X. FISCAL PROJECTION FOR 2005

Mr Speaker, Sir, I will now turn to the fiscal projections for 2005.

i. Background

145. The underlying policy consideration that guided the 2005 budget is poverty reduction which is accorded the highest priority, in terms of resource allocations to the social sectors. Government has, therefore, allocated 28.3 percent of domestic revenues to PRSP related expenditures.

146. The Government’s economic policy in 2005 is designed to support a real growth rate of GDP of 5 percent, to reduce the inflation rate to 4. 5 percent, to maintain the stability of the Dalasi against major currencies, to build up gross official reserves to at least US $85 million, which is equivalent to 4.7 months of import cover. To support these objectives, the Government Budget is designed to further reduce the overall fiscal deficit, including grants, to 4.5 percent of GDP, and to achieve a basic primary surplus of 7 percent of GDP in 2005. Fiscal policy will restrict domestic borrowing to D270 million, which is less than 2% of GDP, which will reduce the debt to GDP ration from 38 percent to 36 percent. Net foreign borrowing will be equivalent to D351 million, or 2.5% of GDP.

ii. Revenue

147. The estimates of revenue for the 2005 budget assume that the good performance in revenue collection recorded during this year, particularly from the Customs and Excise Department, will continue, and that the Government will set up the National Revenue Authority, and also provide a container-scanning machine at the Ports. All these will boost revenue collections in 2005.

148. The projected total revenue, including grants, for 2005 is D3106.4 million. This is equivalent to 22.47 percent of GDP, and shows an increase of 1 percent over last year budget figure of D2679.5 million or 21.5 percent of GDP. Total domestic revenues constitute about 91 percent, equivalent to 20.39 percent of GDP, or D2818.05 million. Non-tax revenue is estimated to reach D280.8 million, or about 2 percent of GDP, and this revenue item contributes 9 percent of total revenues and grants. Similarly, the grants component accounts for about 7 percent of total government receipts.

149. Government intends to enhance tax revenues from D1933.27 million, or 15.5 percent of GDP in 2004, to D2496.4 million, or 18.02 percent of GDP in 2005. While direct tax accounts for 39 percent of total tax receipts or D978.35, indirect tax constitutes about 60 percent of total tax or D1518.7 million.

iii. Total Expenditure

150. Total expenditure, comprising recurrent and capital expenditures and net lending, is estimated at D3609.9 million, or 26 percent of GDP in 2005, representing a 7.6 percent drop over the 2004 budget of D3884.9 million, or 31 percent of GDP. This drop is attributable to a fall in capital expenditure of D233 million entirely on account of lower foreign financed capital projects. Recurrent expenditure is D2786.1 million and as a share of total expenditure, constitutes 77 percent, while capital expenditure accounts for the remaining 23 percent, which is equivalent to D904.7 million.

iv. Recurrent Expenditure

151. Recurrent expenditure is projected at D2786.1 million in the 2005 budget; this represents a marginal rise of 1.4 percent over the 2004 Budget figure of D2747.1 million. The two major components of recurrent expenditure are interest payments on debt and the purchases of goods and services of D949.68 million and D929.3 million respectively. Interest payments on the domestic and foreign debt represent 34% of total recurrent expenditure, while the purchases of goods and services account for 33 percent. Other recurrent expenditures are personnel emoluments, amounting to D503.8 million, and current transfers of D394.2 millions. These two items combined are 33% of total recurrent expenditure, with personnel emoluments constituting 18 percent.

v. Capital Expenditure

152. Capital expenditure is estimated to contract by 20.5 percent from the 2004 budget amount of D1138.8 million to D904.7 million in 2005. The loans and grants that partly fund these activities are revised downwards in the 2005 budget to D868.1 million and D178.8 million respectively. The estimated capital expenditure in 2005 budget is D914.7 million or 7.3% of GDP.

153. The sectoral allocations of Government expenditure have been guided by the need to focus public spending on the key poverty-reducing sectors identified in the PRSP. Accordingly, Health expenditures will account for 15.2 percent of the budget excluding debt service payments, while education expenditures comprise 16 percent of the total budget. The budget allocates 11.9 percent of total expenditure to works and infrastructure, and 6.5 percent to Agriculture.

154. The projected overall budget deficit, including grants, for 2005 is projected at 4.5% of GDP. The basic primary surplus is also estimated at 7% of GDP. Government has designed a balanced and fully financed budget, which has no financing gap. For the 2005 Budget, Government will not increase any existing tax rates, or introduce any new Revenue Measures.

-end.