The World Bank, in its outlook for Ghana, expects the country’s fiscal deficit to remain high till the end of the year as the government implements measures to support its economic recovery program.

According to the World Bank, Ghana’s fiscal deficit is projected to narrow to 14 percent of GDP in 2021 and reduce gradually to 9.5 percent by 2023 – still above Ghana’s 5 percent ceiling.

“The energy sector continues to pose fiscal risks for the country. Sector costs far exceed revenues, costing the budget about 1-2 percent of GDP annually in recent years”.
World Bank

The projection from the Breton Woods Institution is 4.6 percentage points higher than what the government of Ghana expects at the end of the year. It is also higher than the 12.6 percent projected by the IMF.

However, according to the Ministry of Finance, Ghana’s fiscal deficit is expected to decline from 11.7 percent of GDP in 2020 to 9.4 percent in 2021. In March, the government forecast the overall deficit for 2021 at 9.5 percent of the country’s GDP but later revised it after making some revisions to the total expenditure and revenues for the year.

In nominal terms, the revisions in Government’s fiscal operations are expected to reduce the fiscal deficit (on cash basis) to GH¢41,273 million, down from the original deficit target of GH¢41,298 million.

Subdued external demand for exports

Fueled by the domestic recovery, the World Bank highlighted that Ghana’s imports expanded faster than exports in early 2021 while external demand for commodities remained subdued. Based on that, the current account deficit widened from 0.8 percent of GDP in Q2 2020 to 1.3 percent of GDP in Q2 2021, the World Bank stated.

Still on Ghana’s deficit, the World Bank disclosed that the overall fiscal deficit doubled to 15.2 percent in 2020.

“Public debt increased to 81.1 percent of GDP in 2020, placing Ghana at a significant risk of debt distress. Provisional fiscal data for first half of 2021 suggest that the authorities cut spending to make up for revenue shortfalls. The overall fiscal deficit was 5.1 percent of GDP”.
World Bank

Figures from the Ministry of Finance show that the implementation of the Budget resulted in an overall budget deficit of GH¢22,315 million (5.1% of GDP) in the first six months of the year.

Returning to Fiscal Responsibility Threshold

Thus, the government is counting on its fiscal measures outlined in the mid-year Budget statement in July this year to ensure a return to the Fiscal Responsibility Threshold of a deficit of 5.0 percent of GDP and a primary surplus by 2024.

“The fiscal consolidation strategy for the medium-term will be supported by revenue enhancing measures and expenditure rationalization initiatives”.
Ministry of Finance

The government may have to revise its decision to return to the fiscal responsibility threshold earlier than the 2024 it targeted. The country’s overall debt continues to soar and there are concerns that it may not be able to access the capital market next year as the cost of borrowing continues to increase.