The government of Ghana has projected a budget deficit of 9.5 percent of GDP for the 2021 fiscal year. This is lower than the projected deficit target of 11.7 percent for 2020. The resulting deficit stems from a projected Total Revenue and Grants of GH¢72,452 million against a Total Expenditure of GH¢113,750 million, leading to a deficit of GH¢41,298 million, representing 9.5 percent of GDP.
This, however, excludes the financial sector cost. The government projected the overall budget deficit at GH¢46,798 million, which is 10.7 percent of GDP, with the Inclusion of financial sector cost,. The government intends to finance this deficit from both domestic and foreign sources. the government will finance GH¢25,424 million through domestic sources, while the remaining GH¢15,874 million will be financed through foreign sources.
The foreign component would include a planned international capital market program to raise up to US$4 billion. The government intends to raise a significant portion from the capital market to fund liability management . About US$1.5 billion is for budget support.
Expenditure Components
Also, the government has set aside a total of GH¢30,314 million for employees compensation. This represents 7.0 percent of GDP and constitutes 26.6 percent of the Total Expenditure including Arrears clearance.
Furthermore, Use of Goods and Services is also projected at GH¢5,967 million and accounts for 1.4 percent of GDP. This represents 5.2 percent of the projected Total Expenditure including Arrears clearance.
The Finance Ministry explained that the per annum reduction of 33.1 percent for 2021 reflects the non-occurrence of one-time expenditures in 2021. Such expenditures include election expenditures as well as the Government’s policy of expenditure realignment and rationalization.
Interest payment will consume the greatest share of the country’s projected expenditure in 2021. Interest Payments is projected at GH¢35,864 million, 8.3 percent of GDP. Of this amount, domestic interest payments will constitute about 79.1 percent and amount to GH¢28,368 million.
Also, the government computed a 5 percent transfer to the DACF based on the Supreme Court Ruling. Consequently, transfers to Statutory Funds as well as all other earmarked funds are estimated at GH¢18,081 million, 4.2 percent of GDP. This also represents a 52.2 percent growth over the recorded outturn for 2020.
Capital expenditure
Over the years, capital expenditure has continued to receive limited funding. Unsurprisingly, the government projected Capital Expenditure at GH¢11,423 million, 2.6 percent of GDP. This is a decline of 5.5 percent over the 2020 outturn. Of this amount, the government expects to GH¢3,310 million using domestic sources, 0.8 percent of GDP. Meanwhile, the government will finance an amount of GH¢8,112 million using Foreign funds, using a combination of Project Grants and Loans.
COVID-19 related expenditures in 2021
Also, the government made a provision of GH¢4,509 million for COVID-19 related expenditures in 2021. This includes GH¢200 million for water and electricity under the COVID-19 Alleviation Program.
Meanwhile, the government will continue to implement the Earmarked Funds Capping and Realignment Act in 2021. The aim is to reduce budget rigidities and create fiscal space to fund growth-enhancing expenditures as has been done since 2017.
The 2021 Budget Statement revealed that transfers to earmarked funds include a proposed 20 percent of the allocation for ABFA Capex to the Ghana Infrastructure Investment Fund (GIIF). The government intends to use this for funding Agenda 111 and other development expenditures.
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