Leslie Dwight Mensah is an Economist at IFS
The Institute of Fiscal Studies (IFS) has urged Government to take bold steps to check the growth of compensation expenditure and debt service cost.
Checking the growth of compensation expenditure and debt service cost, according to the IFS, would go a long way to generate fiscal space to fund productive public investment that would brighten future prospects of the economy.
Mr Leslie Dwight Mensah, an Economist at IFS, made the call during a news briefing in Accra on the review of the 2020 budget statement and economic policy of the government.
To complement Government’s efforts, the IFS was pleased to announce that it would soon come out with a set of recommended strategies that could help the Government address the compensation problem to create additional fiscal space.
In attendance at the briefing were some Senior Management team members of the IFS such as Professor Newman Kusi, Executive Director; Mr Nicholas De-Heer, Head of Programmes and Advocacy; and Dr Said Boakye, Senior Research Fellow.
Touching on fiscal performance and public debt developments, Mr Mensah, said the fiscal position was projected to marginally deteriorate past what the mid-year budget statement foresaw, with the budget deficit in 2019 expected to be 0.2 percentage points, higher than the programmed ratio of 4.5 percent of Gross Domestic Product (GDP).
“A careful look at the 2019 projected outturn data reveals that Ghana’s fiscal challenges seem to be compounding,” he said.
“The degree of rigidity in the budget has increased, with the three rigid expenditure items exceeding total revenue and grants by as high as 21.1 percent, the highest under the Fourth Republic”.
“This trajectory is fiscally unsustainable, as it is the main cause of the rapid debt build-ups. Once again, the total revenue and grants target is unable to be met.”
Dr Mensah said the projected outturn of GHC54.6 billion was 7.4 percent below the mid-year revised projection and 1.2 percentage pointed lower in terms of GDP.
He said while all the major components of revenue were expected to be lower than the mid-year budget forecasts, foreign grants and international trade taxes were among the worst performers, with projected shortfalls of 24.9 percent and 19.2 percent respectively.
He said the weak international trade tax receipts was the result of the reduction in benchmark import values in April 2019, aimed at boosting the competitiveness of Ghana’s ports.
“What the low receipts reveal is that, contrary to the government’s prediction, import volumes have not expanded to compensate for the reduction in the benchmark values.”
Mr Mensah noted that to contain the deficit within the five percent of GDP statutory limit, all the major expenditure items have been cut.
He added: “As has become the norm, central government capital spending will suffer the worst cut”.
Relative to the mid-year estimate, he said, projected capital spending shows a reduction of 21.7 percent.
“In fact, the cutback to domestic-financed capital expenditure is as large as 38.7 percent,” he added: “Such steep cuts to public investment spending undermine the long-term growth potential of the economy”.
Ghana’s public debt stock continues to mount as it climbed to GHC208.6 billion in September 2019 from GHC173.1 billion at the end of 2018, which Mr Mensah noted that, correspondingly, the debt-to-GDP ratio widened from 57.6 percent to 60.6 percent.
He said excluding the financial sector bailout bonds, the debt stock at end-September stood at GHC197.9 billion, equivalent to 57.4 percent of GDP.
He said: “With the more expansionary fiscal stance projected for 2019, the debt stock and ratio will experience further hikes in the rest of the year, calling for tougher measures in 2020 and beyond to address underlying budget rigidities that impeded attempts to improve debt sustainability”.
