20% expenditure cut by government in the right direction – Analyst
Government’s decision to cut quarterly expenditure by an estimated 20% has been described as a major investor boost for the economy.
According to the CEO and Co-Founder of C-Energy Global Holdings and Investment Analyst, Mike Cobblah, government’s decision to reduce their projected expenditure by 20% is a move in the direct direction.
Making the assertion at a press briefing on Wednesday, January 19, the Finance Minister noted the move by government implies that government’s fiscal consolidation agenda is not going to be only revenue-led but also expenditure-focused.
“We are also strengthening expenditure management in 2022 and beyond. To ensure that we match all expenditures to revenue inflows, all expenditure commitments in 2022 will be adjusted to match revenue collection.
“Therefore, in accordance with Section 25 of the Public Financial Management Act (PFMA) law, the quarterly expenditure ceilings of the approved budget will include up to a 20% downward adjustment, beginning in the first quarter of 2022, in commitments across board for all covered entities benefiting from the 2022 Budget, subject to revenue performance,” he remarked.
“This means that our fiscal consolidation agenda is not going to be only revenue-led but also expenditure focused,” the Finance Minister added.
According to Mr Cobblah, the move will boost investor confidence and stabilize the economy following Fitch Ratings’ downgrade.
Read: Strong economic growth, domestic revenue mobilisation being Pursued – Prez Akufo-Addo
“The first thing to know is to cut your coat according to your size, so the Finance Minister’s 20% cut is a step in the right direction. That is a fantastic move, I mean to it is tell investors that we’ve realised there is a problem, so even though parliament has approved the entire budget , you are cutting it by 20%. 20% is very significant. Now, beyond the 20% what are we going to do to fix our revenue, what other measures are you going to put in place to make sure that you’re cutting your coat according to your size.
He has advised government to desist from embarking on a universal roadshow as a means of raising funds especially following Fitch’s downgrade of the economy.
According to him, such a move will prove futile and might hasten the country’s economic collapse.
Speaking in an interview, he stated that, the precarious economic situation the country finds itself calls for more bilateral deals.
“It is easier to convince investors on one-on-one basis than to do a universal roadshow. So I would advise that government at this stage of our economy would have to do more bilateral deals, striking more bilateral deals with capital funds, funds outside rather than doing [roadshows],” he added.
He was hopeful that the country would be more successful with bilateral deals against a universal roadshow, as the former would allow the government focus their energies on friendly investors who might be more willing to invest despite the economic downgrade.
“It is time to engage your friendly investors. The economy is not bad, we’re not in that bad situation…it’s a perception don’t forget. So there are people who generally sympathise with your cause,” he said.
The downgrade of Ghana’s IDRs and Negative Outlook reflect the sovereign’s loss of access to international capital markets in the second-half of 2021, following a pandemic-related [COVID-19] surge in government debt.
Fitch in a report said “this comes in the context of uncertainty about the government’s ability to stabilise debt and against a backdrop of tightening global financing conditions. In our view, Ghana’s ability to deliver on planned fiscal consolidation efforts could be hindered by the heavier reliance on domestic debt issuance with higher interest costs, in the context of an already exceptionally high interest expenditure to revenue ratio.”
