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RPT-UPDATE 3-Ghana disappoints investors with plan to trim 2013 deficit to 9 pct
March 5, 2013 / 10:46 AM / 5 years ago

RPT-UPDATE 3-Ghana disappoints investors with plan to trim 2013 deficit to 9 pct

* Analysts say 9 percent deficit target disappointing

* Ghana keeps 9 percent inflation target, sees 8.5 pct GDP growth

* Government says medium-term plan to cut deficit to 6 pct of GDP

* Sees $582 mln in oil revenues in 2013 as production rises

By Kwasi Kpodo

ACCRA, March 5 (Reuters) - Ghana unveiled plans to modestly trim its fiscal deficit this year by raising tax revenues from key industries such as oil while avoiding tough spending cuts, despite investor concern over high expenditure and rising debts.

The West African state’s 2013 budget presented to parliament on Tuesday laid out plans to pare the deficit to 9 percent of gross domestic product (GDP) from 12.1 percent in 2012, when spending overran during an election year and revenues were hit by lower-than-expected oil production.

That deficit target disappointed many economists, who were expecting Ghana to reaffirm its commitment to reach a level around 6 to 7 percent of GDP - in line with its target for 2012.

“We are resolved to solve the high budget deficit, the sources of which are known,” Finance Minister Seth Terkper told parliament. “We will pursue reforms to make the tax system more efficient.”

Analysts said the three percentage point deficit cut was a step in the right direction but was likely not robust enough to bolster offshore investor confidence in West Africa’s second largest economy.

“It’s a huge deficit for any country to be running,” Razia Khan, Africa researcher for Standard Chartered Bank said. “The pressure will be on Ghana to change course, and introduce greater spending restraint, or risk a deterioration in perceptions of creditworthiness.”

Newly-elected President John Mahama is keen to raise social and infrastructure spending to shore up Ghana’s middle income nation status and fulfill campaign promises of translating oil and gold output into benefits for ordinary citizens.

But he is facing pressure from international investors to prove he can keep the debt in check.

Among his first big moves to trim spending, Ghana cut fuel subsidies in February, resulting in a 20 percent jump in petrol prices at the pumps. But Fitch Ratings, a day later, revised its outlook on Ghana’s credit rating to negative from stable, citing continued worries over accumulating debt.

Ghana’s 2013 budget puts total expenditures for the year at about 30.5 billion cedis ($16 billion), up some 20 percent from last year, according to Terkper, propelled by economic growth of 8 percent as oil output rises.

He said Ghana is targeting a year-end inflation rate of 9 percent.


The government’s aim is to halve the 2012 deficit to 6 percent of GDP over the medium-term of three years, the budget said.

“The aim is to adopt a gradual approach to the deficit cut in order to avoid austerity and also generate growth as we go along,” said one senior official involved in drafting the budget, who asked not to be identified.

He said the government, mindful of the effects of austerity seen in some European nations, would fast-track the completion of major infrastructure projects such as roads so these could begin to yield economic dividends before deeper austerity measures are imposed.

The government is projecting that the local cedi currency , which tumbled nearly 20 percent against the dollar early last year, would stabilise in 2013.

“The Bank of Ghana is expected to maintain a strong monetary policy stance to ensure the stability of the cedi and the single digit inflation target policy,” Terkper told parliament.

The government expects a boost in oil revenues and the release of a significant chunk of a $3 billion Chinese loan this year. It forecast a 15 percent increase in average daily oil production to 83,341 barrels per day in 2013.

Oil production in 2012 averaged about 72,000 bpd, well-below target due to technical problems with the offshore Jubilee oil field, operated by U.K. energy firm Tullow.

At an average price of $94.36 per barrel, oil revenues would rise to $581.72 million, the budget said.

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