Economists share expectations in Mid-year budget review
Ghana’s Finance Minister is expected to present a review of
the mid-year budget before Parliament on Thursday, July 23, 2020.
In accordance with Section 28 of the Public Financial
Management Act, 2016 (Act 92), the Finance Minister is mandated to provide
Parliament on the strategies and roadmaps as to how government intends to deal
with the effects of the coronavirus outbreak in Ghana.
The minister in March this year told Parliament that,
Ghana’s economy will lose some GH¢9.5 billion as a result of the coronavirus
outbreak, which is about 2.5 percent of Ghana’s revised GDP.
Also, Ghana’s budget deficit for 2020 is likely to double
the legal limit as a result of the adverse impact of Coronavirus on the economy
which sees an undoing of the fiscal discipline that was supposed to curb
financial bailouts from other countries as the minister indicated in a recent Ken
Ofori-Atta in a recent interview with Bloomberg explained Ghana’s fiscal gap is
forecasted to widen beyond 10% of Gross Domestic Product (GDP) from an adjusted
outlook in March of 7.8%.
The minister is expected to provide Parliament with a
roadmap as to how government plans to pay a GH¢10 billion loan granted by the
Bank of Ghana (BoG) as well as a roadmap for the US$219 million transferred
from the Ghana Stabilization Fund to the Contingency Fund to deal with the
coronavirus outbreak, during the presentation of mid-year review this week.
An economist, Dr. Theo Acheampong has confirmed that, the
COVID-19 pandemic’s significant impact on government revenues could push this
year’s budget deficit to as much as 10 percent of GDP if no drastic efforts are
taken to rein in some expenditure items.
According to the Ministry of Finance, the revenue losses
occasioned by the virus and other hurriedly assembled initiatives to fight the
pandemic could set the government back by about GH¢21bn.
Already, official data for the first quarter of the year
shows that government’s revenue for the period was more than GH¢3.6bn
off-target—an indicator that government’s deepest fears may not be far from
reality.
Speaking on a webinar hosted by policy think tank IMANI on
the topic, “Opportunities and Challenges of Public Financial Management Systems
to Respond to COVID-19 in Africa”, Dr. Acheampong stated that expenditure
rationalisation holds the key to closing the widening budget deficit gap.
“What COVID-19 has done with the loss of the revenue is that
it has created a much bigger funding gap and we have to resort to few other
sources to plug that gap. Even with the gap that existed [pre-COVID-19], we
could still have pursued a few of these rationalisation initiatives to more or
less reduce how big this gap would be.
“Some of these savings could actually then mean we probably
would run under 6 percent to 6.5 percent deficit, which is probably 1.5 percent
lower than the deficit estimates now that we are expecting a between 8 to 10
percent budget deficit,” he said.
While the Fiscal Responsibility Act caps government’s budget
deficit for a fiscal year at 5 percent of GDP, given the massive scale of the
pandemic’s shock, Finance Minister Ken Ofori-Atta has already said that the
ceiling would have to be set aside for at least this year.
According to Dr. Acheampong, despite the act making
provision for the cap to be aside in times like this, the legislation fails to
indicate how the country would navigate its way out of the wider-than-expected deficit.
“In the law, there is a bit of room to trigger some of these
emergency provisions, but there is no additional detail on how you actually go
about doing this and how far you can go to spend your way out of the crisis,”
he added.
Dr. Acheampong argued that initiatives like the Nation
Builders Corps (NABCO), which provides stopgap employment to about 100,000
graduates, need to be reassessed in order to create more value as well as make
more savings to create more fiscal room.
“A programme like NABCO can and should be reviewed because
it has been implemented for a number of months now, especially in a situation
where you are facing significant budget gaps,” he said.
He mentioned that other costly initiatives like the Free Senior High School, however, may be difficult to rationalise regardless of the dwindling revenues, as the policy remains one of the flagship government programmes.
However, Finance Minister has assured that, the Akufo-Addo
Addo-led government is highly optimistic of a victory in the December 7
elections, therefore will not engage in reckless spending and create problems
for itself ahead of the elections.
He explained that if the government digs a hole in the
economy ahead of the elections, it will have to come back to fix it beginning
January 21st after , in his view, President Akufo-Addo has been sworn into
office again for his second term.
Mr Ofori-Atta, in an interview last week, noted that, the
projected budget overrun for this year will not be influenced by capturing
electoral votes.
This follows concerns that the new budget deficit that have
been [rejected by the finance minister is aimed at political vote and but
actually economic recovery.
The Finance Minister insists the current record of
government is enough to actually win the Akufo-Addo administration a second
term after this year’s elections.
“It is amazing when you have millions of people around the
world raising the concerns. I think the issue really is the application of
resources that we have.
“I don’t know but it has been three and half years of seeing
how government has operated, there has to be trust and we the using the money
well.
“At least from the Ministry of Finance, I can assure you
that the presidency will ensure that the resources that we have are used
judiciously. We are confident that by God’s grace the people of Ghana will
reelect us.
“If you are doing that, then you don’t want to dig a hole
for yourself. You truly want to make sure that you stand well in January 2021,”
he said.
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