Coronavirus: 2020 fiscal deficit revised to 11.4% of GDP

The devastating impact of the coronavirus pandemic on government’s finances this year has been projected to result in a revised fiscal deficit of 11.4 percent of gross domestic product (GDP), amounting to GH¢44.1 billion.

This was announced by the Finance Minister, Ken Ofori-Atta during the Mid-Year Review of the Budget Statement and Economic Policy of Government and Supplementary Estimate at Parliament yesterday.

Government’s total projected revenue and grants have been revised to GH¢53.7 billion, 13.9 percent of GDP, in 2020, representing a 20.0 percent decrease from the original 2020 Budget target of GH¢67.1 billion, or 16.9 percent of GDP.

However, this is 0.5 percent higher than the 2019 outturn of GH¢53.4 billion, at 15.3 percent of GDP.

Total Expenditure – including clearance of arrears – for the year is now estimated at GH¢97.7 billion, (representing 25.4 percent of GDP), about 13.7 percent higher than the 2020 Budget estimate of GH¢86.0 billion, or 21.6 percent of GDP.

The Finance Minister explained that the upward revision in expenditures is largely influenced by provision for additional expenditures for COVID-19 programmes and activities, which includes COVID-19 Preparedness Plan, COVID-19 Alleviation Programmes, and health infrastructure, cumulatively amounting to GHc 11,660 billion.

Interest payments have also been revised upwards by nearly 21.1 percent from GH¢ 21.7 billion, representing 5.4 percent of GDP, to GH¢26.3 billion, or 6.8 percent of GDP, mainly reflecting the effect of higher net domestic borrowing to meet additional COVID-19 related expenditures. Capital Expenditures are expected to remain relatively unchanged at GH¢9.3 billion, or 2.4 percent of GDP.

In view of this, government expects to finance the fiscal deficit from both foreign and domestic sources. The net foreign financing of the deficit will amount to GH¢18.5 billion, representing 4.8 percent of GDP, equivalent to 41.9 percent of the total, while total Domestic Financing will amount to GH¢25.6 billion, equivalent to 6.6 percent of GDP, or 58.1 percent of the total deficit financing for 2020.

Mr. Ofori Atta indicated that the corresponding primary balance is expected to worsen from a surplus of GH¢2.8 billion, or 0.7 percent of GDP, in the original 2020 Budget to a deficit of GHc 17.8 billion, or 4.61 percent of GDP.

The revisions made to the 2020 fiscal framework have resulted in an increase in the 2020 Appropriation of about GH¢98,036.69 million that was approved in December 2019, he stated.

Instructively, the supplementary estimate seeks parliamentary approval to commit additional resources, amounting to GH¢11,896,477,566 as outlined in this Mid-Year Review to fund additional expenditures resulting from the revisions made to the 2020 Budget, consistent with Article 179 (8) of the 1992 Constitution.

This will bring the revised 2020 total appropriation for 2020 to about GH¢ 109,933.17 million.