IC Research, the analytical arm of IC Securities, has highlighted in its report that Ghana’s fiscal adjustment is underway, with the country recording a lower-than-targeted primary deficit in the first quarter of 2023.
This encouraging result, as stated by the research firm, shows the government’s efforts to rein in spending and rebalance the budget.
In the first quarter of 2023, Ghana recorded a primary deficit of 596 million (0.1% of GDP), compared to the target deficit of 4.6 billion (0.6 percent of GDP). This outcome indicated that fiscal consolidation measures are beginning to take effect, albeit through expenditure controls rather than the revenue-based consolidation envisioned in the 2023 budget.
The revenue and expenditure dynamics revealed that the fiscal adjustment in quarter one of 2023 was largely driven by expenditure controls instead of the revenue-based consolidation envisaged in the 2023 budget.
In terms of revenue dynamics, total revenue and grants in Q1 2023 amounted to ¢26.0 billion (3.3% of GDP), falling short of the target by 0.9% of GDP. Total expenditure amounted to ¢32.7 billion (4.1% of GDP), sufficiently below the target of ¢52.1 billion and supported the faster-than-expected compression in the budget deficit.
The Treasury’s budget execution for the first 3- months of 2023 showed a lower overall fiscal deficit of ¢6.7 billion (0.8% of GDP) against a target of 2.3% in quarter 1, 2023.
“Specifically, we observed a year-on-year fiscal adjustment equivalent to 0.8% of GDP as the primary deficit narrowed to 0.1% of GDP in quarter 1, 2023 compared to the target of -0.6% and outturn of -0.9% in quarter 1, 2022.”IC Securities
Furthermore, it said “We attribute the ¢19.4 billion (2.3% of GDP) spending suppression to the impact of the Domestic Debt Exchange (DDE) and the suspension of external debt service.”
Revenue Declines Attributed To Difficulties With Tax Administration
In line with falling revenue, IC Research ascribed it to ongoing issues with tax administration and compliance, as well as a slowing in economic activity.
“We also believe the adverse impact of the DDEP on banks’ financial results exerted a negative spillover to tax obligations toward the Treasury. In our view, the weakening economic activity and the medium-term impact of the DDEP on banks’ financial position will pose a downside risk to the Treasury’s plan for a revenue-based fiscal adjustment.”IC Securities
While the reduction in the primary deficit indicates progress, it is crucial for Ghana to address the underlying issues affecting revenue generation.
A comprehensive and sustainable approach is needed to ensure the government’s revenue-based fiscal adjustment remains on track and can support long-term fiscal stability.
IC Securities has urged the government of Ghana to carefully navigate these obstacles to maintain its fiscal discipline and promote a conducive environment for economic growth and stability.