Ghana to miss fiscal deficit target of 4.7%

Ghana’s fiscal deficit is expected to end 2020 at 4.9%± 0.5% of Gross Domestic Product.

This is against the government target of 4.7% of GDP.

The 4.9%± 0.5% of GDP target excludes Bank of Ghana’s bailout funds.

According to a report by Databank Research, “Against our expectations of public expenditure and revenue dynamics, we forecast the overall fiscal deficit at 4.9% ± 0.5% by end-2020 (Government Target: 4.7% of GDP).”

Continuing, the report said: “We expect spending pressures to remain intense in 2020, largely driven by interest payments, infrastructure spending, social intervention policies and a one-off budget for the 2020 elections. This could pose an upside risk to the overall budget deficit in 2020, resulting in higher borrowing requirements for the year”.

However, the report said the fiscal reforms such as the Fiscal Responsibility Act and PFM Act could provide crucial restraints.

Ghana’s 2020 budget projects a 26.7% year-on-year growth in Total Revenue & Grants to GHS67.1 billion.

That of 2019 was GH¢52.97 billion.

This revenue outlook is based on expected 12-month inflows from the tax measures implemented in late-2019 supported by ongoing reforms in tax administration and continued enforcement of tax compliance, the Economic Outlook Report emphasised.

2019 preview

The Full Year-2019 outturn for Total Revenue & Grants however, showed a shortfall of GHS1.59 billion (0.5% of GDP), representing a lower shortfall than suggested by the 9-months trend.

“We believe the new tax handles introduced in the 2019 mid-year review and implemented in Q4-2019 were crucial in reducing the overall revenue gap in 2019. We also view the aggressive enforcement of tax compliance, ostensibly induced by management changes at the Ghana Revenue Authority, as an additional force behind the improved tax revenue collection in Q4-2019.”

The shortfall in non-tax revenue in 2019 was equivalent to 0.4% of GDP. This resulted in a 4.8% overall budget deficit for FY-2019, overshooting the revised target by 0.1% of GDP.