Teneo logo

July 27, 2020

Africa

GHANA: At more than twice the deficit ceiling, is this rock-bottom yet?

BY Malte Liewerscheidt

Share on twitter
Share on whatsapp
Share on facebook
Share on linkedin
Share on email
Share on reddit

Listen to our reports with a personalized podcasts through your Amazon Alexa or Apple devices audio translated into several languages

en flag
zh flag
de flag
ja flag
pt flag
es flag
Press play to listen
( 2 mins)

Last week’s mid-year budget review paints a dire picture of Ghana’s fiscal position, but things could get even worse as steeper budget overruns loom in the context of the general elections scheduled for 7 December. In fact, the Covid-19 pandemic provides the perfect cover to raise expenditure in areas critical to winning over voters ahead of the polls, such as subsidized water and electricity tariffs.

According to the latest figures, the government expects the economy to grow by 0.9% this year, which is substantially below the IMF’s 1.5% estimate presented in June. Against this backdrop, Finance Minister Ken Ofori-Atta anticipates this year’s fiscal deficit to come in at 11.4% of GDP, compared with a 7.8% estimate presented in March and a 4.8% original target. While the impact of the Covid-19 pandemic has greatly accelerated the effect of the habitual revenue collection shortfall presented in previous reviews, it has also triggered an unforeseen surge in expenditure.

Indicative of the expected long-term effects of the Covid-19 pandemic, the medium-term outlook suggests the 5% deficit ceiling will only be met again in 2024 at the earliest. Respective emergency clauses enshrined in the 2018 Fiscal Responsibility Act will be activated with the support of the ruling New Patriotic Party’s (NPP) parliamentary majority.

Meanwhile, Ofori-Atta announced that the government will extend a popular water and electricity subsidy introduced in April for at least three more months, amid other measures. In fact, the Covid-19 pandemic provides the perfect cover to raise expenditure in areas critical to winning over voters ahead of the December polls.

Equally, the election suggests the government will be more lenient in areas deemed of strategic importance vis-à-vis the election. For instance, the task force introduced last year with the mandate to renegotiate costly take-or-pay contracts with independent power producers does not appear to have made much headway, according to the nebulous update presented by Ofori-Atta. As analyzed previously, the political imperative in the short-term is on continued power supply rather than reining in the budget.

NIGERIA: Goodluck Jonathan’s potential comeback

( 3 mins) Rumors that former president Goodluck Jonathan (2010-2015) may soon be defecting from his People’s Democratic Party (PDP) to the All Progressives Congress (APC) to become the ruling party’s flagbearer for the 2023 presidential election may

Read More »