Dr Kwabena Duffour, Minister of Finance on Tuesday gave a positive assessment of the economy, saying confidence was gradually being restored due to the positive impact of Government's fiscal policies, macroeconomic stability measures and injection of external resources.
"The first five months of 2009 has witnessed a positive primary fiscal balance, gradual stabilization in the cedi exchange rate, sound, well capitalized and fairly liquid financial sector, decline in the movement of the rate of inflation and improvement in the trade balance, all as a result of the prudent fiscal and macroeconomic measures being implemented," he told members of the Association of Ghana Industries (AGI) at a luncheon in Accra.
This, Dr Duffuor said had raised confidence in the economy and paved the way for positive negotiations with development partners for financial support, adding that negotiations with multilateral institutions such as the World Bank would soon yield dividend.
Ghana is expecting an inflow of $1.2 billion budget and project support from the World Bank while the IMF could also provide balance of payment support of $1 billion.
Dr Duffuor said provisional data on the implementation of the 2009 budget showed that government's fiscal stabilization strategy was on track.
The overall balance shows a deficit of GH¢608.9 million, equivalent to 2.8 per cent of Gross Domestic Product.
"This shows that the deficit target of 2.8 per cent of GDP for the first five months of 2009 was successfully achieved," he said, adding that there had been gradual decline in the exchange rate of the cedi.
The rate of depreciation of the dollar/cedi rate at the inter-bank market fell from 5.1 per cent in January this year to 1.4 per cent at end of May. In the Forex bureau it went down from 6.8 per cent in January to 0.8 per cent in May 2009.
The Finance Minister said inflation had stabilized in the last two months but expected to go up in June as a result of the adjustment in petroleum prices and assumed a downward trend thereafter.
However, Dr Duffuor said despite the positive fiscal balance there were inherent risks that posed difficulties in realizing fiscal consolidation.
On fiscal risk, Dr Duffour said inadequate delivery of basic public services such as water, electricity and sanitation tended to increase the cost of doing business, limit access to markets and reduce efficiency and in the process undermined the opportunity for economic growth.
He cited the weak financial management capacity of the public sector, making it difficult to control, monitor and evaluate the effectiveness of government spending as one of the major risks that government had to deal with..
Other areas of concern are poor performance of the state owned enterprises (SOEs), which has resulted in huge losses and accumulation of excessive debts that pose significant risks to economic consolidation.
He said ineffective public sector wages was another major risk that had the potential of derailing the economy.
Dr Duffuor said the growing wages and salary bill was not linked to productivity and that "while cost increase on one side there is no commensurate increase in the services that the expenditure buys."
The high wage bill, he said, also added to the fiscal rigidity and made the budget more vulnerable to shocks as necessary adjustments became difficult.
Another risk Dr Duffuor said was the fiscal risk associated with outstanding payment arrears from 2008 and commitments running into millions of cedis for which inadequate provision was made for in the 2009 budget.
He said this included the 2008 expenditure arrears and commitments for projects and services rendered, arrears related to fuel subsidies, monies owed to commercial banks and judgment debts for cancelled contracts.
Dr Duffuor said the energy sector had risks related to unreliable power supply for industries resulting from the deteriorated infrastructure and obsolete transmission and distribution networks.
This, he said, had adversely affected economic growth particularly commercial and industrial activities, which according to him could undermine the achievement of growth targets.
Dr Duffuor said despite the enormous challenges that the risks presented, government was in position to manage them and bring fiscal consolidation for the growth of the economy.
Mr Tony Oteng-Gyasi, President of AGI, stressed the need for intervention in meeting the financing needs of Small and Medium Scale Enterprises, which were unable to access funds for growth.