2022 budget to be debt-dependent unless… – Seth Terkper
Former Minister for Finance, Seth Terkper, has said the 2022 Budget Statement will be debt or loan-dependent if government fails to ramp up its tax and non-tax revenues.
Government’s set target for total revenue this year is 16.7 percent of GDP (Ghs 72.4 billion) which tax revenues to be raised account for 12.9% (Ghs 55.8 billion)
Government for the second quarter of 2021 has achieved 5.4% (23.2 billion) of the targeted 5.8% (Ghs 25.1 billion) tax revenue with some 7.5% (Ghs 32.5 billion) to be raise within the third and fourth quarters.
Speaking in a media engagement on Wednesday, November 10, 2021 and ahead of the 2022 budget statement presentation, Mr Tekper who currently is the Executive Director of tax consultancy firm, PFM Tax Africa, advised government to focus on increasing its tax revenues to help in the financing of its expenditure noting that, the 16.7 percent of GDP revenue target set for the year although ambitious seems attainable given the impact of rising crude oil prices and recovery from the pandemic.
According to him, total revenue currently, is some 75.3 percentage points short of government’s expenditure on a cash basis – expenditure is 175.3%.
Adding pressures on the two driving factors of government expenditure – compensation and wages – will continue to increase thereby forcing government to borrow to finance them further worsening the country’s debt situation.
Rather than going to the International Monetary Fund (IMF) for a debt reduction programme as recommended by rating agencies such as Fitch, the government has declined to do asserting it has still has access to the capital market – both international and local – to raise money to finance its deficit.
However, given the country’s high debt levels, low revenue mobilization and increasing financing needs, the country is expected to borrow at higher interest rates from the market
Currently, government is looking to return to the international capital market to issue its $2 billion green bond to raise funds to finance the 2022 budget.
Fiscal deficit at 6.1% at the end of July 2021
Government fiscal deficit to Gross Domestic Product (GDP) at the end of July 2021 was estimated at 6.1%, higher than the budgeted target of about 4.5%.
This is compared with the 7.4% of GDP during the same period last year.
According the Bank of Ghana’s Summary of Economic and Financial Data, total revenue and grants in the first seven months of this year was estimated at 7.8% of GDP, as against 7.3% of GDP during the same period last year.
In June and May 2021, the total revenue and grants was however estimated at 6.4% and 5.1% respectively. Domestic revenue excluding grants was 7.7% of GDP, indicating that grants from donor partners have gone down drastically.
Government will thus have to do more to increase tax revenue in order to reduce the budget deficit. Comparatively, domestic revenue in June 2020 was however 7.1% of GDP.
For tax revenue, it was estimated at 6.4% of GDP in July 2021, as against 5.9% in July 2020. Total expenditure for the first seven months of 2021 was however 13.9% of GDP, as compared with 14.7% during the same period last year.
In June 2021 and May 2021, total expenditure was estimated at 11.5% of GDP and 9.7% of GDP respectively.
On the other hand, Capital Expenditure was estimated at a paltry 1.9% of GDP in July 2021. This shows that chunk of government spending is centered on consumption and not productivity.
For the primary balance which is the difference between fiscal deficit and interest payments, it was estimated at -1.9% of GDP (deficit), compared with -3.7% in July 2020. This also indicates that majority of the nation’s revenue is used to service interest costs.
