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Government likely to record wider budget deficit in 2022 – Fitch Solutions

4 years ago
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Government is likely to record wider budget deficit in 2022 – Fitch Solutions

According to Fitch Solutions, government is likely to continue to record wide budget deficits and arrears, particularly in the short term, despite planned reforms to broaden the tax base.

In its Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis of the Ghanaian economy for the first quarter this year, the research firm however, stated the country has better business operating conditions and greater stability than peer economies such as Nigeria and Cameroon.

The report by Fitch Solutions notes that the high public debt levels will continue to weigh on Ghana’s fiscal outlook over the coming years due to the under-performance of government revenue and that could reduce the availability of funds for government to undertake critical infrastructure projects.

“The government is likely to continue to record wide budget deficits, particularly in the short term, despite planned reforms to broaden the tax base, while rising external debt payments will continue to weigh on Ghana’s external accounts and ensure the current account remains in deficit in the coming years.”

On the country’s weaknesses, Fitch Solutions said the large – though declining – informal sector eludes the governments’ coffers, despite recent efforts to broaden the tax net.

It warned that Ghana’s reliance on commodity exports such as cocoa and gold exposes the country to fluctuations in global commodity prices.

Regarding threats, Fitch Solutions pointed out that further delays to the country’s Covid-19 vaccine roll-out would expose Ghana to further waves of infections, and potentially derail the economic recovery.

Read: Is Ghana’s star at risk of dimming in the eyes of foreign investors?

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 “In the short term, however, the coronavirus pandemic will remain a risk to the economic outlook. Further waves of infections, new virus variants and a slower-than-expected vaccine roll-out could all derail the recovery.”

Also, it cautioned that climate change will pose medium to long-term risks to the crucial cocoa industry.

On strength, Fitch Solutions, said the country has a better business operating conditions and greater stability than peer economies such as Nigeria and Cameroon, and therefore businesses will benefit from the relatively pragmatic government policy programme implemented in recent years

Despite the challenges with the fiscal economy, ratings agency, Fitch, is projecting a 5.5% expansion of the Ghanaian economy this year.

It is attributing that to recovering in the industrial sector, including oil, in line with global growth recovery.

The country experienced three years of strong growth prior to 2020, largely driven by increasing oil production.

“We expect oil production to increase to 190 thousand barrels per day (kbpd) in 2022, from an estimated 160 kbpd in 2021, but to remain flat through 2023, which will limit Ghana’s medium-term growth potential,” Fitch said.

Furthermore, it expects post-pandemic growth recovery to keep growth potential around 5%.

However, it expressed worry about the number of increasing Covid-19 cases, due to the Omicron wave, but noted that Omicron is not likely to significantly impact the 2022 growth rate.

“The number of Covid-19 cases has increased dramatically in January 2022, due to the Omicron wave, but hospitalisations and deaths remain below previous waves”.

Going forward, Fitch said the low level of vaccination means that Covid-19 will continue to present risks to Ghana’s medium-term growth.

Tags: better business operating conditions and greater stabilitycocoa and goldCOVID-19 pandemicglobal commodity prices.Government is likely to record wider budget deficit in 2022--Fitch Solutions
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