Economists at Standard Bank, the parent company of Stanbic Bank Ghana, have described Ghana’s mid-year budget review as a reflection of both prudent financial management and economic management. This was contained in the June 2024 Flash Note of the Standard Bank’s Africa Markets Revealed (AMR) report.
The report notes some significant strategies being deployed by the government to reduce its fiscal deficit. The report said “The government’s commitment to maintaining a positive primary balance remains intact, with a targeted surplus of 0.5% of GDP. However, there has been a notable reduction in the fiscal deficit.
The revised deficit stands at GHS42.5 billion (4.2% of GDP) on a commitment basis, down from the initial GHS50.3 billion (4.8% of GDP). On a cash basis, the deficit has been adjusted to GHS54.1 billion (5.3% of GDP) from GHS61.8 billion (5.9% of GDP).
This decrease is attributed to higher revenue projections and revised expenditure targets.”
The Flash Note, however, noted the shortfall in revenue targets saying “Projected total revenue and grants have increased to GHS177.2 billion (17.4% of GDP) from the previous estimate of GHS176.4 billion (16.8% of GDP). This growth is primarily driven by stronger non-oil tax revenues, which are expected to rise to GHS15.6 billion (1.5% of GDP) from GHS14.8 billion (1.4% of GDP). Despite this positive outlook, actual revenue collected in the first half of 2024 fell short of targets, reaching GHS74.7 billion against a target of GHS76.1 billion.”
On the expenditure side, the Flash Note reports that total spending has been revised downward to GHS219.7 billion (21.5% of GDP) from GHS226.7 billion (21.6% of GDP). This reduction, according to the report, is largely due to decreased external debt service costs following a successful debt restructuring operation. The government’s management of capital expenditure will be pivotal, particularly as potential challenges arise with implementation ahead of the December elections.
One of the most notable changes in the budget, the report notes, is the dramatic increase in net foreign financing, which has surged to GHS15.2 billion (1.5% of GDP) from GHS463.5 million in the initial budget. This increase is linked to a reduction in external debt amortization, which has been cut from GHS20.8 billion to approximately GHS6.0 billion due to the debt restructuring. The government has also secured substantial external funding, including USD960 million from the IMF, USD550 million from the World Bank, and further expected disbursements from these and other international bodies. The planned external debt service relief is projected to contribute USD1.8 billion in 2024 and USD3.2 billion in 2025, effectively addressing the external funding gap.
The review underscores a significant restructuring of Ghana’s debt obligations, which should alleviate some fiscal pressure. The reduction in net domestic financing, now at GHS38.9 billion (3.8% of GDP), and the shift towards shorter-term government securities reflect a strategic approach to managing domestic liquidity and debt service. However, the report notes that challenges persist. The risk of underperformance in revenue collection is evident, given the shortfall in the first half of 2024. Additionally, with the approaching elections, there may be increased pressure on capital expenditure management, raising concerns about potential implementation risks.
Overall, the government’s fiscal adjustments demonstrate a commitment to stabilizing the economy and managing debt effectively. While the revised path appears more manageable due to external debt relief and increased foreign financing, continuous monitoring and strategic execution will be essential for achieving the revised fiscal targets and ensuring economic stability. As the year progresses, stakeholders will need to closely monitor revenue performance, expenditure adherence, and the impact of external financing on Ghana’s economic outlook.
The African Markets Revealed Report, a monthly publication by Standard Bank Group, the parent company of Stanbic Bank Ghana, provides an economic and financial outlook for African countries, reviewing current economic conditions and offering short to medium-term economic predictions.
