Ghana’s deficit highlights downside fiscal risks – Fitch

Credit Ratings Agency – Fitch – has said Ghana's disclosure of $1.6billion unreported expenditure and the resulting failure to hit the 2016 fiscal deficit target highlights substantial risks to the country's public finances.

It explained that public finances are an important ratings weakness, saying the new government is committed to fiscal adjustment under Ghana's IMF programme.

It said the Negative Outlook on Ghana's 'B' sovereign rating reflects the risk of fiscal slippage around Ghana's elections.

“We had forecast a 2016 deficit of 5% of Gross Domestic Products (GDP), although Ghana's track record of large budget deficits, running up arrears, and fiscal slippage around elections, meant that risks to our forecast were heavily weighted to a wider deficit.

“The new revelations imply that government debt was around 74% of GDP in 2016, rather than our previous estimate of 69%” the ratings agency added.

Fitch said the new government is likely to re-launch fiscal consolidation efforts. It identified measures such as increased Value Added Tax (VAT), a petroleum tax, and stronger payroll controls caused the deficit to fall sharply in 2015 to 6.3% of GDP, from 10.2% in 2014.

According to the ratings agency, the President Nana Akufo-Addo government’s biggest challenges would be enforcing spending controls at the line ministries and improving revenue collection.

Fitch explained that International Monetary Fund (IMF) disbursements have eased external funding pressures, and the programme is a key support to Ghana's 'B' sovereign rating.

It cautioned that some of the stated objectives of the new government, on infrastructure investment and tax cuts, may also conflict with the IMF programme.

But the Fund and the government have stated their continued support for the programme.