Deficit threat comes alive as voting day looms

Without exception, all the major international ratings agencies have predicted a budget deficit overrun in 2016, a projection that has a strong likelihood of occurring given official data showing the budget gap had already been breached in the first nine months of the year.

In its final Monetary Policy Committee press report for 2016, the Bank of Ghana put the budget deficit at 5.9 percent of GDP from January-September, against a full-year target of 5 percent of GDP.

This means that, largely due to a significant shortfall in revenue, government borrowing has been ahead of forecast this year, which puts at risk plans to stem the rise in the public-debt-to-GDP ratio that crossed 70 percent in 2015.

Many analysts now predict that the deficit could end the year between 6 and 7 percent, in what would be a fresh installment in the country’s much-criticised record of election-year deficit overruns since the onset of the Fourth Republic.

Among the ratings agencies, Moody’s has forecast a budget deficit of 6.1 percent of GDP. The cost of the elections Moody’s predict will lead to a breach of government’s much publicized 5.3 percent deficit target.

The ratings agency in its September country report gave Ghana a B3 rating with a stable outlook although warnings about the deficit still lingered and an adverse rate action could be triggered should government fail to control election-related expenditure.

At the time of the elections in 2012, credit ratings agency Moody’s rated Ghana at B1 with a stable outlook – but the election bid of John Mahama proved costly given that government incurred a deficit of 11.9 percent against a target of below 7 percent.

That large deficit incurred in 2012 had a cascading effect on macroeconomic stability in subsequent years. A year later, owing to the ‘rising debt levels’, resulting from continued spending overruns and relatively low revenue ratios, Moody’s changed Ghana’s outlook to B1 negative.

Fitch ratings agency, too, forecast that this year’s deficit will be much wider, 6.3 percent, – even bigger than the Moody’s forecast. Fitch’s report issued in March this year said, “fiscal slippage ahead of the November elections would increase inflationary and financing pressures.”

“Ghana's track record of increasing spending ahead of the elections in 2008 and 2012 raises concerns about the government's ability and willingness to meet the ambitious fiscal consolidation targets set out by the IMF,” Fitch said.

The IMF programme has led to restructuring of huge debts owed by energy-sector state-owned entreprises to the banking sector. The debt owed by the Volta River Authority, Electricity Company of Ghana, Ghana Grid Company (GRIDCo) as well as the Tema Oil Refinery (TOR) among others not only weighed on government but threatened the stability of some banks.

According to Moody’s, these legacy debt agreements with the creditors demonstrates ‘government's commitment to the IMF programme, with reduced likelihood of renewed election-related expenditure overruns this year or in case of a change in administration after presidential and parliamentary elections scheduled for December 7, 2016.’

Ghana’s total public debt stands at GH¢112.4 billion as at September 2016 which translates into about 67.4 percent of GDP, according to data released by the central bank ahead of its 73rd regular Monetary Policy Committee (MPC) meeting.

The public debt composition is dominated by external debt which makes up about GH¢65 billion, representing about 39 percent of GDP and domestic debt of GH¢47.4 billion, representing about 28.4 percent of GDP.

Ahead of Wednesday’s elections, Standard & Poor's Ratings Services in its country report earlier this year affirmed its 'B-/B' long- and short-term foreign and local currency sovereign credit ratings on Ghana with a stable outlook.

‘We project a gradual pickup in Ghana's economic growth in 2016, owing to a more reliable power supply, while increased oil production from late 2016 should sustain medium-term growth.

‘Fiscal consolidation remains broadly on track, with a projected fall in the deficit to 5.3 percent of GDP in 2016, mainly thanks to the introduction of revenue measures such as higher value-added tax and tight expenditure control; nevertheless, Ghana's main public power utilities represent a risk to public finances,’ the report said.