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Business News for Monday, October 26, 2020
Source: Business 24
2020-10-26
International Monetary Fund logo
The International Monetary Fund (IMF) forecasts that Ghana’s fiscal deficit will reach 16.4 percent of GDP this year, the largest in the country’s history.
The record deficit projection comes in the wake of the devastating effect of the coronavirus pandemic, which led to a large deficit in government revenue amid higher-than-expected spending in a frantic effort to contain the spread of the virus.
The additional spending includes the provision of free electricity and water by the government so that Ghanaians can cope with the disruption caused by the virus, as well as loans to businesses.
Finance Minister Ken Ofori-Atta, in his mid-year budget presented in July, revised the projection of the country’s fiscal deficit for 2020 from 4.7 percent to 11.4 percent of GDP to accommodate the fiscal impact. of the pandemic.
The broader projection of the Fund, which appears in its publication Monitor Fiscal of October 2020, seems to take into account the expenses incurred by the government to clean up the financial and energy sectors, costs that the government has systematically excluded from its calculation of the fiscal deficit.
Not only is the projection the largest in Ghana’s history, it also means that the country will suffer the largest fiscal deficit in sub-Saharan Africa.
Furthermore, the report projects that government debt will increase from 62.8 percent of GDP in 2019 to 76.7 percent in 2020, before declining to 74.7 percent in 2021.
According to economist Dr. Theo Acheampong, rising debt raises significant concerns about debt sustainability, especially for external debt service, with several Eurobond coupon payments due in the coming months.
The Fund declared that the fiscal deficit will shrink to 9.3 percent of GDP in 2021, before shrinking to 6.3 percent of GDP in 2025, meaning it will take longer than the government currently expects to restore the compliance with the 5 percent GDP deficit rule.
Tax reforms
In an interview with Business24 published in September, IMF Resident Representative Albert Touna Mama urged the government to undertake a wide range of fiscal reforms to deal with the stress that the COVID-19 pandemic has placed on the economy.
He said that Ghana, like most countries, has experienced a heavy build-up of public debt in an attempt to combat a crisis unprecedented in modern economic history.
He argued that the government should, as far as possible, prioritize its spending to combat the impact of the virus.
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