Adnan Adams Mohammed
Amidst risks to public finances remain high, the government has agreed with public sector labour unions on a 15 percent Cost Of Living Allowance (COLA) last week.
After series of engagement and industrial actions, government agreed on 15% instead of the 20% demanded by the workers’ unions. It takes retrospective effect from July 1, 2022.
This is additional unplanned expenditure to government which is expected to heavily increase public sector wage bill, thereby widening the fiscal deficit.
“The Cost of Living Allowance (COLA) will be paid at a rate of 15 percent of base pay and the effective date of the payment of COLA is 1st July 2022, ” Employment and Labour Relations Minister, Ignatius Baffuor Awuah announced at a press briefing last week.
Government’s projected fiscal deficit is pegged at 7.4 percent of Gross Domestic Product this year against 12.1% in 2021.
Although, this year’s deficit is expected to improve with almost 5% difference, government promised to be fiscally disciplined this year through reduction in discretionary spending, lower salaries for top public servants and moratorium on imported vehicles for government employees.
“These measures are expected to improve the macroeconomic indicators”, said the finance minister, Ken Ofori-Atta about three months ago. “This is to reassure investors that government is committed to fiscal discipline.”
However, Fitch ratings report released in May, projects fiscal cash deficit of 9.1% of GDP, a massive improvement from 15.1% in 2020 and 12.5% in 2021 (including 3% of GDP in domestic arrears clearance and payments related to the state-owned energy sector).
The 2022 deficit would still be more than twice the 2022 ‘B’ median of 4.6%.
“Overall, risks to public finances remain high”, Fitch Rating noted.
