News Guide Africa

Tag: fiscal deficit

  • Prudent fiscal management high on gov’t table

    Adnan Adams Mohammed

     

    As part of measures to meet the dictates of the International Monetary Fund vis-a-vis the recently-approved US$3 billion bailout, government is expected to prioritize fiscal adjustments to ensure it meets the performance criteria for the disbursement of the other loan tranches.

     

    In this regard, President Nana Akufo-Addo has admitted that Ghana’s fiscal deficit is “way above” the five per cent ceiling set by the fiscal responsibility law, indicating that there was a need to bring it down, as he pledges his government’s commitment to cutting expenditure.

     

     

    The Fund has already indicated that, Ghana government will be under pressure to cut down its expenditure following the approval of the country’s US$3 billion deal.

     

    “Rationalisation of our expenditure is something that we have given the assurance [about],” President Akufo-Addo said while speaking at the Qatar-Africa Economic Forum in Doha. “Domestic revenue mobilisation is absolutely critical for us, and, already, we are seeing signs.”

     

    Also, he said: “We have a fiscal responsibility law in Ghana that has pegged our fiscal deficit at five per cent but, already, we are way above that,” noting: “And the sooner we can bring that to more acceptable levels, the better for us.”

     

    In an interview last week, the IMF Representative in Ghana, Dr. Leandro Medina posited that; “On the fiscals there is quite a sizeable adjustment in the 2023 budget and what we expect in the duration of the program, On the structural transformation, it has to do with the reforms and measures that improve the business climate and the growth of private sector”,

     

    “So, there are a lot of reforms within the context of the program that look at what you can do within these three years to ensure that there is a strong foundation in growth and that is the effect of that structural transformation”, he added.

     

    The Fund has also justified the adoption of three mobilization measures as well as the increase in utility costs as Ghana attempts to fix its balance of payment problems.

     

    Despite criticisms, the Excise Duty, Growth and Sustainability, and Income Tax Amendment laws aim to generate GHS4 billion for the country each year.

     

    These, along with the expected tariff increases in June, are deemed crucial components of the country’s US$ 3 billion, three-year Extended Credit Facility with the IMF.

     

    Dr. Leandro Medina, argued in favour of adjustments in the face other tough economic conditions.

     

    “The revenue measures that have been passed between December and April are part of the prior actions. It’s very important to mobilize revenue. Revenue to GDP in Ghana is very low as compared to other countries. Ghana is making a huge effort to increase revenue, and this will be done mainly by increasing the tax base. What is important to say is that this is a large and front load fiscal consolidation”, he added.

  • Govt likely to achieve 6.6% deficit-BoG

    Govt likely to achieve 6.6% deficit-BoG

    By Elorm Desewu

    The Bank of Ghana, (BoG), has revealed that the government could achieve the revised budget deficit of 6.6 percent of GDP and a primary surplus of 0.1 percent of Gross Domestic Product, (GDP) through aggressive revenue mobilization.

     According BoG, the fiscal data shows that both revenues and expenditure outturns for the first nine months of 2022 fell short of their respective targets. The deviations in revenue stem partly from lower-than expected receipts.

    The expenditures performance on the other hand could be attributed to the build-up of arrears, considering the low statutory transfers.

    “Aggressive revenue mobilization and strengthened commitment controls in the ensuing months of 2022 will contribute immensely to achieving the revised end year budget deficit of 6.6 percent of GDP and primary surplus of 0.1 percent of GDP” it said.

    Government budgetary operations resulted in an overall budget deficit of GH¢44,021.8 million (7.4% of GDP) at the end of the first nine months of 2022. This was higher than the target of GH¢36,684.4 million (6.2% of GDP) by 20.0 percent. The overall fiscal deficit of GH¢44,021.8 million was financed largely from domestic sources with some external support.

    Domestic financing (net) was GH¢36,801.4 million (6.2% of GDP), substantially higher than the target of GH¢26,324.7 million (4.4% of GDP). Foreign financing on the other hand, was a net inflow of GH¢6,531.0 million (1.1% of GDP), far lower than the target of GH¢12,459.4 million (2.1 % of GDP).

    The pace of revenue mobilisation remained below target, reflecting in both tax and non-tax revenue. For the first nine months of 2022, total Revenue & Grants was GH¢65,398.8 million (11.1% of GDP), lower than the target of GH¢67,307.4 million (11.4% of GDP).

    The revenue outturn represented 97.2 percent of the target and recorded a year-on-year growth of 38.5 percent. During the review period, domestic revenue totalled GH¢64,601.4 million (10.9% of GDP), below the target of GH¢66,503.4 million (6.9% of GDP).

    The revenue outcomes reflected mixed performances for both tax and non-tax proceeds.  Tax revenue, comprising taxes on income & property, taxes on domestic goods and services and international trade taxes, was GH¢49,055.3 million (8.3% of GDP), lower than the target of GH¢50,414.8 million (8.5% of GDP).

    This represented a negative deviation of 2.7 percent.  Taxes on income and property, made up of personal income tax (PAYE), self-employed taxes, company taxes (including taxes on oil), royalties from oil and minerals, other revenue, and airport taxes totalled GH¢24,787.2 million (4.2% of GDP).

    This outturn was 3.2 percent below the target of GH¢25,601.9 million (4.3% of GDP).  Taxes on Domestic Goods and Services comprising Domestic VAT, Excise Duty, GET Fund Levy,National Health Insurance Levy (NHIL), Communication Service Tax (CST), ElectronicTransaction Levy (E-Levy) and COVID-19 Health Levy all summed up to GH¢20,889.0 million (3.5% of GDP) and exceeded the target of GH¢20,787.1 million by 0.5 percent.

    On a year-on-year basis, the outturn recorded a growth of 30.2 percent.  Taxes on International trade mainly from import duties was GH¢6,221.6 million (1.1% of GDP),· below the target of GH¢6,133.8 (1.0% of GDP) by 1.4 percent, and represented 26.8 percent yearon-year growth.  

    Tax refunds was GH¢2,842.5 million, higher than the target of GH¢2,107.9 million for the period and registered a year-on-year growth of 39.1 percent Non-Tax revenue for the review period totalled GH¢11,048.9 million, representing 90.8 percent of the target, and a year-on-year growth of 81.7 percent.

    The underperformance of this revenue handle was mainly due to lower collection efforts by some large and medium collectors as well as unrealised dividend payments. Other revenue measures made up of ESLA proceeds, raked in a total of GH¢4,217.3 million and was 19.3 percent above the target of GH¢3,535.3 million.

    Government received project grants in the sum of GH¢797.4 million lower than the envisaged target of GH¢804.0 million by 0.8 percent. This outturn was also lower than the GH¢847.4 million recorded in the corresponding period of 2021, thus reflecting a yearon-year decline of 6.0 percent.

    Government spending and arrears clearance was broadly within target, however, some key expenditure lines recorded overruns. Total expenditures & arrears clearance, for the first nine months of 2022, summed up to GH¢99,570.1 million (16.8% of GDP), below the target of GH¢102,566.8 million (17.3% of GDP).

    This outturn represented a year-on-year growth of 30.1 percent. The outturn was also 97.1 percent of the target. Of the expenditures,  Compensation of Employees (including wages and salaries, pensions & gratuities, and other wage related expenditure) was GH¢27,146.3 million, lower than the target of GH¢27,947.0 million.

    This outturn represented 97.1 percent of the target. In terms of fiscal flexibility, compensation of employees constituted 42.0 percent of domestic revenue mobilized, better than the 50.4 percent recorded in the corresponding period of 2021.  

    Use of Goods and Services totalled GH¢4,233.9 million, lower than the expected target of GH¢5,117.2 million. The outturn was 17.3 percent below the target, but recorded a year-on-year growth of 25.9 percent.  

    Total interest payments of GH¢32,101.1 million was higher than the projected target of GH¢30,890.5 million by 3.9 percent, and accounted for 32.2 percent of total expenditure. It also constituted 49.7 percent of domestic revenue, compared with 54.7 percent recorded in the corresponding period of 2021.

    Domestic interest payments accounted for 78.0 percent of the total interest payments during the period under review.  Grants to other Government units consisting of National Health Fund, Education Trust Fund (GETFund), Road Fund, Energy Fund, District Assemblies Common Fund (DACF), Retention of IGFs, transfer to GNPC and other earmarked funds all summed up to GH¢17,562.0 million, above the envisioned target of GH¢16,820.1 million by 4.4 percent.

    It also recorded a year-on-year growth of 57.7 percent. Other Expenditure made up of ESLA Transfers, Covid-19 related expenditure, and Other critical spending, for the first nine months of 2022 was GH¢7,093.9 million.

    ESLA transfers of GH¢3,816.3 million was above the projected target of GH¢3,319.8 million by 15.0 percent. Acquisition of Non-Financial Assets for the period under review was GH¢10,891.7 million (1.8% of GDP), lower than the programmed target of GH¢12,028.3 million (2.0% of GDP) by 9.5 percent. This outturn represented a year-on-year increase of 20.0 percent.

  • Fiscal deficit to widen further.. as gov’t plans to pay COLA to teachers 

    Fiscal deficit to widen further.. as gov’t plans to pay COLA to teachers 

    Adnan Adams Mohammed

    The government through the Fair Wages and Salaries Commission has planned to meet all stakeholders entitled to the 20 percent Cost of Living Allowance (COLA) demanded by teachers to determine the payment terms.

    Teacher unions including NAGRAT, GNAT, and others have given a June 30th deadline for the government to pay the allowance or face a series of industrial actions.

    According to NAGRAT, the current economic hardship has made teachers worse off, hence the demand for allowances to be paid. But the Fair Wages and Salaries Commission maintains that all relevant stakeholders must come on board for a final determination of the payment. If the government pays the 20% demanded by the teachers, it is likely to widen the fiscal deficit further and also miss the fiscal deficit target of 7.4 percent of Gross Domestic Product, (GDP) end year. But the government has banked it hopes on the collection of the Electronic Transaction Levy (E-Levy) which is estimated to rake in close to GHC5billion at the end of 2022.

    “It’s fair that stakeholders are able to propose the payment of COLA or any other allowance, but at the end of the day, we have to get to the table with organized labor, government and all other parties to determine whether COLA will be paid”, said Earl Ankrah, Head of Public Affairs at the Commission. “We are also yet to negotiate the base pay for 2023 so that it is factored into the budget. That is yet to be done to determine the minimum daily wage.”

    Already, Fitch Solutions is forecasting the country’s fiscal deficit to GDP ratio in 2022 at 9.8%. This is in line with the International Monetary Fund (IMF) forecast of 9.8% for this year, but far wider than the government’s target of 7.4% of GDP.

    “Looking into Ghana’s fiscal position following increased spending on health and household support due to COVID-19 pandemic, Ghana’s fiscal deficit widen to an estimated to 11.3% in 2021. This is well above historical level” said the Risk Analyst at Fitch Solutions, Ben Weaver.

    The International Monetary Fund in its April 2022 Fiscal Monitor Report, projected Ghana’s tax revenue to GDP ratio to increase in 2022 to 16.5%, from 14.7% in 2021. This will be a vast improvement compared to the rates registered during the last 10 years.  

    In 2023 and 2024, the country’s tax-to-GDP ratio will however fall to 16% and 16.2% respectively, it added.

    The Fund also said government expenditure will decline to 25.2% of GDP in 2022, from 26.3% recorded in 2021. This is expected to put the fiscal deficit to GDP ratio at 9.8%.

    However, in 2023 and 2024, the Fund is forecasting expenditure-to-GDP ratios of 25.2% and 23.9% respectively.

    Meanwhile, Vice President of NAGRAT, Jacob Annaba, explains that the ultimatum comes on the back of current economic conditions and the worsening plight of teachers, as well as the government’s failure to negotiate.

    “The President had earlier said, and I quote, “we (government) know how to bring the economy back to life. What we do not know is how to bring people back to life”. The question is what has changed? Mr. President, your people (workers) are dying; please attend to them now and do not prioritize the economy over the human resources. The worker can no longer bear the economic hardship.”

    The leadership of NAGRAT noted they would be pushed to embark on an industrial action if their demands are not met.

    “We, therefore, demand that, as a matter of urgency, the Government must grant workers a Cost Of Living Allowance (COLA) of 20% at the end of June 2022. Leadership would be left with no option than to declare a strike by the end of July 2022, if all the requests made are not adhered to. Leadership hereby yields to the demand of members for positive action, beginning with the wearing of red bands by the end of June 2022, if the demands made are not met”, he added.