Fitch Solutions expects Ghana’s revenue mobilization to gain momentum as the economy recovers from the pandemic. According to Fitch Solutions’ 4^th Quarter 2021 Country Report, Ghana’s revenues will continue to recover and rise to 15.9% of the country’s Gross Domestic Product (GDP) next year.

The improvement in revenues, Fitch Solutions said, will narrow the budget deficit further in 2022, albeit to a still-wide 7.6% of GDP.

“We expect that as economic conditions normalize further in 2022, revenues will continue to recover and rise to 15.9% of GDP. Expenditure growth will moderate – in line with the government’s medium term fiscal consolidation objectives – and consequently, we forecast total spending falling as a proportion of GDP to 23.5%”.
Fitch Solutions

Expenditure to remain elevated

Whilst Fitch expects the country’s revenues to improve, it likewise anticipates an increase in the country’s expenditures this year. Fitch highlighted that expenditure will remain elevated in the coming months, and rise from 24.7% of GDP in 2020 to 25.6% in 2021.

Public sector salaries and benefits will remain the largest non-interest expenditure item, followed by grants to other government units. The government expects the public sector wage to rise by 7.2% to GH¢30.3 billion in 2021.

However, Fitch Solutions anticipates that growing political pressure for larger pay increases as evidenced by threats in late July of nationwide strike action by university staff over pay demands, will result in higher-than expected expenditure.

The 2021 budget also captured funding for the second phase of the government’s Ghana CARES ‘Obaatan Pa’ program, including funding to develop public healthcare capacity, procurement of vaccines, and support for local communities and businesses.

These measures will come at the expense of general procurement expenditure and capital expenditure (CAPEX) funding, both of which are projected to decline in 2021. CAPEX is likely to fall from 12.5% of total expenditure of GH¢96.4 billion in 2020 to 10.2% in 2021 and projected to reduce further to 9.3 percent in 2022.

High public debt, a concern to investors

Ghana’s high levels of public debt is likely to remain a concern for investors in the years ahead. According to Fitch Solutions’ 4th Quarter 2021 Country Report, a sustained fiscal deficit – albeit a moderately narrowing one – will see the country’s debt stock continue to rise over the coming years.

However, Fitch expects the country’s debt, as a proportion of its Gross Domestic Product, to start gaining some stability this year, and then gradually reduce in the medium to long-term.

“We are confident that Ghana will see somewhat narrower fiscal deficits and slower growth in public borrowing in the medium-to-long term. This will bring the debt burden down somewhat as a percentage of GDP relative to the early 2020”.
Fitch Solutions

Whilst the research arm of the Global Rating Agency, Fitch, expects debt burden to stabilize in the medium-term, it warns of the rising debt servicing and its implications on the country.

“While a large debt load in itself is not a direct threat to financial stability, we do not rule out the debt load causing some problems over the long term due to the high interest payments the debt entails”.
Fitch Solutions