Ghana: Fiscal economy set for strong recovery as deficit shrinks – Fitch Solutions
In a promising turn of events, Ghana’s fiscal economy is expected to witness a significant recovery in the coming year, with the budget deficit projected to narrow substantially, according to Fitch Solutions’ Mid-Year Review of Sub-Saharan Africa. The UK-based firm highlights that the deficit is estimated to decrease to 5.7% of Gross Domestic Product (GDP) for the fiscal year 2023/2024, down from the previous year’s 8.3% in 2022/2023.
Fitch Solutions attributes this positive outlook to a combination of directed fiscal consolidation measures under the guidance of the International Monetary Fund (IMF) and the suspension of interest payments. Furthermore, the restructuring of Ghana’s domestic debt, along with the introduction of new taxes, serves as a strong foundation for the expected improved fiscal economy.
A key factor contributing to this favorable outlook is the decline in interest payments, as outlined in the Bank of Ghana’s May 2023 Monetary Policy Report. The report indicates a noteworthy 44.2% year-on-year decrease in interest payments during the first quarter of 2023. However, it is crucial to note that this decline is primarily a consequence of the freeze on external debt service payments implemented since December 2022.
Despite these positive developments, Fitch Solutions observes a rising trend of debt service payments across major markets in Sub-Saharan Africa (SSA). The firm underscores that while global monetary tightening and prevailing risk-off sentiment triggered a sharp surge in emerging market bond yields throughout 2022, the subsequent moderation of global conditions has failed to fully restore bond yields to pre-2022 levels.
In light of this ongoing challenge, governments across the region are grappling with limited access to international debt markets, leading to an increase in costs, particularly when resorting to relatively expensive domestic capital markets.
Ghana’s fiscal outlook appears promising, with anticipated improvements driven by targeted fiscal consolidation measures and the temporary suspension of interest payments. However, against the backdrop of rising debt service payments in Sub-Saharan Africa and the associated difficulties in accessing affordable financing, governments in the region continue to face formidable obstacles in navigating the global market challenges.
