Election-Year Spending Haunts Cedi as Ghana Delays Budgetby
Ministry of Finance to submit partial plan in November
Cedi drops to near three-month low after announcement
Ghana will wait until after a presidential election in November to submit its budget proposal to parliament, saying a delay is common practice in the West African nation since 1992. The cedi dropped after the announcement.
A spending plan for the first three months of 2017 will be presented to lawmakers in November, the Ministry of Finance said in a statement published in the Accra-based Business and Financial Times on Thursday. The full budget will be submitted in the first quarter of 2017. The ministry normally presents the plan in November for approval, the same month that elections are scheduled.
“It’s a practice since the inception of the 1992 constitution, that during an election year you go to parliament for power to spend for three months while the budget is not in place,” Deputy Minister of Finance Cassiel Ato Forson said by phone. “After the election you come back for the budget.”
Minister of Finance Seth Terkper said the government will avoid the temptation to spend beyond its means this election year as part of efforts, backed by the International Monetary Fund, to narrow the fiscal gap. The deficit ballooned to 12 percent of gross domestic product in the last election in 2012, forcing the government to borrow more money. The cedi plunged 50 percent against the dollar since then, the second-worst performer in Africa during that period.
Economic growth has stalled as an electricity crisis and a drop in the price of its exports, including oil and cocoa, drained revenue. President John Dramani Mahama has pledged to tighten the fiscal gap and jumpstart the economy as he seeks re-election against Nana Akufo-Addo, the candidate for the opposition New Patriotic Party.
The cedi dropped 2 percent after the announcement, nearing the lowest against the dollar on a closing basis in about three months. The cedi was trading 0.8 percent lower at 3.8727 per dollar at 2:05 p.m. in Accra.
“People’s concern may be that the last quarter spending may be influenced by the elections,” Sampson Akligoh, managing director of InvestCorp. Ltd. in Accra, said by phone. “If they will not be able to see the whole picture, then it is unknown whether government will be committed to the annual plan.”
The government took an almost-$1 billion loan from the International Monetary Fund last year to support the cedi and help finance the fiscal gap. The budget deficit will likely decline to 4.8 percent of gross domestic product this year from 6.7 percent of GDP last year, the International Monetary Fund said last month. Inflation has remained above 15 percent for the past two years despite efforts by the Bank of Ghana to raise borrowing costs during that period.