20% budget cut to restore investor confidence – Economist
Adnan Adams Mohammed Government’s decision to cut its expenditure by 20 percent beginning first quarter of 2022 has been touted as solid decision. An economist believes it will enhance the credibility of the 2022 budget, which will eventually restore investor confidence in the 2022 economic policies and management, and therefore wants the government to go by its words In the wake of fiscal challenges, the finance ministry earlier this month announced that, it was going to reduce the quarterly expenditure ceilings across all the Ministries, Departments and Agencies benefiting from the 2022 Budget by 20%. The ministry explained that, the decision forms part of efforts to strengthen expenditure management in 2022 and beyond to ensure prudent fiscal consolidation. “I think this is a positive signal within the context of all that has happened in the past week or two. At the same time, it also enhances the credibility of the 2022 budget”, The Databank economist, Courage Martey, said in an interview last week. “When the 2022 budget was presented last November, the perception of the market was that, this is a budget that is seeking to reduce the budget deficit aggressively, but on revenue growth, it was ambitious. Without much being said or much commitment seen on how to control expenditure, and because of that, a lot of investors did not perceive the 2022 budget as realistic.” “That meant that our yields or the cost at which the investors were even going to lend to us if they had to, went up because they didn’t believe in the 2022 fiscal plan. Now on the back of that, the announcement of that reduction in the expenditure ceiling by 20% beginning this quarter is a positive one because then it has now emphasised the government’s commitment to not just enhancing revenue collection, but implementing strict control of expenditure. “That appears to have been in line with what the market called for when they saw the budget. If you just check on the market, what happened the next day after that announcement, is that our Eurobond yields actually declined by over 30 basis points. It tells you that immediately, the market perceives that extra commitment to control expenditure as a positive signal. It didn’t decline by so much and we could still see some much more decline to come, but an even faster decline we believe will happen when we start to match our words to action,” he said. Following the pandemic’s impact on the economy, the latest bold step adds to the government’s fiscal consolidation strategies, which include a focus on more internal revenue generation. The government’s projected expenditure for 2022, which has already been approved by Parliament, is GH¢135.6 billion, jumping from the GHS 107.9 billion, which was allocated for the 2021 financial year. The figure represents a 25.7% increase from the 2021 figure. A look at the key components of expenditure in the Government Budget which includes the Compensation of Employees, Use of Goods and Services and Grants to Other Government Units, show that each has a projected expenditure value of GHS35.8 billion, GHS9.1 billion and GH¢26.8 billion, respectively. Compensation of employees, Use of Goods and Services and Grants and other government units together also constituted 26 percent, 6.7 percent and 19.8 percent of total expenditure for the year 2022.