The Institute for Fiscal Studies (IFS) has said government must do more to grow the non-oil sector of the economy, which has remained subdued, after oil production from the Jubilee and TEN fields boosted growth to 6.6 percent in the first quarter of the year.
Oil production within the period under review increased by 58.9 percent year-on-year, whilst the non-oil sector only grew by 3.9 percent, as against the 6.3 percent recorded same period last year.
Speaking at a press conference on the state of the economy, Executive Director of the think tank, Prof. Newman Kusi, said the decline in the output of the non-oil sector can be attributed to the slowdown of activities within the services sector, which grew by 3.7 percent within the first quarter as compared to 6.6 percent same period last year.
With the economy expected to grow by 6.3 percent this year, the IFS said it found the rate of growth of non-oil GDP very disappointing. “This unfortunate development is part of government’s spending retrenchment which severely hit expenditure on good and services, capital expenditure and arrears payment,” Prof. Kusi said.
The government recorded a budget deficit of 1.5 percent of GDP as against the projected 2.2 percent. The deficit was largely occasioned by a GH¢3.6 billion cut in expenditure as revenue fell by more than GH¢2.3 billion within the first quarter.
The IFS observed that whilst steps being taken by government since it took office are yielding results, much more needs to be done to achieve fiscal sustainability, sustained macroeconomic stability and a high non-oil GDP growth.
According to Prof. Kusi, the expenditure cuts impacted negatively on capital expenditure as well as private sector liquidity and spending, thereby holding back economic activity, with attendant consequences on domestic revenue mobilisation.
“Given that the objective of the 2017 to achieve strong revenue mobilisation is not likely to be met, at least for now, there is the need for the government to introduce additional measures to enhance the revenue mobilisation effort.
Serious reprioritising of spending in favour of payment of valid arrears, increasing capital spending, dealing with budget rigidity caused by the wage bill and interest payments, would also help,” he recommended.
The think tank urged government to enforce strictly provisions of the Public Finance Management Act to deal with unauthorised irregular and fruitless spending, as well as strengthen fiscal transparency and accountability.
“Government should introduce measures to sustain the current macroeconomic stability and market confidence. This should involve measures to sustain the declining inflation rate, relative stability of the cedi and strengthen foreign reserve position.
Measures to ensure transparent and effective communication and strengthen ownership of policies will also help to maintain the momentum to sustain the market confidence,” Prof. Kusi said.