Ghana finance minister promises peaceful elections and economic stability
Ghana’s Finance Minister says the government is aiming to repeat the country’s record of competitive but peaceful elections, with a transition that is usually smooth. He joins CNBC Africa’s Wole Famurewa to share more insight on the build up to the December 7 elections.
There is so much we can get through in this interview but I just want to start first of all by just getting your perspective on the build up to the December 7th Elections. In Africa, people tend to be concerned about the prospect of political change. Is there any reason for investors to be concerned right now.
TERKPER: Thank you very much. I think the record speaks for itself. We’re hoping that the elections will be competitive and peaceful, and that the transition will be smooth both politically and more importantly economically. To illustrate this point, last week, I was in parliament with my team seeking cabinet approval to move a vote in advance of appropriation according to article 180 of the constitution. This is because even though we read the budget in November it is often very difficult to do so in an election year.
For the third election cycle running we go to parliament with a vote in advance of appropriation which should have come at the end of the budget cycle. We make a request for permission for the minister of finance under the authority of cabinet to make withdrawals from the consolidated fund for funds for three months, January to March- to keep the government running until the hand over.
The constitution caters for not only political transitions but for any eventuality that can be imagined from the use of oil, to revenue resources, through to ensuring that gaps will not result in uncertainty from investors. The debate was lively but in the end we got the vote by simple majority. So I just want to use this opportunity to assure investors that Ghana has everything going for it in terms of smooth elections and that is the goal of the Electoral Commission the Candidates and Ghanaians in general.
There is a very commendable record in terms of peaceful transitions in Ghana but let’s move on to the budget. As you rightly mentioned you did make that presentation to the Parliament last week and one of the things pointed out was that so far the government has missed many of its revenue targets and overshot its expenditure targets. The big question is what happens in the rest of this year given that it is an election year? Many suggest that it is possible that you will overshoot more on the expenditure side? What is your message on that point?
TERKPER: I think that we need to put things in proper perspective. The expenditure is within the government and IMF programme targets. What we’re missing is revenues. This is attributed mainly to two factors. First there’s the decline in oil prices which is affecting not just Ghana. The second and more immediate factor is the damage that occurred to the FPSO – the drill ship that produced about 100,000 gallons of crude oil during the first five months of the year.
The situation has been resolved and we expect that the corrective measures we’ve made will keep the status quo. The first corrective measure that we took was that we went to parliament despite the fact that it was an election year to revise the expenditure downwards in anticipation of a lower oil revenue and this is the second year running that we’ve done that. We did that earlier in the year when we did a mid year review. Secondly the jubilee partners have found a temporary resolution to the problem with the FPSO, so it’s coming back on stream and producing some crude oil as well as gas. But I think both in terms of making up and future prospects, the president commissioned ten field FPSOs which have also started production. The records you’re talking about serve till the end of August.
We’re expecting to recover somewhat from the revenue shortfalls and given the adjustments that we have in the IMF program we hope to end the year better. We aim to keep the expenditures within the program target. We were on a road show recently and we explained this issue to investors. It is important to keep investors informed whenever there are developments so that the developments won’t be blamed on the normal election year expenditures.
I have read that the forecast for GDP growth next year is 8 per cent. That sounds like a really good number. How likely is this and what is going to drive it? What are your expectations for growth in 2017 and your key drivers of that growth?
TERKPER: That figure has been revised slightly downwards but it is still robust. We are estimating growth between 7 and 7.4 per cent which is still robust like I said earlier. I think that even during the period of austerity when we launched the homegrown policy and the IMF program we kept saying that some of the set backs that the economy was going through were temporary. Temporary in the sense that the two and a half year disruption in gas supply which affected not just Ghana but Benin, Cote d’ ivoire and Togo from the damage to the West Africa gas pipeline has now been restored. We still have some challenges both with respect to the supply and the finances but we’ve had discussions about that. You’re also aware of the simultaneous fall in the prices of gold, cocoa, and crude oil.
The economy suffered through quite a number of setbacks so our growth started to decline. Any economy going through shocks would go through some of these declines as evidenced not just in Ghana, but also in Africa, and elsewhere on the globe. Even then we kept pointing to the investments that Ghana was making which suggests bright prospects for the economy. We kept pointing to the fact that the services sector remained robust. I think a lot of people associate Ghana with agriculture and Natural resources which is true, but the largest sector in the economy is the services sector which has been picking up. Growth in the construction sector and the services sector has remained healthy. There were also some major developments in oil and gas. We took a facility to construct the gas plant to take on gas from the jubilee field which was one of the reasons for the revenue slow down at the beginning of this year.
We also said that this year the ten field FPSO which suffered a temporary set back with the court case would come on stream and it has, slightly ahead of schedule. The big one is the Sankofa field which together with the Ten field and those will bring nearly 3 trillion cubic feet of gas and we’ll see additional production of crude. Estimates are put between 88,000 to 100,000 per day on top of what we already do now. They will bring Ghana’s oil production to between 180,000 and 200,000 barrels per day. We were very intense and keen on making sure these investments came on stream with all the support we could give to the private sector. This led to our partnership with the World Bank and the partial risk guarantee which the world bank approved and for which we gave idemnity.
Those who were monitoring the annual meetings would note that the world bank president in the plenary mentioned this particular program as having very good prospects for the economy. So your first source is oil and gas, and we’re moving away from associated gas to associated crude and harnessing the gas through these. They guarantee independent power production and this is the immediate cause of the robust growth projections. Ghana also has chemicals resources like salt and the byproducts of petroleum and we are expecting to harness these same resources for boosting agriculture through for example production of fertilisers, and we’re looking to start exploiting bitumen as well. We expect to continue the value addition and economic diversification by harnessing the midstream and downstream parts of the petroleum sector. Ghana is also looking to enhance the services sector which is currently focused on financial, transportation, and education services to add energy services so that the energy sector will continue to grow. The advances in fertilisers in particular will allow the agriculture sector to come back strong.
Those are the strategies that we’re trying to follow to boost the economy and these result in the growth projections that you see. We are continuing with the stabilisation program under the IMF but the unique thing about this IMF program is that it covers the election year. It extends into 2018. Therefore we’d like to see the economy moving from a stabilisation or a consolidation phase to a growth phase and we believe that the GDP growth that we’re talking about will help slow down and control the rate Ghana’s borrowing. We’ve seen a slight decline in the debt to GDP ratio. As Ghana GDP grows we expect the growth to GDP ratio to decline and bring Ghana back to the B class ratings where it used to be. We are targeting almost all sectors of the economy. We’ve spoken about harnessing gas for power. We shouldn’t view power in terms of the difficulties that the economy has gone through in gas supply. We should view power in terms of bringing the gas on stream to power industries so that they are rehabilitated industry and can produce more exports.
These growth prospects seem really good on paper but the opposition leader Nana Akufo-Addo made a point about the government not being sensitive enough to the needs of the Ghanaian people. We know that quite a few are still struggling with poverty. When will all this growth translate to a significant change in the quality of life of Ghanaians?
TERKPER: We disagree with this assertion because even under the IMF program we had a number of Social Intervention initiatives. In fact it was one of the conditions of the IMF program. The government has made releases to the education fund, the health fund and the district assembly common fund which is a rural development fund and aligned their objectives toward social intervention. I entreat the opposition to look critically at our social intervention programs and the way we’ve used the statutory funds to address them. To give an example much of the work that we’ve done in terms of rural road development and the building of primary schools are all things which contribute directly and indirectly to the lives of Ghanaians.
Let’s move on to the Cedi. It’s been relatively stable over the last few months after the IMF program was completed, but what happens going forward? What is your outlook going forward?
TERKPER: The Cedi stabilisation did not start with the completion of the IMF program. The most difficult periods for the Cedi were between November and May, then we entered the Cocoa season and the pressures eased. But this year, the Cedi has been relatively stable. I think it comes down to strategy, how we utilise foreign exchange and the Bank of Ghana’s management of the resources that come in. Of course it has also been helped by certain factors even though we saw some setbacks like the additional revenue from Oil production. This is something that we want to see continue, particularly with the improved prospects from ten field and sankofa. We need to make sure that we have good management of both the external side of the economy and internal sides of the economy like the monetary policy so that they complement the fiscal measyres that we take.
But what is the Outlook for the Cedi. What do you expect next year?
TERKPER: We’re entering into a period of big demand for the Cedi because of the export revenues we earn from Cocoa but this will be tempered by the low price of crude oil. We’ll continue to diversify the sources of foreign exchange. We’ve just launched an export led strategy. The idea is to make sure that export credit and export guarantee are available following the Cocoa Board model. We believe that this will help the strategies we’ve been implementing from last year and will continue for three years into the future. This will help with the supply of forex and maintain the value of the Cedi.
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