Fiscal deficit will widen to 4.6% in 2019 – EIU report

The Economist Intelligence Unit (EIU) has predicted further widening of the country’s fiscal deficit by 1.2% by the end of 2019 compared to what was recorded in 2018.

Following the conclusion of the International Monetary Fund’s extended credit facility programme in March 2019, it is expected that the country will switch to an expansionary fiscal policy in the run-up to the 2020 elections to achieve economic growth.

“Overall, we expect a widening of the fiscal deficit in 2019, to 4.6% of GDP, from 3.4% of GDP in 2018,” EIU’s country report on Ghana, which was released on 13 May 2019, stated.

It added that the Ghanaian authorities will remain reluctant to lower spending on salaries and subsidy programmes, given the risk of public resentment ahead of the 2020 elections.

“The public sector wage bill—together with high interest payments and capital expenditure to help to deliver ambitious industrialisation promises—will drive expenditure increases,” the report added.

The EIU further forecasts that expenditure will increase in 2020, owing to higher election-year spending.

“Over the remainder of the forecast period, we expect to see some fiscal consolidation, particularly in the wage bill, with expenditure declining slightly by 2023 as the government seeks to limit the fiscal deficit”.

The organisation expects further fiscal slippage in the election year of 2020, with the deficit increasing to 5.2% of GDP as a result.

“We then forecast a return to consolidation, leading to a lower deficit in 2023, of 3.1% of GDP. The rate of decline in the fiscal deficit at a time of robust economic growth will be enough to make a modest dent in the public debt stock, which will edge down from an estimated 53.5% of GDP at the end of 2018 to about 52% of GDP at the end of 2023. However, longer-term debt sustainability will still require ongoing fiscal responsibility and continued robust levels of economic growth”.