Rand Merchant Bank (RMB), the corporate and investment banking arm of FirstRand Bank Limited, expects Ghana to miss its revenue target this year by GH¢7.5 billion, even though the country will see some improvements in its revenues over the previous year’s outturn.
In percentage terms, this will result in the government missing its revenue targets for the 2022 fiscal year by 7.46 percent.
“Total revenue and grants are likely to improve by 37.0 per cent relative to 2021, versus government’s assumption of 48 per cent year on year (y/y). This implies full year figures of GH¢93bn versus government’s estimates of GH¢100.5bn”.
Rand Merchant Bank
The expected improvement in government revenues this year was also highlighted by the International Monetary Fund (IMF) in its recent forecast for the country. The Fund is projecting Ghana’s tax revenue to GDP ratio to increase to 16.5 percent in 2022, from 14.7 percent in 2021.
Whilst the Fund expects revenues to improve above the current average tax-to-GDP ratio of 13 percent over the medium-term, its forecast shows a marginal decline to 16 percent and 16.2 percent respectively, in 2023 and 2024 over the projected outturn in 2022.
Government’s fiscal consolidation to yield results
The Minister of Finance, Ken Ofori-Atta, recently announced key fiscal changes in view of Ghana’s current fiscal and economic challenges. Commenting on this, RMB acknowledged that these changes were introduced in both revenue and expenditure that would have a material effect on the budget.
However, Rand Merchant Bank’s Economist for Sub-Saharan Africa, Daniel Kavishe, said in the recent forecast for Ghana that the only expenditure item that can be rationalized is capital expenditure.
“We contend that while government will make strict cuts in certain areas, key line items such as grants to other government units, interest payments and compensation of employees will remain sticky.
“Capital expenditure, on the other hand, is likely the area where expenditure can be rationalized as has been seen in other governments in periods where expenditure growth needs to be curtailed”.
Rand Merchant Bank
Negative effects of the Russia-Ukraine war
Rand Merchant Bank highlighted that the negative effects of the Russia-Ukraine war continue to reverberate throughout Africa’s economies. The corporate and investment banking arm of FirstRand Bank Limited which has First National Bank Ghana as a division, stated that coupled with the lingering effects of the COVID-19 pandemic, the ongoing crisis is adding to higher oil and food prices.
“Significant price increases and supply-side challenges have been the norm since the beginning of the year. Wheat and other cereal prices rose sharply and with the expectation of higher inflation, businesses have already increased their prices for goods and services”.
Rand Merchant Bank
Rand Merchant Bank further stated that the massive disruptions over the past two years due to the pandemic resulted in business input costs increasing by 10 percent to 15 percent. The Bank expects input costs to rise further this year because the global economy has not re-opened fully. The recent report by the Bank indicated that “China is still restricting movement as a result of the pandemic and the war is affecting trade in Europe”.
Consequently, RMB underscored that growth estimates for this year are shrouded by severe global risks, such as the Russia-Ukraine war, higher global interest rates, and tepid demand given the latent effects of the pandemic. “Domestically, fiscal risks, FX liquidity challenges and higher inflation costs are likely going to affect the pace of growth”, RMB warned.
READ ALSO: BoG Warns Ghanaians Against ‘SIDICOIN’ Cryptocurrency
