Economic Intelligence Unit, EIU, has forecast a deficit of 4.2% of GDP contrary to government’s projection of 3% deficit for 2019.
In its latest report on Ghana, EIU said “Overall, although we do expect fiscal consolidation in 2018-19, the government’s medium-term projection of a deficit equivalent to 3% of GDP in 2019 (from almost 8% under the NDC in 2016) is unlikely to be met.”
The report said, “The election year of 2020 will almost certainly see faster spending growth, as well as tax cuts, with the deficit increasing to 4.9% of GDP (although this fiscal slippage will be much less than seen in the election years of 2016 or 2012).”
“A return to consolidation and a deficit of 3% of GDP is then forecast in 2022. The rate of decline in the fiscal deficit will only be enough to make a modest dent in the public debt burden, which will edge down from 72.1% of GDP in 2018 to 63.3% of GDP in 2022. Longer-term debt sustainability will require ongoing fiscal responsibility and continued robust levels of economic growth,” the report continued.
The report also highlights the following:
Economic policy in Ghana has since 2015 been drawn up in the context of an extended credit facility (ECF) with the IMF. The original end date had been April 2018, but has been extended to April 2019 to allow the current government to correct the major programme slippages of the previous administration.
Key priorities will remain fiscal consolidation, but also the restructuring of the debt-ridden, state-dominated energy sector and efforts to strengthen the local banking sector (the vulnerability of which was highlighted in mid-2017 by the near collapse of two small banks). Beyond early 2019, a financed IMF follow-up programme is unlikely.
The government is keen to be free of IMF constraints in setting its own policy agenda, and will have an eye on the approach of elections in 2020, when it will be keen to avoid the negative connotations locally associated with being seen to be bailed out by external institutions.
However, the administration is pragmatic enough to realise that broadly prudent economic policymaking will remain key to ensuring donor assistance and favourable access to global capital markets.
As for its own policy priorities, the NPP administration has prioritised industrialisation to an electorate keen to see rapid increases in job creation and living standards.
However, fiscal and infrastructural constraints will delay some of the more ambitious schemes, such as establishing hundreds of new factories.
Positively, the administration is also focusing on the need to improve the business environment so that the private sector can take much of the strain of driving the economy forward.
The partial or full privatisation of numerous state-owned enterprises will gather momentum, although progress will be restrained by opposition from labour unions (and also from the NDC, which is keen to boost its political capital).
The need to sanitise a web of state-entity debt in the power sector will also delay any sell-offs there. The government sold a bond in November to clear the energy sector arrears, but market appetite was limited. Therefore the debt restructuring will take longer than planned.
During 2018/19 the government will be helped on the revenue side by a strengthening of the wider economy and efforts to reduce the number of tax exemptions and boost compliance. Set against this will be efforts to lower tax rates for businesses in particular, with the end goal of spurring growth and thus generating higher tax payments in the future, but with lower collection initially.
Although oil prices are expected to pick up, the tax take from the hydrocarbons sector will remain low as companies recoup their investments.
On the spending side there is a strong need to restrain the cost of personnel in the public sector, but this will prove tricky politically and thus will move at a slow pace.
EUI report also indicates that, “Capital spending will probably run below budget owing to capacity constraints, and to the fact that it is easier to make cuts in this area when revenue undershoots or recurrent spending overshoots. The government also faces the need to tackle significant payment areas that have built up in recent years.”