Minister for Finance, Ken Ofori Atta says government remains fully committed to achieving the fiscal deficit target of 9.5 percent of gross domestic product (GDP) for this year, aimed at returning to the Fiscal Responsibility Act (FRA) thresholds, by 2024.
Provisional fiscal data for January to June 2021 from the 2021 mid-year fiscal policy review indicates an overall fiscal deficit of GH¢22.3 billion, equivalent to 5.1 of GDP, against a programmed target of GH¢22.7 billion, 5.2 percent of GDP.
“The implementation of the 2021 Budget has been successful so far. We remain fully committed to achieving the fiscal deficit target of 9.5 percent of GDP for the year in order not to derail from the objective of returning to the Fiscal Responsibility Act (FRA) fiscal deficit and primary balance thresholds of 5 percent of GDP and positive primary balance, respectively, by 2024,” Mr. Ofori Atta said this in Parliament while presenting the 2021 mid-year fiscal policy review of the budget statement and economic policy of the government.
According to the Minister, provisional fiscal data for the half year of 2021 shows government raised total revenue and grants of GH¢28.3 billion, equivalent to 6.5 percent of GDP, against a programmed target of GH¢32.4 billion which is equal to 7.5 percent of GDP.
Similarly, total expenditure, including the clearance of arrears, amounted to GH¢50.6 billion, equivalent to 11.7 percent of GDP, against a programmed target of GH¢55.1billion or 12.7 percent of GDP.
This means government, during the period, was able to cut its programmed expenditure by about GH¢4.5 billion, whereas revenue also fell short by GH¢4.1 billion.
The deficit for the period was financed from both foreign and domestic sources, of GH¢15.2billion and GH¢7.1billion, respectively. Foreign financing constituted 68.3 percent of the total financing, which includes inflows from Eurobond proceeds, whereas, domestic financing represents 31.7 percent of total financing.
Nonetheless, the International Monetary Fund (IMF), in its staff report for the 2021 Article IV Consultation, projected a wider budget deficit of 13.9 percent of GDP in 2021, including energy and financial sector costs.
The Fund’s forecast is hinged on the fact that government’ says it will rely on tax compliance to generate more revenue, especially from the newly introduced taxes, a move, the IMF says, may not yield the expected results, given the experience of past compliance challenges and complexities.
Government projects to add revenue equivalent to 1.4 percent of GDP through the new taxes introduced in the 2021 budget. However, the IMF says this will fall short by 0.5 percentage point, to 0.9 percent for the year. Effectively, government will realise about GH¢4 billion, compared to the over GH¢6 billion it has projected to attain from the taxes.
Again, the budget statement noted that government embarked on a frontloading of it financing need. As a result, the public debt stock, as a percentage of GDP, increased from 76.1 percent at the end of December 2020 to 77.1 percent of GDP at the end of June 2021— inclusive of the financial and energy sector bailouts.
“The increase in the debt stock was mainly because of the Eurobond issuance in April 2021, COVID-19 pandemic effect, contingent liabilities, and front-loading of financing to meet cash flow requirements for the first half of the year,” Mr. Ofori Atta said.