‘Deficit target won’t be breached’

Government will borrow within its GH¢4.67billion target this year despite fears to the contrary, Finance Minister Dr. Kwabena Duffuor has said.

He said Ghana’s history of fiscal indiscipline during elections will not be repeated this year, and that fiscal spending has so far been within limits.

“We are spending within the limits, and we’ll live within the deficit target,” he told B&FT.

Parliament in July approved additional fiscal spending that raised government’s borrowing requirements this year to 6.7% of GDP, from an earlier projection of 4.8% of GDP or GH¢3.37billion.

But many analysts have been dubious about the target, worrying that -- as transpired in previous election years -- it may not be respected. In the 2000 and 2008 election years, the government exceeded its budget deficit projections by a wide margin, triggering rapid inflation and currency depreciation.

Ratings agency Fitch said in September that “political will as well as tight expenditure management” will be required to avoid similar fiscal slippage in 2012.

“I can understand why some people may be worried: this is an election year and it’s barely 30 days to the elections. But we are seeing single-digit inflation and the currency is appreciating. It has never happened before,” Duffuor said.

In September, inflation declined marginally to 9.4% and is expected to be moderated in October by lower food prices in the current harvest season. After a steep slide in the first six months of the year, the cedi has regained its footing against the dollar during the second half, with year-to-date depreciation now at 13% from 18% in June.

With the cedi strengthening and inflation stabilising, the Bank of Ghana (BoG) kept its policy lending rate at 15% on September 12 after three consecutive hikes in February, April and June. The BoG’s next review of the rate is expected next week and will be the final one for the year.

Duffuor emphasised that the sale of recent three-year debt instruments by the BoG was not intended to widen the deficit but for debt-restructuring. Since the sale on October 25, which attracted a yield of 21%, interest rates on short-term government debt have been falling -- with the 91-day bill rate going down steadily from 23.1% to 22.3% this week.

He said the oversubscription of the instruments was a vote of confidence in the economy -- and the fiscal and monetary authorities -- by investors, who agreed to a yield that was even below the 91-day bill rate.