Tuesday, May 28, 2013

New levies, taxes proposed

...to plug revenue shortfall

Government has outlined new measures to avert a fiscal explosion as expenditure continues to spiral ahead of revenues, threatening the attainment of key budgetary targets. 
The measures include re-imposition of the fiscal stabilisation levy; additional import levies; increase in excise duties; review of user fees and charges; and a special audit of the revenue administration system to plug leakages.
These proposals, to be put before Parliament shortly, will boost tax revenue -- which was 14 percent short of target between January-April, Finance and Economic Planning Minister Seth Terkper said last week.
The fiscal stabilisation levy, introduced in 2009 but abolished in the 2012 fiscal year, is an additional profit tax on selected sectors of the economy -- including the financial services sector, mining companies and breweries.
Government will also take concrete steps to refinance portions of the public debt to reduce debt service costs, undertake more regular adjustment of utility prices to complement the recent increase in petroleum prices, and implement the Market Premium Policy approved by Cabinet for Single Spine salary negotiations.
“Given the fiscal outcome for the first four months of the year -- in particular, the cost of debt service and the burden of wage and other personal emoluments on the budget -- Cabinet approved the use of additional revenue, expenditure and debt measures to achieve the end-year targets,” Mr. Terkper said.
In his budget statement presented in March, Mr. Terkper said Government aims to cut the fiscal deficit from 12 percent of GDP in 2012 to 9 percent in 2013 through a combination of revenue and expenditure measures.
The budget deficit for the first four months of the year was however larger than expected, due to a shortfall in revenue and grants. The gap, which was GH¢3.4billion, was equivalent to 3.8 percent of GDP -- against a target of GH¢2.7billion or 3 percent of GDP.
Spending on wages was GH¢3billion, against a projection of GH¢2.8billion, while interest expenditure amounted to GH¢1.6billion compared to an estimate of GH¢1.1billion.
“One effect of the fiscal pressures we have outlined is that funds for social intervention programmes -- which fall under the goods and services category of the budget -- are being crowded out,” said Mr. Terkper.
“Government will ensure that part of the additional revenue to be generated will be used to resource this balance,” he added. Government will also uphold the objective of improving productivity in its negotiations with public-sector workers under the Single Spine pay policy.
A further risk to the budget, according to the Finance Minister, emanates from falling international commodity prices and import pressures. The price of gold, the economy’s number-one export earner, has slumped by more than 18 percent this year, and the cedi has depreciated by more than 3 percent, weighed down by strong foreign exchange demand.
Most of the new fiscal measures, Mr. Terkper said, will have sunset clauses because they are only meant to fix the current problems.  
On the total public debt stock, he said although it increased by 7 percent over the figure for 2012 -- from US$18.83billion to US$20.12billion at the end of March 2013 -- the increase was as a result of disbursements in existing loan arrangements and not new ones.

Cabinet approves US$1b Eurobond

Cabinet has approved a transaction size of US$1billion based on anticipated market conditions and financing needs of the proposed Eurobond auction, Finance and Economic and Minister Seth Terkper has disclosed.
Prior to the approval by Parliament, the exact amount will be subject to variations that might be dictated by market conditions and parliamentary approval. 

The lead managers of the transaction are Citi Group and Barclays. The co-managers will be EDC Stock Brokers and Strategic African Securities.

Mr. Terkper explained at a media briefing that the Eurobond is intended to restructure the public debt, reduce the interest burden on the budget, and provide funds to finance critical infrastructure projects.
“The indicative use of proceeds as approved by Cabinet includes payment of counterpart funds for capital projects,” he said.  

He said, “The global interest rates are low and Government, upon advice from international experts, believes this is the right time to float a bond. We won’t be reckless in issuing the bond. We are optimistic the bond issue will be a success.”

He added: “Government, as part of debt management policy in the 2013 Budget Statement and Economic Policy, indicated its intention to extend the maturity profile of the public debt by diversifying its sources of funding for major infrastructure projects and for other specified purposes -- including tapping the global bond market.

“Investors don’t only look at the current situation; they also look at what policies you have for the future.”
Mr. Terkper indicated that Cabinet approved the constitution of a transaction team toward issuance of the sovereign bond, comprising the Ministry of Finance and the Bank of Ghana, to manage preparatory activities for the issue.  

The country’s financial sector is aiming to benefit from a lower interest rate when Government sells its second Eurobond -- tentatively from July 2013, discussions over which are currently ongoing.

The first 10-year Eurobond in 2007 attracted a coupon rate of 8.5 percent, but the yield for the next one is likely to be lower because of the prevailing low international interest rates, Bank of Ghana (BoG) Governor Henry Kofi Wampah told B&FT.

 “We want to take advantage of the low interest rates. We’re looking at rates that are lower than what we paid in 2007.” 

Dr. Wampah nevertheless insisted that the timing is right because of the lower yields in the market, which could begin to rise if the economic recovery in advanced countries firms up.

Government has said the budget deficit -- which became the source of much anxiety after it rocketed to 12 percent of GDP last year -- will be narrowed to 6 percent of GDP in the medium-term, after it’s been trimmed to 9 percent this year.

Fitch Ratings has already cut the outlook on Ghana’s B+ sovereign rating to negative from stable on the back of the blown-out deficit and persistent wage-expenditure pressures. In 2007, Fitch rated Ghana B+ with a positive outlook ahead of floating the first Eurobond.

Dr. Wampah said the credibility of policies to achieve fiscal targets and stabilise the cedi “is what investors will be looking for”.

There is a need to refinance some of Government’s debts including the 2007 Eurobond, he said, and part of the proceeds from the next sale will be used for that purpose.

Graham’s road-map solves illegal mining menace

Dr. Yao Graham, coordinator at the Third World Network Africa (TWN), has called for incorporation of rural development strategies to help solve the massive menace in the artisanal and small-scale mining sector.
This will ensure adequate job-creation and sustain meaningful livelihoods for youth in the mining communities.

Implementation of the rural development strategies will also promote the strengthening of national ownership and national participation in the mineral economy and linkages between the mining sector and the rest of the world.

Dr. Graham told this to participants made up civil society organisations at a two-day capacity building workshop for 40 representatives of major constituencies from across West Africa.

He blamed the menace in the artisanal and small-scale mining in the country on a weakling economy.
“If the Ghanaian and African economies were creating enough jobs, no citizen of Africa would have engaged in illegal small-scale mining, knowing the dangers involved.”

He observed that lack of inter relations by the African Union with country Government is hampering implementation of the action-plan for the continental African Mining Vision.

“Mining has emerged as leading economic activity in West Africa. Ghana, Mali and now Burkina Faso are today three of Africa’s most important gold producers. Guinea and Liberia are also significant global players in the iron ore sector, but the benefit of mining to the economies of West Africa remains marginal at best,” he said.

He explained that despite the sub-sector’s significant potential economic and social benefits, expected support and regulation from Government agencies to augment the realisation of these benefits have largely not been activated.

These developments, he explained,  have exposed inadequacies in Africa’s excessively liberal mining regimes -- characterised by overgenerous incentives for foreign investors in laws and contracts, and weak regulatory  frameworks which do not sufficiently protect communities, workers and the environment.

As a result, African Governments have not been getting an equitable share of the increased mining revenues, and relations between many communities and mines are volatile.

He stated that the African mining vision addresses the long-standing paradox of a continent endowed with natural resources but still faced with high levels of poverty and disparity among African populations.

“Through targetted policy reforms, the AMV seeks to address the structural flaws of a model inherited from the colonial era characterised by the enclaved, mono-sectoral nature of mining activities; and the weakened institutional capacity and profoundly asymmetrical relations between the negotiating capacity of Government and companies.

“The AMV, in effect, proposes a paradigm-shift away from the model of extractive resources exploitation based on a high dependency on international export markets that has proven incapable of delivering socio-economic development to Africa,” Dr. Graham remarked.

Producer inflation slips

...as miners face falling prices

Year-on-year inflation from the producer’s perspective was 10.2 percent in April 2013, 0.4 percentage points lower than that for March. 

The decline was driven mainly by mining and quarrying inflation, which slipped by 4 percentage points to 2.4 percent. The manufacturing sector recorded the highest year-on-year sub-group inflation rate of 14.4 percent while Utilities’ inflation was 1 percent.

Dr. Philomena Nyarko, acting Government Statistician, announcing the figures at a media briefing in Accra explained that the falling gold prices on the international market accounts for the index’s slide. The monthly producer inflation rate was -0.1 percent.

She said between April and July 2012, the Producer Price Index (PPI) rose steadily and thereafter fluctuated until December.

“From December 2012 to February 2013, the rate declined to 9.1 percent but increased steadily to 10.6 in March 2013, and subsequently declined to 10.2 in April.”

Dr. Nyarko said the manufacturing subsector recorded the highest year-on-year producer inflation rate of 14.4 percent, up from 14.1 percent in March. Manufacturing contributes up to two-thirds of the producer inflation basket.

Head of Industrial Statistics at the Ghana Statistical Service, Anthony Kraka, confirmed that global commodity price fluctuation contributed to the fall.

“This was largely because the world price of gold decreased, pushing the mining index upwards.” Gold prices have dropped by 18 percent this year.

CSOs endorse renegotiation of mining contracts

Dr. Yao Graham, Coordinator of Third World Network-Africa (TWN), has endorsed efforts by African leaders to renegotiate mining contracts, saying it will enhance transparency of revenue flows in the sector.

“The realisation by the continent that national development benefits of mining are not enough has led to a shift that sees emerging patterns of policy change in African mining countries,” he said.
Government last year began a mining industry review to boost fiscal revenues and improve the flow of benefits from the industry to mining communities.

The review included payment of mining royalties from the current quarterly period to monthly, as well as an increase in the industry’s corporate tax rate from 25 percent to 35 percent.

It will also push for an increase in royalties paid by mining companies. In March 2010,
Government increased the country's mineral royalties from 3 percent to 5 percent.

Dr. Graham was speaking in Accra at a two-day capacity building workshop on the continental Africa Mining Vision (AMV) and the related ECOWAS Minerals Development Policy (EMDP).

The workshop was organised by TWN-Africa with support from the Open Society Initiative for West Africa (OSIWA). It brought together over 40 representatives from civil society organisations (CSOs), labour unions, women’s organisations, the media and other stakeholders.

It was designed to expand and deepen participants’ understanding of the AMV and EMDP’s objectives and their implications.

It was  also to support engagement with ECOWAS to harmonise the goals of the AMV, the EMDP and the envisioned harmonised regional mining code, as well as to strengthen collaboration and networking among a diversified range of non-state actors and organisations for advocacy on the AMV and EMDP.

The top agenda of the AMV is the creation of circumstanes that support a “transparent, equitable and optimal exploitation of Africa’s mineral resources to underpin broad-based sustainable growth and socio-economic development”.

The AMV, in effect, proposes a paradigm-shift away from a model of extractive resource exploitation based on a high dependency on international export markets that has proven incapable of delivering socio-economic development to Africa.

Through targetted policy reforms, the AMV seeks to address the structural flaws of a model inherited from the colonial era, characterised by the “enclaved, mono-sectoral nature of mining activities, and the weakened institutional capacity and profoundly asymmetrical relations between the negotiating capacity of Governments and companies.”

The AMV and EMDP exemplify the growing convergence between the positions of critical voices in African society and new official policy directions. The convergence is partially expressed in the AMV and EMDP policymaking processes.

The role of CSOs in these processes has grown over time. For example, CSOs had a strong voice in the 2011 AU Ministerial Meeting that approved the AMV Action Plan.

Among other specific topics discussed at the workshop were included essential tenets of the mining reform agenda; its challenges and proposed remedies for realising the AMV and EMDP; mining and economic transformation and the role of the state; and how ongoing reforms address labour as well as human rights concerns; and artisanal miners’ and communities’ issues.