2023 budget more expansionary than anticipated – Fitch Solutions
As the world slowly emerges from the Covid-19 pandemic, economies across the globe continue to grapple with the fallout from the crisis. One such economy is Ghana, which has been facing its own set of challenges in the wake of the pandemic. A recent report by Fitch Solutions sheds light on the country’s economic situation, revealing that the 2023 budget is more expansionary than previously anticipated.
The report notes that despite the Ghanaian government’s stated aim of implementing some expenditure reforms, the Finance Minister, Ken Ofori-Atta, did not announce large-scale spending cuts in the budget. Instead, the government aims to keep capital expenditure and grants to government units elevated, areas that Fitch Solutions had expected the authorities to cut back on. As a result, the government aims to spend a total of ¢205.4 billion, a 51.5% increase on the 2022 target, making the 2023 budget one of the most expansionary budgets in Ghana to date.
This expansionary budget is concerning, particularly given Fitch Solutions’ projection of a budget deficit of 7.5% of Gross Domestic Product (GDP) in 2023, higher than its earlier forecast of 6.7%. While stronger tax collection is expected to improve the outlook in 2023, spending is expected to remain high. The report notes that the 2023 revenue target of ¢144.0 billion is unrealistic, adding that while higher taxes will boost fiscal intakes, weakening economic activity on the back of still-elevated inflation and tighter monetary policy will cap revenue growth.
These challenges are compounded by the ongoing Covid-19 pandemic, which continues to pose a significant threat to the global economy. Ghana is no exception, with the country facing a surge in Covid-19 cases in recent weeks. The government has responded with measures to contain the spread of the virus, including the introduction of a vaccine mandate for all public sector workers. However, the impact of these measures on the economy remains to be seen.
Against this backdrop, Ghanaian policymakers are faced with the difficult task of balancing the need to support economic growth with the need to keep inflation under control. Inflation in Ghana is expected to peak in the first quarter of 2023 before gradually easing thereafter. However, the Bank of Ghana has projected that headline inflation will remain above the upper band of 8±2 percent until the second half of 2025, indicating that inflationary pressures are expected to persist for some time.
The Bank of Ghana’s efforts to rein in inflation have started to bear fruit, with monthly inflation declining from 8.6% in November to 3.8% in December 2022. Month-on-month food inflation also decelerated from 10.4% to 4.1%, while non-food monthly inflation also slowed from 7.2% to 3.6% over the same comparative period. Nevertheless, the challenges facing the Ghanaian economy are likely to persist for some time, and policymakers will need to remain vigilant in their efforts to support economic growth while keeping inflation under control.
