Impact of covid-19 to widen Ghana's fiscal deficit- Standard Bank

Ghana’s fiscal deficit is expected to widen this year as a result of the economic and social impact of the COVID-19 pandemic.

In its July 2020 Flash Note of the African Markets Revealed (AMR) report, economists at Standard Bank are predicting Ghana’s 2020 fiscal deficit to rise to GHS 44 billion from the initial budget deficit of GHS18.9 billion.

“The combination of revenue shortfalls and increased government spending, particularly to mitigate the fallout of the Covid-19 pandemic in the country, is set to force a significantly wider fiscal deficit in Ghana in 2020.

The government had strived to maintain a fiscal deficit responsibility rule below the 5% ceiling in the past three years, recording 4.8% of GDP in 2019, which excluded arrears and the financial sector bailout.

Inevitably, the government is now expecting the fiscal deficit to rise to GHS44bn (11.4% of GDP) in 2020 from GHS18.9bn (4.7%) in the initial 2020 budget”, the report said.

The report further noted that the government is not expected to meet the 5% budget deficit threshold until 2024, indicating that fiscal consolidation might take longer than expected post the COVID-19 pandemic.

According to the report “Interestingly, the government does not expect to return within the 5% budget deficit threshold, until 2024. This suggests that the fiscal consolidation path, post the pandemic, could take much longer than expected.”

“The revenue shortfall for 2020 is projected at GHS13.4bn (3.5% of GDP). Whilst the government had initially anticipated total revenues and grants of GHS67bn in 2020, it now expects revenues and grants to come in lower by 20% at GHS53.7bn (13.9% of GDP).

This is largely as a result of expected shortfalls in petroleum receipts and non-oil tax revenues as well.

The government is assuming an average oil price of USD39.1/bbl in the revised budget from USD62.6/bbl previously”, the report further said.

The July 2020 Flash Note also mentioned that Ghana’s total expenditure is now estimated at GHS97.7bn (25.4% of GDP) which is 13% higher than initially budgeted.

Capital expenditures, however, remained flat at GHS9.3bn (2.4% of GDP) when compared to the initial budget, while interest payments have been revised higher by 21% to GHS26.3bn (6.8% of GDP) reflecting the significant increase in debt.

The African Markets Revealed Report is a monthly report issued by the Standard Bank Group, parent company of Stanbic Bank Ghana and focuses on the economic and financial outlook of African countries.

The report also reviews current economic situations and makes short to medium-term predictions about the economies of African countries.