Thursday, 5 November 2020

Fiscal deficit for 2021 Q1 projected at 44.6%

Adnan Adams Mohammed

The Government of Ghana have projected the 2021 first-quarter total revenue and grants at GH¢13.3 billion while total expenditure including the clearance of arrears is projected at GH¢24.0 billion.

 This results in the projected fiscal deficit of GH¢10.7 billion for the period as expressed in percentage terms as 44.58%. The government plans to borrow from the domestic and international market to meet the deficit for the quarter. 

Overall, the Finance Minister hopes that, government will scale down the earlier projected 2021 fiscal deficit from 9.6 percent of gross domestic product (GDP) to 8.3 percent of GDP. This, according to the Minister, reflects expected improved revenues from the anticipated pick-up of economic activities and a more rationalised public expenditure programme in 2021. The Finance Minister made this known when he presented revenue and expenditure estimates for the first quarter of 2021 to Parliament, last week. Members of the House are expected to debate and approve or disapprove the estimates to enable the government to run until a full post-election budget statement is prepared by March next year.

 

“Mr Speaker, for the purposes of the 2021 Expenditure in Advance of Appropriation, we have projected the 2021 first-quarter total revenue and grants at GH¢13.3 billion while total expenditure including the clearance of arrears is projected at GH¢24.0 billion. This results in the projected fiscal deficit of GH¢10.7 billion for the period,” Ken Ofori-Atta stated during his presentation in Parliament. Adding that, “We intends to turn to the international capital market, precisely the issuance of sovereign bonds of US$3 billion (or US$5 billion if market conditions are good).”

 

Out of the amount to be raised, the government plans to use US$1.5 billion to support the 2021 budget and US$3.5 billion for liability management.

 

Although the projected 2021 deficit exceeds the legally-established limit of 5 percent of GDP, the minister was certain that the country would return to compliance with the limit before 2024.

 

“With this path, we expect a return to the fiscal responsibility threshold of 5 percent of GDP fiscal deficit and a positive primary balance earlier than the 2024 fiscal year previously announced,” he said.

 

He further assured that government is approaching the next fiscal year with increased optimism, saying, “We expect growth to rebound strongly in 2021 at 5.7 percent as a result of our implementation of the transformation and revitalisation phase of the Ghana CARES (Obaatanpa) Programme.”

 

The country’s fiscal deficit is projected to reach 11.4 percent of GDP by the end of 2020 from the 4.7 percent initially estimated for the fiscal year. This has largely been attributed to the impact of the novel coronavirus on the economy.

 

The overall fiscal deficit resulting from the revenue and expenditure performance for January through September 2020 stood at GH¢34.6bn, representing about 9 percent of GDP, against a target GH¢34.3bn.

 

The corresponding primary balance was a deficit of GH¢15.7bn, representing 4.1 percent of GDP, against the target of GH¢15.4bn.

 

The government, led by Nana Addo Dankwa Akufo-Addo, has been criticized for failing to maintain fiscal discipline since it took office in 2017.

 

Fitch, an international rating agency, has forecasted a fiscal deficit to GDP of 10.5% for Ghana in 2020, which is more than twice the 2019 target of 4.7 per cent.

 

Analysts criticise widening fiscal deficit because it suggests a lack of fiscal discipline and usually forces governments to borrow from both the domestic and international markets to make up for the shortage in spending targets.

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