Uncertainties that surrounded the government’s return to a fiscal consolidation path entering this year are likely to moderate due to the arrival of the vaccine and the ongoing vaccination of the population.
A new sense of optimism swept throughout the country over the arrival of the Covax vaccine. Although a section of the public peddled conspiracy theories about the vaccines’ effect on individuals who take the shots.
Households anticipate a return to the ‘old normal’. While businesses on the other hand are enthusiastic about a more robust and activity-driven business climate. These are likely to occur on the back of a successful rollout of the vaccine.
Budget Expectations
Against this backdrop, expectations show the budget for 2021 will feature a more relaxed propensity to spending by the government. We expect the deficit to GDP ratio to moderate below 8.3%. And gradually to the ceiling of 5% in the long-term.
Going forward, expectations indicate that the Government will decline continuity of the free electricity and water initiative and other covid-induced expenditures. We expect revenue generation and mobilization to improve as economic activity rebounds strongly.
We expect the government to explore other revenue measures and also reduce tax exemptions. In order to ensure that enough revenue is generated to service ballooning debts and accompanied interest payments.
Furthermore, expectations are that the impact of the vaccination of the global economy to ease restrictions and open up borders. Therefore, hospitality, tourism and aviation industries that were badly hit during the surge of the Covid-19 pandemic are likely to make considerable progress.
Also, we expect trade to see a rebound as exports to trade partners experience a boom than previously anticipated.
Thus, we anticipate that the government will set GDP growth at a rate stronger than the World Bank forecast of 1.4% for 2021.
COVID-19, the cause of slowdown in Fiscal Consolidation
During the onset of the Covid-19 pandemic, the government set aside its pursuance of a sustainable fiscal consolidation path to provide cushioning for the economy. As the pandemic disrupted several livelihoods, increased vulnerabilities and unemployment levels.
The government’s revised budget proposed a temporary suspension of the fiscal deficit ceiling of 5% to GDP as stipulated in the Fiscal Responsibility Act (FRA). The fiscal deficit was forecasted to reach 11.4% of GDP in 2020, up from 4.7% in the initial budget. And further revised to 9.6% of GDP in 2021.
Later in the year, the Finance Minister presented the 2021 Expenditure in Advance of Appropriation, the fiscal deficit went down from 9.6% to 8.3% of GDP.
Vaccine Arrival and Deployment
This notwithstanding, the arrival of the vaccine has been faster than expected. In spite of sentiments that disparities in vaccine distribution to developing economies was likely to dominate. However, currently, Cote D’Ivoire follows Ghana to be the second African country to receive doses of the COVID-19 vaccine.
The first phase of the vaccination exercise which started last Tuesday, and will end on March 15, 2021. And is likely to cover 600,000 people in 45 districts in three regions in the country.
According to the Ministry of Health and the Ghana Health Service (GHS), those vaccinated will take their second mandatory doses between eight and 12 weeks.
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