2021 MID YEAR BUDGET REVIEW: Reflections

Gov’t to roll out six major expenditure cut measures
Ken Ofori-Atta is Finance Minister
  1. Fiscal targets broadly remain on track. Revenue raised in the first six (6) months of 2021 was GHC 28.3 billion against a target of GHC32.4 billion. Expenditure on the other hand reached GHC 50.6 billion against the GHC 55.1 billion target. This is good towards fiscal consolidation in the medium term. A possible ‘third’ wave could increase expenditure which will further balloon the deficit and public debt. Containment measures are therefore urgently needed to help curb the spread of the Covid-19 virus. Further restrictions will slow down economic growth which has shown signs of recovery.
  2. On Macroeconomic indicators, inflation target of 8% (-/+2) will likely be achieved by close of year. Gross International Reserve (GIR) target of 4 months of import cover will also likely to be achieved with strong commodity prices. It is unlikely that the fiscal deficit target of 9.5% of GDP will be achieved, same as positive primary balance and overall GDP growth of 5% for 2021.
  3. The Finance Minister not requesting for supplementary estimate is a step in the right direction towards fiscal consolidation. More so, introduction of new taxes could have been counter-productive. Attention should be on how to mobilize revenue internally using the digital tools rolled out by government. I expect an update on how the new taxes introduced in the 2021 Budget are performing in the 2022 Budget.
  4. Government should aggressively pursue the vaccination program. Vaccinating 20 million of the population to reach herd immunity by end of 2021 is ambitious but can be achieved with the right investment. How will the US$ 25 million towards vaccine development in Ghana be raised?
  5. Establishment of a National Homeownership Fund: Though commendable, with the current Universal Banking License regime, it will be difficult for participating financial institutions to offer mortgage at 11%-12% annual interest rate. The Ghana Reference Rate (GRR) as at June 2021 stood at 13.8% while average lending rate was 20.6% in the same period (Bank of Ghana).
  6. The establishment of Revenue Assurance and Compliance Enforcement (RACE) is welcoming. What will be its relationship with Ghana Revenue Authority (GRA)? Ghana loses billions of cedis through revenue leakages in petroleum bunkering, gold and mineral export, port operations, free zones operations etc. It is time to block the revenue loopholes.
  7. Government through the Ghana Enterprises Agency (GEA) disbursed GHC 520 million out of the earmarked GHC 600 million to 299,490 MSMEs. What impact assessment has been done? It is not enough to disburse funds but further assess its impact on economic growth and development.
  8. The National Covid-19 Trust Fund has so far received GHC 57.15 million of which GHC 52.5 million has been disbursed. Proper accounting on this Fund is therefore requested.
  9. Government intends to create 1 million jobs by 2024 especially for the youth. Further details are requested to know the kind of jobs (program jobs vrs permanent jobs) etc. Unemployment in Ghana is frictional, cyclical and structural. Attempts to create sustainable jobs should address the aforementioned forms of unemployment.
  10. Creation of ‘Youth Banc’ aimed at financing youth led start-up businesses. What happened to YEA, NEIP, MASLOC among others? Instead of creating multiple institutions to solve the same problem, government should rather consolidate existing programs and properly finance and manage them.
  11. The quest to use Ghana Infrastructure and Investment Fund (GIIF) to service expensive debt and finance infrastructure is welcoming.
  12. Establishment of Ghana National Petroleum Corporation (GNPC) Explorco to acquire assets and become an operator is a forward looking initiative taking into consideration the global outlook for fossil fuel exploration.
  13. The budget was silent on the status of the Tax Exemption Bill. In our quest to raise revenue, proper exemption law is needed to prevent abuse and generate revenue.

The writer is an Economist

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