2010 Deficit Widened To GH¢3bn

Ghana’s fiscal deficit widened to GH¢3 billion in 2010 and was 6.8% of (new) nominal GDP, according to provisional figures published by the Ministry of Finance and Economic Planning.

The figure shows the budget estimate was overshot by more than GH¢1billion; and the deficit-to-income position could have been murkier - coming in at 11.5% of old GDP - but for the significant boost to output data after last November’s national-income revisions.

The deficit-to-old GDP target was 7.5%, subsequently revised to 4.4% of new GDP. But both targets were missed on the back of less-than-projected revenue and grants inflows, and expenditure overruns.

Net domestic financing of the deficit was GH¢2.1billion, while net financing from foreign loans was GH¢1.2billion. Exceptional financing was GH¢93.5million. The reported deficit excludes TOR debt-financing of GH¢445million, implying the actual fiscal-resource gap was in the region of GH¢3.4billion (about 7.7% of (new) GDP).

Both domestic revenue and (external) grants fell short of their targets, by GH¢640million and GH¢280million respectively. The domestic-revenue gap came mainly from non-taxes, which missed their target by GH¢690million.

Tax inflows totalled GH¢6.3billion, exceeding the budgetary projection of GH¢6.1billion and yielding a tax-to-GDP ratio of 14.2% for the 2010 fiscal year. The overrun on expenditure was GH¢600million, with actual spending topping GH¢11.5billion against a target of GH¢10.9billion, the finance ministry reported.

Key expenditure elements that were overshot include the wage bill, capital spending and interest-payments. Spending on wages and salaries was GH¢.3.2billion, against a target of GH¢3.1billion.

Capital expenditure, comprising development-spending and transfers to statutory funds, was GH¢3.2billion - exceeding its projection by GH¢400million, while interest-expenses totalled GH¢1.4billion - against a target of GH¢1.3billion. In the year 2010, tax exemptions amounting to GH¢386million - some 6% of total tax revenue -were awarded. Additionally, GH¢131million was paid to utility companies in the form of subsidies.

Significant payment-arrears remained on the fiscal books at end-2010, finance ministry data reveal, though some have since been settled by recent transfers to statutory funds and other payments to private-sector creditors.

“Rebasing” and the fiscal numbers Last November’s national-accounts rebasing and revision has had a landmark effect on Ghana’s fiscal statistics, as the improved output data have altered key ratios that measure income-comparisons.

For instance, the reportedly huge fiscal deficit-to-GDP ratio of 14.5% in 2008 has been revised to 8.5% by the International Monetary Fund in its latest regional report on sub-Saharan Africa.

The Fund also estimates a decline in the ratio to 5.8% of GDP in 2009 - based on the new output figures. Thus, this new regime implied the government’s target for further deficit-reduction was 4.4% of GDP in 2010; but as the finance ministry has revealed, this limit was exceeded by some 2.4 percentage points.

Also, Ghana’s tax effort has fallen sharply under the new figures, compared to its peers and the standard set for macro-economic convergence among countries in the West African Monetary Zone (WAMZ).

A minimum tax-to-GDP ratio of 20% is prescribed under the WAMZ’s secondary convergence criteria, part of the subordinate requirements for the ushering in of a regional common currency and central bank.

Ghana’s 2011 budget introduced some tax-boosting measures to rake in considerably more revenues. This involved a mix of higher rates, redefined thresholds to enhance collection, and the rationalisation of some exemptions.