Fitch forecasts 10.5% fiscal deficit for Ghana

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International ratings agency, Fitch is forecasting a fiscal deficit to Gross Domestic Product of 10.5 per cent for Ghana this year.

This will be more than twice the 2019 commitment basis deficit of 4.7 per cent.

The government had brought the commitment basis deficit to below 5.0 per cent in 2017-2019, following the 2016 election year blowout.

The Fitch reported quoted by myjoyonline.com  said cash deficits remained high as the government paid down domestic arrears and realised the cost of contingent liabilities in the banking and energy sectors.

The cost of bank recapitalisation added an estimated GHC18 billion (5.5 per cent of 2020 GDP) to cash deficits over 2018-2020.

Clearing arrears in the energy sector also added 1.6 per cent of GDP to the 2019 deficit and Fitch assumed it will add an additional 1.0 per cent a year through 2023.

Election spending on deficit

Fitch forecast the cash deficit to narrow to 7.1 per cent of GDP in 2021 and to 6.0 per cent in 2022, but a failure to consolidate following the December 2020 presidential election is a key risk to its projections.

Such risks it said were illustrated by the Mid-Year Budget Review and the 2021-2024 Budget Preparation Guide, released in August 2020. Both indicate a very gradual path to deficit reduction following 2020’s fiscal expansion, but Fitch believes that only after the election will there be more clarity around the medium-term fiscal framework.

Fitch’s baseline fiscal scenario assumes that the government continues to under-execute its capital budget and that most of the COVID-related expenditure is removed from the budget by 2022, while revenue returns to pre-2020 levels.

“Evidence that Ghana’s post-election fiscal strategy would lead to a higher public-debt trajectory could be a source of downward pressure on the ratings. Furthermore, the election itself brings additional risk in the form of off-budget spending or the building of domestic arrears, which has led to fiscal crises in previous electoral cycles”, it said.

World Bank fiscal deficit projection

The World Bank had earlier projected a much lower fiscal deficit of 7.2 per cent of Gross Domestic Product for Ghana this year, lesser than the government’s revised forecast of 12.2 per cent, according to its Africa Pulse Report.

The government had earlier projected a fiscal balance of -4.4 per cent of GDP, but covid-19 compelled it to revise the target by a wider margin.

However, recent pickup in economic activities which is expected to bring in some needed revenue may have led to this adjustment. Nevertheless, the country’s fiscal deficit- that is the shortfall in revenue compared with spending – is expected to be second to South Africa, in Sub Saharan Africa.

Source: ghanaiantimes