Ghana has recorded primary balance surpluses for three consecutive years (2017-2019) for the first time in 10 years, according NPP.
“…for the first time in a decade, Ghana also recorded Primary Balance surpluses for three years in a row: 0.5% of GDP in 2017, 1.4% in 2018, and 0.9% in 2019 compared to a deficit of 1.1% in 2016”-NPP.
In 2016, the NPP made a promise to restore overall macroeconomic stability when elected into office. This year’s manifesto indicated that they have done significantly well as far as restoring the macro economy is concerned. Surplus in the primary balance is one of their achievements as far restoring macroeconomic stability is concerned and is worth the commendations.
However, in the mid-year budget review presented to parliament on Thursday July 23, the Minister of Finance, Ken Ofori-Atta indicated that the slowdown in economic activities as a result of the impact of the COVID-19 pandemic has resulted in a downward revision in the growth of real GDP from 6.8 percent to 0.9 percent.
Accordingly, revisions have been made to the original 2020 budget statement presented earlier this year. Total Expenditure (including clearance of arrears) for the year is now estimated at GH¢97.7 billion (25.4% of GDP), about 13.7 percent higher than the 2020 Budget estimate of GH¢86.0 billion (21.6% of GDP).
The upward revision in expenditures is largely influenced by provision for additional expenditures for COVID-19 programmes and activities (including COVID-19 Preparedness Plan, COVID-19 Alleviation Programmes, and health infrastructure) amounting to GH¢11,660 billion.
Interest Payments have also been revised upwards by nearly 21.1 percent from GH¢21.7 billion (5.4% of GDP) to GH¢26.3 billion (6.8% of GDP), mainly reflecting the effect of higher net domestic borrowing to meet additional COVID-19 related expenditures.
Ken Ofori-Atta indicated that Capital Expenditures are expected to remain relatively unchanged at GH¢9.3 billion (2.4% of GDP).
It is very obvious that once revenues and expenditure patterns have been revised, the overall balance and financing will also need to be revised accordingly.
To this end, the fiscal deficit (on cash basis) is now GH¢44.1 billion (11.4% of GDP) for 2020, up from the original 2020 Budget target of GH¢18.9 billion (4.7 percent of GDP).
The deficit is expected to be financed from both foreign and domestic sources. A greater portion of the deficit amounting to GH¢25.6 billion (6.6% of GDP) or 58.1 percent of the total for 2020, is expected to be financed by domestic sources. Net Foreign Financing of the deficit will amount to GH¢18.5 billion (4.8 percent of GDP), equivalent to 41.9 percent of the total.
Now, the revisions have resulted in a primary balance deficit of 4.61% of GDP for 2020. The primary balance is the difference between the total revenues (taxes) and non-interest spending.
“The corresponding primary balance worsens from a surplus of GH¢2.8 billion (0.7% of GDP) in the original 2020 Budget to a deficit of GH¢17.8 billion (4.61% of GDP)”-Ken Ofori-Atta.
The above is an indication that even though the Ghanaian economy has recorded surpluses in three years running, this may not be the case for 2020. Being an election year, it is very important for government to put on her “fiscal discipline shoes”, so as to ensure that we continue to record surpluses in our primary balance to help us reduce our escalating deficits.
Another significant factor that can result in a higher than expected primary balance deficit is the fact that, the coronavirus has reduced revenues significantly and a such the first half target was not met.
The minister of Finance, Ken Ofori-Atta indicated earlier in the mid-year budget review that Ghana has missed its revenue targets for the first six months by GHS 7.8 billion. Domestic revenue shortfalls also stood at GHS7.3 billion in the first half of 2020.
