Research and investment advisory firm, Fitch Solutions, has stated that Ghana took a lot of expensive debts during the pandemic and still continues to borrow despite the rising interest payments on those debts.
According to the UK-based firm, Ghana’s fiscal challenges will continue into next year with tough choices for government.
“Expenditure has risen and this is driven by interest expenditure. Ghana took a lot of expensive debt and continued to borrow during the pandemic and this means interest payment are very elevated now.
“They account for about 55% of total government fiscal intake, keeping expenditure elevated. Given the rigid nature of the Ghana’s expenditure profile, the government cannot easily reform spending resulting in those wide fiscal deficit”.
Fitch Solutions
The Research and investment advisory firm which is projecting tougher times for the Ghanaian economy in 2023, noted that the government will have to significantly cut capital expenditure or impose new taxes to boost revenue in order to address the financial challenges in the economy.
This, it believes, will help narrow the financial gap and create fiscal space going forward. Specifically, Fitch Solutions explained that “the government has really two option at the moment to improve fiscal position; either capital expenditure or significantly increasing the countries tax base”.
It mentioned that both actions will inflict some economic pains and “so, they are no easy choices for the government”.
IMF deal to be finalized by December 2022
Government is presently negotiating with the International Monetary Fund for an economic programme. There are indications that the deal might be closed before the end of the year and Fitch Solutions expects government to rope more people into the tax net to improve its revenue collection.
“As part of an IMF deal, however, we expect that the government will have to implement fiscal consolidation measures in 2023 including the widening of the tax base. We expect that the commitment to fiscal consolidation will lead to gradually improvement in public finances.
“And we also expect the government to be quiet eager to meet the IMF target as the authorities will aim to restore investor sentiments and so regain access to international capital markets.”
Fitch Solutions
Ghana is in crisis
The country has lost over $1.5 billion in 2022, as investors liquidate their investments. Meanwhile, President Akufo-Addo has admitted to Ghana’s economic crisis, describing it as a “historic” development.
Addressing the nation on October 30, 2022, the President conceded to the country’s ballooning debt stock, rising inflation, free fall of the local currency, and the depletion of macroeconomic variables.
According to him, the situation is due to many ‘malevolent forces’ which are currently working together but he iterated government’s commitment to dealing with the present economic difficulties.
“For us, in Ghana, our reality is that our economy is in great difficulty. The budget drawn for the 2022 fiscal year has been thrown out of gear, disrupting our balance of payments and debt sustainability, and further exposing the structural weaknesses of our economy.”
President Akufo-Addo
Touching on the measures to salvage the ailing economy, President Akufo-Addo disclosed that all government officials will take a pay cut of 30%; including the President and the Vice President, a policy that was implemented earlier this year.
He also added that the Bank of Ghana is working assiduously with other relevant state agencies to keep the local currency from depleting further against other major trading currencies across the globe. The President stressed that persons who falsely speculate about the fall of the Cedi will be dealt with.
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