The International Monetary Fund (IMF) says there’s no escape route for Ghana in the quest to accelerate its budget deficit reduction from 9.5 percent of GDP in 2014 to about 3.7 percent in 2017, when the country is expected to complete the Fund’s bailout programme.
According to the Fund’s Antoinette Sayeh, Director of African Department, the dire situation the economy has been in over the last two-three years warrants such a “considerable” frontloaded fiscal adjustment.
A faster approach to reducing the budget deficit, she said, will cure the very large fiscal and current account deficit that has not only reduced growth but stoked inflation significantly, as well as marginalised expenditure in areas which could spur sustainable growth.
With Ghana’s tendency of overshooting budget deficit targets in the past, some analysts have questioned the country’s ability to cut its deficit in line with targets agreed with the Washington-based lender last month.
The fiscal deficit remained high in 2014 despite gradual fiscal consolidation efforts undertaken since mid-2013. In addition, government started facing increasing financing difficulties. Delays in implementing some adjustment measures and unbudgeted wage allowances resulted in a higher-than-budgeted cash fiscal deficit of 9.4 percent of GDP.
Fitch ratings agency in last month’s report on the country is predicting that the worsening electricity crisis could further dampen already lower growth projections, forcing revenue underperformance as occurred last year. More so, Fitch also stated that a 3.7 percent deficit target in 2017 is too “optimistic” -- given the pressure the 2016 elections will likely exert on spending.
But Ms. Sayeh maintained that from the Fund’s perspective the set deficit targets are not “overly ambitious”, rather a “considerable fiscal adjustment” that has to be addressed.
“The adjustment effort is front-loaded given Ghana’s track-record in fiscal adjustment has not been the best in the past. And it’s very important as a signalling effect that there’s consensus fiscal deficit issues have to be addressed,” she said.
According to her, the Fund’s programme has been restructured in a way that should prevent government from deviating even as it approaches next year’s election.
“The fiscal issues have to be addressed in a way that minimises risk of the programme going off track as Ghana approaches its election next year. So we think it is entirely feasible for Ghana to achieve the fiscal adjustment goals in terms of reinforcing its revenue efforts -- not necessarily by increasing taxes, but actually increasing revenue administration dealing with some exemptions and also with better-prioritised expenditure.
“It’s absolutely doable if the political and social determination is there to do it,” she remarked.
