The implementation of fiscal consolidation measures by government, according to a report by Databank is inevitable this year.
This is because the Databank Research 2020 Review and 2021 outlook Report, indicate that the country’s debt stock has passed the sustainable 70 per cent maximum threshold of Gross Domestic Product (GDP).
“We believe fiscal consolidation is inevitable in 2021 as the public debt ratio has crossed the maximum early warning sustainability threshold of 70% for market access countries in 2020,” noted the report.
The report also added that, budget deficit which currently stands at 13 per cent end-2020, is expected to be compressed to between 8.10 per cent and 9.1 per cent.
“We forecast a compression in the overall budget deficit to between 8.10% – 9.10% by full year-2021 (midpoint: 8.6%},” stated the report.
“The legislative limit of a 5% deficit remains suspended to support a gradual withdrawal of fiscal support for economic recovery. Against the backdrop of a health crisis and economic slowdown which requires continued policy support to recover, the authorities have rightly triggered Section 3 (1) of the Financial Responsibility Act to suspend the fiscal rule. We believe the fiscal rule would remain suspended over the next 2-3 years as the deficit contracts steadily to below 5.0% over time,” the report further added.
Government per the fiscal consolidation measures to be implemented this year, is expected to have a tight, low-spending budget, affecting spending to critical sectors of the economy such as health, industry and education.
Fiscal consolidation by government has become imperative given the rising debts and expenditure, which if not checked could throw away gains chalked by the economy in the last four years.
Fiscal consolidation involve measures taken by governments to drive down enormous accumulated debts.
