Economists share expectations in Mid-year budget review
Adnan Adams Mohammed
Adnan Adams Mohammed
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.