Interest payments consume 48.2% of domestic revenue

The government of Ghana spent a total of GH¢5.23 billion in the first six months of the year to pay interest on monies it has borrowed.

The amount represents 48.2 percent of the total domestic revenues mobilized in the second quarter of the year.

This is according to the second quarter bulletin released by the Bank of Ghana on Monday, October 12, 2020.

The bulletin pointed out that government’s interest payments for the first six months of the year were 7.6 percentage points higher than what government paid out in the corresponding quarter of 2019.

“The total Interest payments for the period absorbed 48.2 percent of the total Domestic Revenue mobilized compared to 40.6 percent in the corresponding period of 2019”.

Conversely, a total of GH¢5,039.82 million was paid as interest in the second quarter of 2019. The current figure therefore represents a year-on-year growth of 3.78 percent.

According to the Bank of Ghana, the totalInterest payments of GH¢5,230.2 million in the second quarter of 2020 was 1.7 percent below the programmed target of GH¢5,322.1 million.

Interest payments in the period under review comprise both domestic and external borrowing.  Bank of Ghana stated that domestic Interest Payments accounted for 73.9 percent of the total Interest payment, while external Interest payments accounted for the remaining 26.1 percent.

Bank of Ghana further indicated that, government expenditure and net lending for the second quarter of 2020 amounted to GH¢22,807.4 million, representing 5.9 percent of GDP. This exceeded the programmed target of GH¢20,036.1 million (5.2% of GDP) by 15.8 percent.

 The central Bank pointed out that this was again, higher than the outturn of GH¢17,959.9 million in the corresponding period of 2019 by 27.0 percent.

This means interest payment accounted for 22.9 percent of the total expenditure and net lending of the government in the second quarter of the year.

“Interest payments, grants to other government units, and capital expenditure were below their respective targets by 1.7 percent, 24.6 percent and 13.5 percent”.

Another major component of government expenditure is Compensation of Employees. The second quarter bulletin shows that Compensation of Employees comprising wages and salaries, and social security contributions for the second quarter of 2020 amounted to GH¢7,718.8 million.

According to Bank of Ghana, “this was 16.2 percent higher than the programmed target of GH¢6,641.3 million and still higher than the payment of GH¢5,568.4 million recorded in the corresponding period of 2019 by 38.6 percent”.

This also means that Compensation of Employees alone represents 33.8 percent of the total expenditure and net lending of government in the second quarter of the year.

Furthermore, capital expenditure is another significant area where government normally expends its revenues. In the review period, Bank of Ghana stated that “outlay on Government Acquisition of Non-Financial Assets during the second quarter of 2020 was GH¢1,912.9 million. This was below the budgeted target of GH¢2,210.7 million by 13.5 percent”.

On the composition of capital expenditure, Bank of Bank explained that, “total Domestic Financed Capital Expenditure for the period was GH¢956.9 million while Foreign Financed Capital Expenditure was GH¢956.1 million, compared to GH¢1,173.6 million and GH¢900.0 million respectively in the second quarter of 2019”.

Grants to Other Government Units amounted to GH¢2,760.7 million in the first six months of the year. The central bank noted that this fell short of the budgeted target of GH¢3,662.7 million by 24.6 percent. Also, the recent bulletin shows that Government transferred GH¢409.0 million, GH¢430.5 million and GH¢180.0 million to National Health Fund, Ghana Education Trust Fund and Road Fund, respectively.

Additionally, the central bank stated that, “payments made to Petroleum Related Fund and District Assemblies Common Fund were GH¢9.7 million and GH¢724.6 million, respectively. Retention of Internally Generated Funds and Transfer to GNPC from Oil Revenue were also GH¢428.6 million and GH¢122.8 million, respectively”.

“Other Earmarked Funds and Energy Sector Levy Account (ESLA) transfers totaled GH¢962.1 million. Transfers of GH¢506.6 million into ESLA fell short of budgeted target of GH¢634.2 million by 20.1 percent while total Earmarked Fund of GH¢455.5 million fell short of the target of GH¢519.9 million by 12.4 percent”.