Feb. 16, 2016

Hon. Seth Terkper


Hon. Seth Terkper

Minister of Finance, Ghana

"Our targets are an average real GDP (including oil) growth rate of at least 8.2%."


The Hon. Seth Terkper has a degree in Commerce from the University of Cape Coast (UCC) in Ghana. He is also a Chartered Accountant who holds a Master’s of Public Administration (MPA) degree from the Kennedy School, Harvard University. He is a member of the Board of Directors of the Bank of Ghana (BOG) and chaired the joint Steering Committee of the Ghana Revenue Authority (GRA) and Ghana Integrated Financial Management Information System (GIFMIS) reforms. Between July 1999 and February 2009, he held various positions, last as Senior Economist, in the Fiscal Affairs Dept. (FAD) of the International Monetary Fund (IMF). He published a book on VAT in 2011 and continues to maintain a keen interest in research, publications, reviews, and teaching.

What strategies have you introduced to deal with the drop in commodity prices?

We have had some major shocks to the economy over the last three years. We had disruption to our gas supply for two and a half years, and then the simultaneous fall in cocoa, gold, and crude oil prices, all of which have exposed our vulnerability as we implement our agenda to consolidate our position as a middle-income country. The fall of crude oil prices to a low of $45.0 per barrel compared to a benchmark revenue projection of $99.38 per barrel in the 2015 budget meant that we had to revise revenue targets and related expenditures that were to be funded from the annual budget funding amount. We are monitoring the crude oil prices for 2016 and will do the necessary fiscal adjustments through due process should the need arise. However, with that in mind, and with the IMF program and our own homegrown policies, there are clear signs that our fiscal consolidation efforts are yielding positive results, making the economy more efficient. Accordingly, the GSS estimates that GDP will come in at 4.1% for 2015 compared to the 3.5% initially projected. The World Bank and IMF estimate future growth above 7%. We are returning to a growth path and our fiscal performance so far clearly shows that we can plan to manage and reverse periodic setbacks and take care of opportunities, as and when they occur.

Last year Ghana was issued a Eurobond, with a 10.75% yield demanded. How does that fit into your overall growth strategy?

We issued our fourth sovereign bond, which was over-subscribed by $1 billion. The 15-year tenor of the bond is the first by any Sub-Saharan African country besides South Africa. With that, our target is to shift away from short-term debt instruments when financing the capital budget. Instead we will target long-term development projects. This has brought with it the capacity to refinance short-term debts and upcoming sovereign bond debts, as well as the remaining principal of the Eurobond that will mature in 2017. The World Bank has also chosen to back an up to $1 billion refinance component, which is a strong reassurance to the investment community.

Public-sector salaries accounted for 72% of government expenditure in 2012 and energy subsidy bills have fuelled fiscal debt. What are the main initiatives being put in place to pull these expenditures under control, boost transparency, and encourage confidence in the economy?

The 2015 budget aimed at reducing the fiscal deficit from 10.2% of GDP in 2014 to 6.5%. However, due to the decline in crude oil prices, this target was revised to 7.3% of GDP in the 2015 Mid-Year Review. Since then, as a result of good revenue performance (including GRA's compliance efforts), containment of overruns in the wage bill and other spending, as well as the withdrawal of energy-related subsidies (except funded cross subsidies), our fiscal consolidation program is on course with the deficit set to be on target at 7.3%. Wage containment initiatives such as our collective resolve with public-sector unions to negotiate wage adjustments within budgetary constraints, payroll audits, and other initiatives such as ESV to minimise the incidence of ghost workers and net freeze in recruitment have also contributed in reducing the wages-to-tax revenue ratio of 57.6 % in 2013 to 44.2% in 2015.

Looking toward longer-term goals, Ghana will have to improve its debt-to-exports ratio and revenue to exports ratio. What will be the key drivers of this return to economic growth?

The national debt and consequent burden of debt service will continue to rise and stunt public investments if we do not emulate the success with which many middle income and advanced countries finance infrastructural, economic, and social development on a sustainable basis. The government therefore has to continue to implement debt management measures. These new measures include on-lending and escrow mechanisms, project based guarantees, channelling concessional financing for social projects and commercial loans for commercial projects, a sinking fund, and refinancing. As a result of these measures, the public debt is now increasing at a slower pace. As part of our transformational agenda to achieve an export-led economy, the Ghana Export and Import Bank Bill has been laid before parliament. The primary purpose is to finance export, notably light industrial and agricultural products, guarantee loans, provide export insurance, support SMEs and other businesses, and strengthen our access to markets. The operations of the Bank will support the nurturing and growth of the private sector in Ghana to address the longstanding problem of access to credit for expanding exports. The 2016 budget was designed to build on a foundation of restructuring and transforming the economy toward sustained and inclusive growth and thus minimize our exposure to volatilities. Furthermore, we expect that the investments by the public and private sectors will permanently transform the sector. These investments, including the World Bank Partial Risk Guarantee (PRG) for Sankofa field, commissioning of FPSO J.E.A Mills for the TEN fields, and onset of Jubilee Gas contribute to the positive outlook.

With that in mind, where is the government investing in infrastructure and social development in 2016?

We have made far-reaching and significant investments in all sectors of the economy and these have led to considerable improvements in the lives of our people. After the success of the ''Schools Under Trees Programme,'' we began the construction of 123 Community Day Senior High Schools to provide space for hundreds of thousands of JHS graduates. We have also added two new functioning universities. In health, we have a massive infrastructure development project ongoing for the construction of new hospitals, including the nearly completed University of Ghana Teaching Hospital and the Ridge Hospital. These will deliver about 6,000 hospital beds by 2017. We have also invested heavily in road infrastructure, and launched the GHC3 billion Cocoa Road Improvement Project. There are also substantial investments in aviation and maritime infrastructure, both of which are designed on a self-financing basis. Not only are these investments critical to social service provision, but have also provided tens of thousands of jobs.

What are your targets for 2016?

Based on our medium-term macroeconomic framework, our targets are an average real GDP (including oil) growth rate of at least 8.2% and an average non-oil real GDP growth rate of 6.9%. Our inflation target is 8% with a band of ±2% and, by 2018, if all measures are implemented will result, in the medium-term, in an overall budget deficit of 3%. In 2016 we seek to achieve a GDP growth rate of 5.4%, a fiscal deficit of 5.3% of GDP, and accumulate gross international reserves to cover at least three months of imports of goods and services. Key to achieving the fiscal deficit target include the implementation of the 2015 Income Tax Act (Act 896), the implementation of the ECOWAS Common External Tariff, and realignment of the Statutory Funds. International trade taxes are estimated at GH¢6.5 billion or 4.1% of GDP and 21.7% of total tax revenue. The estimate reflects a 19.5% increase over the projected outturn for 2015. The increase is expected to be largely driven by a growth in import duties of 33.7% due partly to the impact of the implementation of the ECOWAS Common External Tariff.