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 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 and 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 minimize the incidence of ghost workers and net freeze in recruitment have also contributed to reducing the wages-to-tax revenue ratio of 57.6 % in 2013 to 44.2% in 2015.