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Ghana
The gateway to west Africa. |
 Democracy
- Economy -
Stock Market - Private
Sector - Export
- Investment
- Telecom
- Tourism
- Pink Lady
- Year 2000
- Millenium
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Interview with
Honorable Kwame Peprah
Minister of Finance,
November 11th 1999 |
Q.1 The Introduction of the VAT has not seen the recurrence of the nasty incidence that followed the implementation of it the last time. What has been responsible for the smooth implementation of it this time?
A.1 The first introduction of VAT came at a time when the economy was in a far worse shape than when it came the second time.
Inflation was very high and was still rising and there had been a very bad harvest, food prices had risen and it was at the time of the year which is referred to as the lean season. It came at the time when people were facing a cyclical hardship. That contributed to the ease with which people could be mobilized to try to reject it. The second time around we had inflation under control and falling and it was at a time of the year when we were not at the cyclical trough as far as food production was concerned. The education of the people was more extensive this time. We learnt from the first one and I think that is what made the second one easier to deal with.
Q.2 Now that it is implemented, what are your revenue expectations?
A.2 We are only in the first year of its implementation as we have only done 7 months of actual payments by merchants in the system. It is bringing in revenue in accordance with what we projected and it is slightly higher at this time than what the sales and service taxes, which it replaced, were doing in the year before. We are quite happy with the performance as far as revenues are concerned. But like everything, it has teething problems and the operators and the people who have to monitor the system all need experience in the management of this new tax. They need to make sure that they are doing the right thing. We are getting improved revenue flows and it is definitely a more efficient tax than the old sales and service taxes.
Q.3 How much have you achieved in poverty alleviation?
A.3 Poverty alleviation or reduction is at the heart of our whole economic programme. That is the key objective that we have and we have adopted a medium term rolling programme plan for government expenditure that we call the Medium Term Expenditure Framework (MTEF). Under this, we have allocated more in both absolute and percentage terms to the areas of government spending that impact directly on poverty, particularly the social sectors of education and health. One fact is that you cannot have uniform improvement but results coming in show that we are making progress against poverty.
Q.4 What has caused the downward trend in inflation?
A.4 Our budget has been quite tight to make sure that we do not spend more than we generate. We have made sure that we will get our monetary policy tighter and we have also been blessed with the fact that we have not had very serious weather problems. About 4 months the inflation rate had dropped to 9.4 % but it has risen to 11.5% as we speak because some of the positive things I talked about have been eroded by external factors that are beyond our control.
| We have a situation where even as we try to diversify the base of our economy, and this takes time, we still have to rely on the key traditional commodities. The key one is cocoa. Cocoa is very important to us in our foreign exchange earnings and it is also very important as a very major source of tax revenue but we have had a situation where cocoa prices over the past year have dropped by over 40%. That has cost us about 140 billion cedis in terms of government tax revenue that we are not going to get. For this reason we have had to resort to financing the budget from domestic borrowing, which is more than what we had programmed. This has a way of slowing down the fall in inflation, if not raising it.
Even for goods manufactured here we rely a lot on imported inputs. Therefore when sources of foreign exchange, like cocoa and gold, yield less than we project it puts a lot of pressure on the exchange rate of the local currency and this also raises the price of the imported components in the inflation basket. These are the things that have contributed to slowing the rate of decline and making things less attractive than they should be.
We are definite that we will work ourselves out of this crisis. We are going to propose measures to deal with this external shock. We will deal with it by first of all looking at reducing expenditure and also raising new revenue. We intend to persuade our partners to look at this as a one-time shock and to come to our aid in order not to get all our gains reversed.
Q.5 Can you tell us what specific new fiscal measures you intend to put into place?
A.5 One of them, as I mentioned earlier, is to try and cut down on some expenditures. We are also looking at increasing some taxes though nothing is foreclosed, at least, for now.
Q.6 What time schedule have you given yourself to overcome this crisis?
A.6 The crisis was caused by the fiscal problem engendered by the shortfall in tax revenue from cocoa and also in delayed inflows of promised donor loans and grants. Oil in itself on the normal basis is the single largest user of foreign exchange in our economy so if within six months in any year, the import bill for it doubled, it really puts a strain on the exchange rate.
Our reading of the oil market indicates that the potential to go up though exists, it will not have the same level of disastrous effect on us. The price is not going to be doubled in the next 12 to 24 months so we are probably going to see the average price hovering around where it is now. Gold has sort of recovered to the level that we had projected it to be for this year’s budget. With the kind of levels that we have now for cocoa it may take another 18 months before we start going up, but I think the worst is over.
Q.7 What would be your final message to our 4.6 million readers keeping in mind that they are top businessmen?
A.7 The success of other investors in Ghana should be what others should look at as they contemplate where to put their money. The returns to an investment in Ghana is very high. The environment is hospitable and it is a pleasant place to live and do business. I recommend it highly to everybody. |
© World INvestment NEws, 1999.
This is the electronic edition of the special country report on Ghana published in Forbes Global Magazine.
March 20th 2000 Issue.
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GHANA
