News Guide Africa

Tag: Ghana fiscal deficit

  • 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.

  • Job scarcity increases for 1st 10 months of 2022

    Job scarcity increases for 1st 10 months of 2022

    By Elorm Desewu

    The non-availability of jobs in the country has continued to rise, according to figures from the Bank of Ghana, (BoG).

    For the first ten months of 2022, the total number of advertised jobs declined by 9.5 percent to 26,595 from 29,380 recorded during the same period in 2021.

    The number of jobs advertised in the media, which partially gauges labour demand in the economy, increased in October 2022 relative to what was observed in the corresponding period a year ago.

    In total, 3,055 job adverts were recorded as compared with 2,734 for the same period in 2021, indicating an increase of 11.7 percent year-on-year. On a month-on-month basis, the number of job vacancies in October 2022 went up by 17.0 percent from the 2,611 jobs advertised in September 2022.

    Consumer spending, proxied by domestic VAT collections and retail sales, posted a positive performance in September 2022, compared with the corresponding period in 2021.

    Domestic VAT collections increased by 19.9 percent on a year-on-year basis to GH¢755.53 million, from GH¢630.34 million. Cumulatively, total domestic VAT for the first three quarters of 2022 went up by 20.3 percent to GH¢6,073.00 million compared with GH¢5,049.61 million for the corresponding period of last year.

    Retail sales increased by 8.9 percent year-on-year to GH¢118.78 million in September 2022, up from the GH¢109.10 million recorded in the same period in 2021. On a month-on-month basis, retail sales declined marginally by 1.1 percent in September 2022 from GH¢120.10 million in the preceding month.

    In cumulative terms, retail sales for the first three quarters of 2022 went up by 4.9 percent.

    Activities in the manufacturing sub-sector, gauged by trends in the collection of direct taxes and private sector workers’ contributions to the Social Security and National Insurance Trust (SSNIT) Pension Scheme (Tier-1), improved in September 2022.

    Total Direct Taxes collected increased by 30.0 percent (year-on-year) to GH¢4,004.27 million in September 2022, relative to GH¢3,080.55 million recorded in a similar period in 2021.

    Cumulatively, total Direct Taxes collected for the first three quarters of 2022 went up by 25.2 percent to GH¢23,058.72 million, from GH¢18,418.30 million for the same period in 2021.

    In terms of contributions of the various sub-tax categories, Corporate tax accounted for 57.1 percent, Income tax (PAYE and self-employed) accounted for 28.6 percent, while “Other Tax Sources” contributed 14.3 percent. Total private sector workers’ contribution to the SSNIT Pension Scheme (Tier-1) increased by 14.0 percent (year-on-year) to GH¢245.89 million in September 2022, from GH¢215.67 million collected during the corresponding period in 2021.

    Cumulatively, for the first three quarters of 2022, the contribution grew by 20.8 percent to GH¢2,293.11 million, relative to GH¢1,898.96 million recorded in the same period in 2021.

  • Govt’s revenue underperformance poses risk to fiscal consolidation

    Govt’s revenue underperformance poses risk to fiscal consolidation

    By Elorm Desewu

    The government’s revenue underperformance has complicated fiscal policy implementation in the country, according to the Bank of Ghana’s Monetary Report.

    The report said persistent uncovered auctions and portfolio reversals by non-resident investors continue to pose risks to financing of the budget, resulting in monetization of the budget deficit by the central bank.

    So far, financing of the budget has predominantly been from the banking sector with the central bank absorbing a larger share.

    The budget implementation, for the first nine months of 2022, recorded an elevated overall cash deficit of 6.4 percent of GDP, against the revised programmed target of 5.0 percent of GDP.

    Total receipts of GH¢51.49 billion representing 8.7 percent of GDP fell short of projected target of GH¢60.08 billion which was 10.2 percent of GDP, and represented 85.7 percent of the budgeted estimate. Total payments of GH¢89.04 billion representing 15.0 percent of GDP was almost on target, representing 99.5 percent of GH¢89.46 billion or 15.1 percent of GDP.

    The deficit of GH¢37.56 billion, together with net foreign loan repayments of GH¢3.54 billion, created a resource gap of GH¢41.1 billion, which was financed from domestic sources and use of resources from the stabilization fund.

    The stock of public debt at the end of July 2022 stood at GH¢402.4 billion, showing an increase of GH¢50.6 billion over the end December 2021 stock of GH¢351.8 billion. In terms of GDP, the total public debt as at end-July 2022 was 68.0 percent, compared with 76.6 percent recorded in December 2021.

    The domestic component was GH¢190.2 billion (32.1 percent of GDP), representing a year-to-date increase of 4.7 percent and accounting for 47.3 percent of the total public debt, lower than the 51.7 percent recorded in December 2021.

    The increase was driven mainly by increases of GH¢7.5 billion and GH¢752.5 million in the medium and long-term instruments respectively, which was offset by a decrease of GH¢0.4 million in the short-term instruments.

    In terms of the holding structure, the non-bank and banking sectors recorded year-to-date increases of GH¢11.7 billion and GH¢2.4 billion respectively. However, the non-resident investors holdings decreased by GH¢5.6 billion over the period.

    On year-to-date basis, total external debt, in US dollar terms, decreased by US$303.4 million to US$28.0 billion. However, due to exchange rate effect, total external debt increased by GH¢42.1 billion to GH¢212.1 billion (35.8 percent of GDP) at the end of July 2022. External debt also constituted 52.7 percent of total public debt at the end of July 2022, compared to 48.3 percent in December 2021.

  • Fiscal deficit to end year at 8.1% of GDP

    Fiscal deficit to end year at 8.1% of GDP

    By Elorm Desewu

    Fitch, one of the international ratings agencies, says the country would record a higher end of year fiscal deficit of 8.1% of Gross Domestic Product (GDP) which includes the energy-sector clean-up costs not contained in the government’s figure.

    The delays in implementing the new revenue measures have resulted in lower revenue and a larger nominal deficit in first half of 2022 relative to budget forecasts. However, the 2022 mid-year fiscal policy review presented in July contains an updated fiscal deficit forecast of 6.6% of GDP compared with the original deficit forecast of 7.4%, owing to an upward revision in nominal GDP.

    According to Fitch, the possibility of new revenue measures could lead to a further shrinkage of deficit in 2023, but the government’s slim majority in parliament could frustrate attempts to raise tax rates or implement new taxes.

     Government interest costs have reached 47.5% of revenue in 2021, considerably above the current ‘B’ median of 10.7%. We expect interest costs to remain at or above 45% through 2024.

    Interest costs largely reflect high yields on domestic debt. Yields have climbed higher in 2022, following inflation spikes and monetary tightening by the Bank of Ghana (BOG). Yields on the 91-day treasury bill reached 26% in July 2022, up from 12.6% in July 2021. Moreover, the government has reported under-subscribed yields, necessitating the tapping of existing medium-term issuance. The government has increased its outstanding advances with the BOG, providing some additional domestic financing and could conduct another private debt placement with the central bank as it did in 2020, but such a measure would necessitate parliamentary approval.

    Global shocks have depressed Ghana’s near-term growth outlook. Fitch forecasts real GDP growth to slow to 4% in 2022, following a post-Covid growth recovery of 5.4% in 2021, driven by strong recovery in the agriculture and service sectors. The industrial sectors, including the oil sector, experienced a contraction in 2020, adding that oil production is expected to remain level, at approximately 170 thousand barrels per day in 2022.

    “We forecast growth to rebound to 5.3% in 2023 and for medium-term growth to average between 5% and 6%, but continued stagnation in the oil sector, failure to implement fiscal consolidation, and /or additional global shocks are risks to the growth outlook” the report said.

    Fitch expects inflation to peak in 3Q22 before slowing through the end of the year. We forecast annual average inflation of 22% in 2022, slowing to 16% in 2023. The BOG’s Monetary Policy Committee (MPC) has raised the main policy rate twice in 2022, by a total of 450bp to 19%. Fitch believes that the central bank would raise the policy rate again if inflation does not peak in line with current expectations. A higher policy rate would likely be transmitted to domestic yields, putting further pressure on the government’s domestic borrowing costs.

    Fitch Ratings downgraded Ghana’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘CCC’ from ‘B-‘. Fitch typically does not assign Outlooks to sovereigns with a rating of ‘CCC+’ or below.

    The downgrade reflects deterioration of Ghana’s public finances, which has contributed to a prolonged lack of access to Eurobond markets, in turn leading to a significant decline in external liquidity. In the absence of new external financing sources, international reserves will fall close to two months of current external payments (debits in the current account) by end-2022.

    The government has requested support from the IMF, which is likely to lead to additional financing from the IMF and other multilateral lenders. However, the government’s high interest costs and structurally low revenue as a percentage of GDP have increased the likelihood that IMF support would necessitate some form of debt treatment. The high interest burden on local-currency debt also means that the inclusion of a domestic debt treatment cannot be ruled out.

    In July 2022, the government reversed a long-standing position against seeking IMF support. Fitch believes that a deal with the IMF is likely within the next six months. It estimates that a programme could disburse as much as USD3 billion and unlock budget support from other multilateral lenders. However, the timing of such a deal is uncertain and would be dependent on the government’s ability to present a credible fiscal reform plan in line with increasing government revenue and improving debt affordability metrics. The most recent IMF debt sustainability analysis, conducted in 2021, found Ghana at a high risk of debt distress and vulnerable to shocks from market access and high debt servicing costs.

     Fitch estimates that Ghana faces USD2.75 billion of external debt servicing in 2022, including amortisation and interest, and USD2.8 billion in 2023. Access to external financing will remain tight, as Ghana is likely to remain locked out of Eurobond markets, which had come to be a regular source of external financing for the government.

    In 2022, Fitch expects that the government will meet its external debt obligations, in part, through a combination of a USD750 million term loan from the African Export-Import Bank (BBB), USD250 million in syndicated loans from international commercial banks, and up to USD200 million from the government’s sinking fund.

    The 2022 mid-year policy review indicates that the government expects to source the rest from the IMF and other multilateral lenders. In the absence of an approved programme by the end of the year, the government would have to draw more heavily on its international reserves, which were USD7.6 billion, including oil funds and encumbered assets, as of June 2022.

    The government’s high interest costs and low revenue will continue to be impediments to fiscal consolidation efforts. The 2022 Budget’s medium-term fiscal framework had envisaged narrowing the deficit to below the existing deficit ceiling of 5% of GDP by 2024. The expected consolidation was based on the expiry of pandemic-related expenditure items and a significant increase in domestic revenue, driven by new taxes, including a levy on electronic transactions.