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Home Economy

Fiscal deficit to reach 10.5% of GDP – Fitch predicts

5 years ago
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American credit rating agency, Fitch Ratings, has projected a 3.1 per cent increment in Ghana’s fiscal deficit before end-December 2020.

Ghana’s fiscal deficit according to the Monetary Policy Committee (MPC) in its 96th MPC press briefing in September, currently stands at 7.4 per cent of GDP owing to the Covid-19 pandemic.

The projected fiscal deficit of 10.5 per cent of GDP is a huge surge in deficit especially when compared to the 4.5 per cent fiscal deficit achieved in 2019 in accordance to the Fiscal Responsibility Act which mandates that fiscal deficit does not go beyond 5 per cent of GDP.

We forecast the increased expenditure contained in the revised budget and lower tax revenue to bring the fiscal deficit to 10.5% of GDP on a commitment basis, more than twice the 2019 commitment basis deficit of 4.7%. The government had brought the commitment basis deficit to below 5.0% in 2017-2019, following the 2016 election-year blowout.

Fitch said.

Fitch ratings in its projection, attributed the rise in fiscal deficit partly to cash deficits incurred by Government in clearing arrears in the energy sector as well as the recapitalisation of banks in the country.

Cash deficits remained high as the government paid down domestic arrears and realised the cost of contingent liabilities in the banking and energy sectors. The cost of bank recapitalisation added an estimated GHS18 billion (5.5% of 2020 GDP) to cash deficits over 2018-2020. Clearing arrears in the energy sector added 1.6% of GDP to the 2019 deficit and we assume it will add an additional 1.0% a year through 2023. We expect the 2020 cash deficit to be 13.6% of GDP.

Fitch Ratings

The agency also noted that, interest payments is expected to reach 49 per cent of Government revenue by end of 2020.

Fitch Ratings on October 15, 2020, affirmed Ghana at B with a stable outlook with regards to the country’s Long-Term Foreign-Currency Issuer Default Rating (IDR).

The positive rating according to Fitch, reflects a gradual recovery of economic performance, fiscal revenue, stabilisation of debt to GDP and the ready availability of both external and domestic financing sources after the shock sustained from the Covid-19 pandemic.

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