Government’s fiscal challenges are likely to continue next year as it expects to spend a chunk of its projected domestic revenues to pay interest on its borrowings as well as to compensate its employees.
The government anticipates spending a total of GH¢73, 288 million out of the estimated domestic Revenue of GH¢99,547 million in 2022 on this two expenditure items. This means 73.6% of government’s budgeted domestic revenues next year will be consumed by interest payment and compensation of employees.
Even as a percentage of total projected revenues including grants of GH¢100,517 million next year, the two expenditure components will account for 72.9 percent.
Compensation of Employees for 2022 is projected at GH¢35,841 million (7.1% of GDP) and constitute 26.1 percent of the Total Expenditure (including Arrears clearance). Interest Payment is also projected at GH¢37,447 million (7.5% of GDP). Of this amount, Domestic Interest due will constitute about 77.3 percent and amount to GH¢28,943 million.
Anticipated improvement in revenues
Government, meanwhile, anticipates a strong growth in its revenues (44.0%) compared to the rise in its projected expenditure of 23.2 percent over the estimated outturn for 2021 due to the tax policy initiatives outlined in the 2022 budget in addition to the ongoing digitization. Even with this, there will still be a huge gap that needs to be financed through other avenues, maybe, through borrowing which will further raise debt servicing concerns.
Hon. Ofori-Atta, Finance Minister of Ghana however, assured the country’s Legislature that as part of measures to reduce the cost of borrowing, Government will continue to explore options of re-profiling domestic debt in 2022.
In 2022, government projects its Total Expenditure (including clearance of Arrears) at GH¢137,529 million (27.4% of GDP), above the projected outturn of GH¢111,645 million (25.3% of GDP) for 2021. According to Hon. Ken Ofori-Atta, the key drivers of expenditure growth include Capital Expenditure, funding of key Government flagship programmes including the GhanaCares “Obaatanpa” Programme, wage bill, and interest payment.
The implication is that the government has little revenues left to undertake other projects next year, including the vaccine procurement, job creation and social programs. Yet, Mr. Ofori-Atta hinted that government has a strategy to create space for funding other equally important projects next year.
“In 2022, Government will continue to implement the Earmarked Funds Capping and Realignment Act to reduce budget rigidities and create fiscal space to fund growth-enhancing expenditures as has been done since 2017”.Hon. Ken Ofori-Atta
Government plans to increase its Capital Expenditure (CAPEX) next year to GH¢16,396 million (3.3% of GDP), representing a growth of 28.8 percent over the projected 2021 outturn. Of this amount, Domestically Financed CAPEX is estimated at GH¢7,795 million (1.6% of GDP). An amount of GH¢8,601 million has been estimated for Foreign Financed CAPEX and this will be funded by a combination of Project Grants and Loans
Expenses on the Use of Goods and Services is also projected at GH¢9,149 million, representing 6.7 percent of the projected Total Expenditure, including Arrears clearance. Grants to Other Government Units which comprise the transfers to Statutory Funds as well as all Other Earmarked Funds is estimated at GH¢26,828 million (5.3% of GDP) for 2022.
With the exception of compensation of employees and interest payment, the earlier mentioned expenditure items in addition to some others captured in the 2022 budget are expected to be financed with the remaining 27.1 percent of projected revenues including grants in 2022.