COVID-19 has brought in its wake monumental problems for countries, particularly for economies as general economic activity grinds to a halt.
Ghana is no exception since Finance Minister, Ken Ofori-Atta this week said that the impact of the coronavirus pandemic on the local economy will cause the deficit target to widen beyond the Fiscal Responsibility Act’s threshold of 5 percent.
Technically, the Fiscal Responsibility Act and the establishment of the Fiscal Council puts a cap on public expenditure and is meant to strengthen mechanisms for fiscal discipline. It stipulates two fiscal rules, or targets. First, the annual budget deficit should not exceed 5 percent of GDP on a cash basis, and second, the government’s primary balance should stay positive.
However, the sudden negative impact of the coronavirus pandemic on revenue and expenditure has made any thought of achieving such a target unrealistic and unattainable, Finance Minister, Ken Ofori-Atta told Parliament this week.
Mr. Ofori-Atta now admits that the target may rise to as high as 7.8 percent. Already, even without the anticipated electioneering spending, the Act is likely to be breached and for very good reasons since the pandemic was not anticipated.
Is saying so however, we also have to recognize that government programmes and projects are likely to suffer while monies would have to be diverted to find ways to contain the spread of the virus and not cause a national disaster.
The deficit, according to Ofori-Atta, will increase from the programmed GH¢18.9 billion to GH¢30.2 billion, the variance equivalent to 2.9 percent of GDP and our minds have been prepared for that outcome.
For now, even the election time-table could be compromised if we are not able to contain the virus early enough. Economic activity has ground to a halt and the chance of meeting revenue targets is almost nil. We really are in for some torrid times ahead.