Bank of Ghana Governor, Ernest Kwamina Addison, has cause to worry about the country’s ballooning budget deficit. He expressed the opinion that Ghana needs to raise more domestic revenue to tackle a ballooning budget deficit that could exceed 7% of GDP this year, as growth shrivels due to the coronavirus crisis.
“I think we need to do some work in trying to revisit the mobilisation of revenue from our domestic resources, and use that to manage the growing budget deficit,” Addison said in an interview last week.
At the end of March 2020, Ghana’s public debt reached GH₵236.1billion according to the Bank of Ghana. The higher than projected fiscal deficit of 7.8% as compared to the 5% limit and the negative primary balance are in breach of the Fiscal Responsibility Act (Act 982). At present, government is within the 65% of debt to GDP ratio in line with objectives of the fiscal responsibility law; but a reversal of this upward trend is not likely to be achieved in the short- to medium-term.
The finance minister will in July present a mid-year budget that will give government an opportunity to review its macroeconomic targets as a result of economic challenges caused by the COVID-19 pandemic.
Policymakers will have to review the public debt management strategy to reflect the financing gaps caused by the COVID-19 pandemic. BoG’s Monetary Policy Committee will also meet in July and assess the impact of current measures.
Governor Addison promised to take further action if necessary. The rising debt stock therefore needs a prudent public debt management strategy to avert macroeconomic instability. As the Governor states in the interview: “We cannot allow the COVID-19 pandemic to undermine all the gains we have made over the past three years”.
Since we are not in normal times because of the unexpected outbreak of the COVID-19 pandemic, we are confident that policymakers will take all necessary steps to ensure the financing gap occasioned by the pandemic does not become an albatross around the nation’s neck.