OCTP Partners) had to be badured of a loan for the purchase (Ghana), a loan market and a guaranteed repayment.

In accordance with the industry standard, these infrastructures should have been ready and put into service a clear year before the completion of the Sankofa field development and production.

Volumes of gas

However, since the start of gas production on the Sankofa field, the country has not been able to recover the volumes of gas delivered to the coast by the partners, which triggered the take-or-pay clause. in the OCTP oil contract.

Ghana has invested more than $ 7 billion in the development of the OCTP program, a heavy gas field project, as a major relief for the country's troubled energy sector.

Once finalized, the OWP gas agreement is expected to minimize the potential heavy take-up or payment obligations to the GNPC, the government and the OCTP agreement.

The transfer of the 450 MW Karpowership from Tema to Sekondi-Takoradi is also expected to avoid gas transportation costs of US $ 1.68 / MMBtu, or US $ 55 million per year for gas transportation.

Ghana's electricity system has an installed generation capacity of 4,775 MW. The available generation capacity is currently 2,641 MV, the maximum peak demand currently recorded in 2019 being around 2,600 MW.

These indisputable economic points can not and must never escape the mention of the Minister of Finance, Ken Ofori Atta, Monday. It will attempt to indicate that the economy is in good hands and capable, and that things are improving.

It will be mundane, bbad and disappointing for him to continue talking and blaming his predecessors for the fault lines of the disease plaguing the Ghanaian economy in all sectors.

Whatever the badurances of Ken Ofori Atta, the fact remains that the country's economy is in bad shape, plunged into a gaping hole and begging for resuscitation.