Mid-year budget review ‘boldly ignores’ downgrades and alerts from rating agencies – PFM Tax Africa
The government has been accused of ignoring warnings and alerts from rating agencies and major multilateral institutions such as the World Bank, IMF, and Fitch Ratings over its stagnant revenues and rising debt vulnerabilities.
The accusation follows the maintenance of the government’s 2021 budget targets in the 2021 Mid-year budget review.
Fitch Ratings in June reviewed downwards Ghana’s Long-Term IDR from ‘B’ to ‘B-‘. The World Bank and IMF have also on several cautioned Ghana on the need to reduce its borrowings to tackle the issue of rising debts given that the country is already at risk of high debt distress.
According to former Finance Minister and Executive Director of PFM Tax Africa Network, Seth Terkper, the government’s decision to maintain its macroeconomic targets makes the country’s fiscal situation more worrisome given its continuous higher expenditures and deficits as well as stagnant revenues.
Adding that the country’s fiscal outturns in the mid-year budget review – revenues, expenditures, bailout costs, and overall deficit – diverge from the IMF’s forecasts in the July 2021 Article IV Consultation Paper.
Table 3 compares various elements of the IMF’s 2021 Article IV Review conclusions with the Original GOG 2021 Budget and medium-term forecasts.
The fiscal outturns diverge as follows: (a) lower Revenues; (b) higher Expenditures; (c) non-zero Bailout costs; and (d) wider Overall Deficit (Fiscal Balance). The IMF also has higher nominal GDP of GHC 446.662m, which, overall, makes the fiscal situation more worrisome, given the higher GOG expenditures & deficit as well as IMF revenue forecasts that are lower than GOG’s.
In general, as the Table 4 & Figure 10 (below) show, it is difficult for GOG to achieve its 2021 Budget targets (without its now familiar relegation of routine expenditures and arrears to footnotes and directly to amortization).
In the Art. IV, the targets of 10.8% (2021) and 7.5% (2022) widen to 14.0% and 10.4% respectively. These are significantly higher than the FRA’s target of 5%, since revenue and expenditure, including bailout costs also diverge. However, GOG seems to go against the tide by keeping to its original 2020 Budget targets: 10.8 in (2021, not in IMF’s 2022) and 7.5% in 2022 (which is 2.9% lower than the IMF’s).
