Ghana Seeks Spending Curbs as Wage Bill Boosts Budget

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Ghana’s Finance Minister Seth TerkperGhana’s Finance Minister Seth Terkper will seek to narrow the fiscal deficit in his budget tomorrow to help restore investor confidence amid falling gold revenue and surging wage costs.

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Terkper is struggling to rein in a budget gap that reached 12 percent of gross domestic product last year, more than double the government’s target, as pre-election spending soared. The minister will probably project a shortfall for 2014 of about 6 percent to 7 percent, said Angus Downie, head of economic research at Ecobank Transnational Inc. in London, who estimates a deficit of 10 percent for this year.

Ghana’s cedi has slumped 15 percent against the dollar this year as gold prices fell and the government’s wage bill ballooned, putting pressure on the budget deficit. Terkper, who is scheduled to give his budget speech at about 10 a.m. local time, began reducing fuel subsidies and raising some taxes to help boost tax revenue in Africa’s second-largest gold producer. Lawmakers on Nov. 15 increased the value-added tax rate to 15 percent from 12.5 percent to raise funding for infrastructure.

“Revenue mobilization and widening the tax base is crucial if pressure on spending is to be alleviated,” Downie said in an e-mailed response to questions. “The removal of fuel prices subsidies shows that the government is able to take fiscally responsible decisions that have long-term benefits for the economy.”

Spending on wages has climbed to 72 percent of tax revenue following an 18 percent salary increase for state workers last year. The state plans to lower the wage bill to between 30 percent and 35 percent of tax income by 2015.

Gold Slump

Fitch Ratings last month lowered Ghana’s credit rating to B from B+ as the government failed to achieve its fiscal deficit goal of 9 percent for this year and overran spending on interest payments and arrears.

The cedi, the third-worst performing actively traded African currency thats actively traded this year after South Africa’s rand and Malawi’s kwacha, gained 1.4 percent against the dollar to 2.2340 as of 3:42 p.m. in Accra on Nov. 15. The gold price has slumped 23 percent this year.

Ghana will make tax collection more efficient and see an acceleration of economic growth fueled by the expansion of the private sector, Vice President Kwesi Amissah-Arthur said in an interview last month. Inflation quickened to 13.1 percent in October, the fastest pace in more than three and a half years, according to the country’s statistics agency.

The increase in VAT will raise an additional 745 million cedis ($334 million) in revenue, Deputy Finance Minister Cassiel Ato Forson said in an interview on Citi FM radio on Nov. 15.

“The cost of borrowing is high on the international market,” he said. “We must strike a balance between external borrowing and internal resources.”

Babatunde Akinsola
Babatunde Akinsolahttps://naija247news.com
Babatunde Akinsola is aNaija247news' Southwest editor. He's based in Lagos and writes on the Yoruba Nation political issues, news and investigative reports

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