Ghana has saved an amount of GH¢3,336 million as a result of a downward revision of the government’s planned interest payments for the 2021 fiscal year. According to the Minister in charge of the country’s finances, Mr. Ken Ofori-Atta, the savings accrue to the country as a result of the government’s implementation of the domestic liability management strategy.

“Savings of GH¢3,336 million from the downward adjustment of interest payments to GH¢32,528 million (7.4% of GDP), 9.3 percent lower than the original budget provision of GH¢35,864 million (8.3% of GDP). This is largely on account of the implementation of the domestic liability management strategy which has resulted in a reduction in the cost of borrowing along the yield curve”.
Ken Ofori-Atta

Even though the Finance Minister did not request additional funds to execute the 2021 Budget presented to Parliament in March this year, he indicated that some expenditure items have been adjusted to reflect developments in the first half of 2021, while also ensuring that the total envelope remains intact.

Revisions to Expenditure

Unsurprisingly, the revisions made included two major expenditure components that drive the government’s spending patterns over the years. Aside the revisions made to interest payments, there was also an upward adjustment in Compensation of Employees by GH¢1,177 million from the original projection of GH¢30,314 million (7.0% of GDP) to GH¢31,491 million (7.2% of GDP), reflecting the increase in the public sector base pay by 4.0 percent.

Gov’t saves GH¢3,336 million due to adjustment of interest payments 2 — Gov’t saves GH¢3,336 million due to adjustment of interest payments 3

Also, Mr. Ofori-Atta indicated that there were also adjustments in expenditures on Goods and Services and Domestic Capex expenditures to reflect other priority interventions.

Despite the revisions in some expenditure components, Total Expenditure, including payments for the clearance of arrears, is projected to remain unchanged from the original budget projection of GH¢113,750 million (25.9% of GDP), about 13.7 percent higher than the 2020 outturn of GH¢100,026 million.

Revisions to Total Revenue and Grants

Once revisions were made to the government’s expenditure mix, it is expected that the government will also revises its revenues to match the corresponding planned expenditure. As such, Mr. Ofori-Atta indicated thatTotal Revenue and Grants have been revised to GH¢72,477 million (16.5% of GDP) in 2021. This represents a marginal 0.03 percent increase over the original 2021 Budget target of GH¢72,452 million (16.7% of GDP), and 31.5 percent higher than the 2020 outturn of GH¢55,128 million (14.4% of GDP).

Overall Balance and Financing

These revisions are expected to impact either positively or otherwise on the country’s targeted fiscal deficit for 2021. Luckily, Mr. Ofori-Atta stated that the revisions impacted positively; a reduction in the fiscal deficit.

“These revisions in Government’s fiscal operations are expected to reduce the fiscal deficit (on cash basis) to GH¢41,273 million (9.4% of GDP) down from the original deficit target of GH¢41,298 million (9.5% of GDP)”.
Ken Ofori-Atta

The deficit is expected to be financed from both foreign and domestic sources. Net Foreign Financing of the deficit will amount to GH¢15,874 million (3.6 percent of GDP), equivalent to 38.5 percent of the total financing. On the other hand, total Domestic Financing will amount to GH¢25,399 million (5.8% of GDP), or 61.5 percent of the total for 2021.

The corresponding primary balance is, however, expected to increase from a deficit of GH¢5,434 million (1.3% of GDP) in the original 2021 Budget to a deficit of GH¢8,745 million (2.0% of GDP). This is because the revisions made to expenditure far outweigh the upward adjustment of revenues for the fiscal year.