Ghana’s Terkper targets narrowing 2014 budget gap to 8.5%

Ghana Finance Minister Seth Terkper pledged to narrow the budget gap by curbing wages and boosting revenue to reassure investors and underpin its credit rating following a downgrade last month.

The fiscal deficit is forecast to narrow to 8.5 percent of gross domestic product in 2014 from an estimated 10.2 percent this year, Terkper said in a budget speech to lawmakers in the capital, Accra. The economy will expand 8 percent next year, compared with 7.4 percent in 2013, he said.

The government’s “fiscal policy will continue to aim at ensuring fiscal prudence and debt sustainability through improved revenue mobilization and rationalizing and enhancing the efficiency of public expenditures, as well as reviewing our financing methods,” he said.

Ghana is struggling to reduce a budget gap that reached 12 percent of economic output in 2012 during a presidential election year. The government has tried to compensate for a jump in public wages to 74 percent of tax income by cutting subsidies for fuel, water and electricity. It also raised the value-added tax rate to 15 percent from 12.5 percent on Nov. 15.

Fitch Ratings last month lowered Ghana’s credit rating to B from B+ as the government failed to achieve its fiscal deficit goal of 9 percent for this year and overran spending on interest payments.

Pay Cut

Expenditure will climb 18 percent to 35 billion cedis ($15 billion), Terkper said. The government expects to raise 26 billion cedis in revenue and grants while borrowing in local and international markets will rise to about 9 billion cedis in 2014. President John Dramani Mahama and his government ministers agreed to a 10 percent pay cut for 2014 to help alleviate the wage bill, Terkper said.

“The target to borrow 4 billion cedis from the domestic economy is a lot of money and that is going to crowd out the private sector,” Sampson Akligoh, head of research at Databank Financial Services Ltd. in Accra, said by phone. “The sources of the deficit are wages and statutory payments, which we should not borrow to pay for.”

The cedi is the third-worst performing African currency, this year, plunging 16 percent against the dollar. The cedi fell 0.9 percent to 2.265 per dollar by 2:25 p.m. in Accra today.