Ghana far from fiscal ease - Standard Bank
A report from Standard Bank, says Ghana may have to wait till 2024 to return to its deficit threshold of 5%. In its latest Flash Note of the African Markets Revealed (AMR) report for March 2021, the research team of the bank said this is not an isolated case as most African economies are projected to see fiscal consolidation between two and four years from now.
“The path to fiscal consolidation may take a further four years as the government does not expect to return to within the Fiscal Responsibility Act threshold of 5% of GDP until at least 2024. In fact, most African economies foresee some two to four years to fiscal consolidation given the disruption to economic activity and consequent impact on government revenues amid rising social costs. However, fiscal consolidation faster than that would be desirable given high interest payments and debt service costs”, the report said. This comes on the back of a Government of Ghana projected fiscal deficit of 9.5% for 2021. The reported further noted that improvement in Ghana’s fiscal consolidation will depend largely on how the country recovers from the shocks of COVID-19.
The report noted that “The Ghanaian government projects a 9.5% fiscal deficit-to-GDP ratio for 2021 amid rising social expenditure and interest payments, from 11.7% recorded in 2020. Including financial sector costs, fiscal deficit-to-GDP was 13.7% in 2020. Much of the progress on fiscal consolidation will depend of how quickly the economy can recover after the pandemic. The government forecasts growth of 5% y/y for 2021, roughly matching our base case of 4.8% y/y where we expect external demand to rebound more meaningfully in H2:21 due to vaccinations across the globe.”
The report also projected a 32 percent increase total revenue for this year. According to the report, the revenue increase is likely to be a consequence of increased domestic taxes. “Total revenues (including grants) for 2021 are projected to increase by 32%, to GHS72.45bn (c.17% of GDP), from GHS54.92bn (14% of GDP) in 2020; 77% of that will likely come from domestic tax revenues. The government is looking to put a few tax measures in place, such as a percentage point increase each in the National Health Insurance levy and the VAT flat rate”.
On Ghana debt levels, the Flash Note said: “Though Ghana’s debt may seem sustainable, albeit with high risk of debt distress, the fast pace of growth of external commercial debt over the past few years calls for caution. Debt to- GDP levels rose to 76% in 2020 and could well hover around those levels in 2021 should GDP growth improve as we expect. Still, the split between domestic and external debt is almost even, at a 51:49 ratio. Moreover, commercial creditors, including Eurobond creditors, now account for near 50% of the external debt composition, underscoring debt investors’ sustainability concerns.”
The AMR Report is a monthly report issued by the Standard Bank Group, parent company of Stanbic Bank Ghana highlighting the economic and financial outlook of African countries with reviews of current economic situations while making short to medium-term predictions about economies on the continent.