Mid-Year Budget: Key indicators see downward adjustment

Key macroeconomic indicators have seen significant downward revisions, finance minister Ken Ofori-Atta has announced, with overall real gross domestic growth and inflation rates for the end of the 2023 fiscal year now pegged at 1.5 percent – down from 2.8 percent and 31.3 percent versus up from an initial sub-20 percent target of 18.9 percent.

The development keeps inflation at more than three times the central bank’s upper band target of 10 percent, and was announced by the minister, Ken Ofori-Atta, during his presentation of the mid-year budget review to lawmakers in Accra.

The revisions, he added, were made to align with market expectations and adhere to targets of the International Monetary Fund (IMF)-supported Policy Coordination and post-COVID-19 Programme for Economic Growth (PC-PEG).

Elaborating on the need for these revisions during the presentation before parliament, the minister highlighted factors such as a broad economic slowdown in various sectors due to the fiscal consolidation plan and challenging global economic conditions.

“All these developments, together with the need to align with targets of the IMF-supported PC-PEG, warrant a revision of the macroeconomic framework. This was necessary because the framework was guided by the September 2022 data that underpinned the 2023 budget in November 2022. The revisions of the macro-fiscal framework generally seek to align the 2023 mid-year fiscal policy review with the IMF-ECF supported PC-PEG,” he explained.

Similarly, the non-oil real GDP growth rate has been revised to 1.5 percent; down from the previous 3 percent target. Moreover, the primary balance on a commitment basis has shifted to a deficit of 0.5 percent of GDP – contrasting with the original plan of a 0.7 percent surplus. Also, the gross international reserves are being targetted to cover at least 0.8 months of imports of goods and services by the end of 2023; a far cry from the prudential threshold of three months.

Regarding the fiscal framework, Mr. Ofori-Atta noted that it now aligns fully with the IMF programme’s fiscal objectives in terms of primary balance, revenue path and trajectory of primary expenditures.

He mentioned several factors that contributed to these realignments: including fiscal developments between January and June 2023, changes in base pay, and IMF ECF Programme disbursements. The revised primary balance on a commitment basis stands at a deficit of 0.5 percent of GDP, aligning with the IMF-supported PC-PEG fiscal consolidation path.

“The revisions of the 2023 fiscal framework are driven by several factors… There was an increase in the base pay on the Single Spine Salary Structure, which was set at 30 percent instead of the previously assumed 20 percent for the 2023 Budget. Third, there was a partial restoration of capped transfers to the National Health Insurance Scheme (NHIS) and Ghana Education Trust Fund (GETFund).

“Fourth, the completed Domestic Debt Exchange Programme (DDEP) had an impact on both debt service costs and revenue mobilisation,” he explained.

“Additionally, there were disbursements from the International Monetary Fund (IMF) Extended Credit Facility (ECF) Programme amounting to US$1.2billion for 2023, along with other catalytic financing including US$530million from the World Bank (US$300million from Development Policy Operations and US$230million from Emergency Projects), and an expected disbursement of US$103million from the African Development Bank (AFDB). These various factors collectively influenced the revisions made to the fiscal framework for the year 2023,” the finance minister added.

Furthermore, the finance minister addressed the revision of petroleum revenues – citing a decreased demand for crude oil in recent global economic developments. The average crude oil price used to project petroleum revenues for 2023 was revised from US$88.55 per barrel to US$74.0 per barrel. Consequently, total petroleum receipts have been revised downward by 32 percent from US$1.48billion to US$1.08billion.

However, the finance minister expressed optimism about the future, projecting a rebound in GDP growth during subsequent years.

“Overall GDP growth is projected to rebound to 2.8 percent, 4.7 percent, and 4.9 percent in 2024, 2025 and 2026, respectively. This is a result of implementing growth-oriented and structural transformation strategies in the PC-PEG,” he stated, while highlighting the importance of developing an enhanced Growth Strategy supported by private domestic and foreign investments to further boost growth and create job opportunities.