Accelerate fiscal consolidation measures to stabilise public debt – World Bank tells Ghana
The World Bank has advised managers of the Ghanaian economy to accelerate fiscal consolidation measures to stabilise the country’s public debt.
The assertion by the Bretton Wood Institution contained in its June 2022 Global Economic Prospects Report, is on the back of stagflation risks currently facing the Sub-Saharan African region.
In the said report, 60% of economies in the region (including Ghana) are at a high risk of debt distress following deteriorations in fiscal balances and increased indebtedness due to the Covid pandemic.
Ghana’s public debt as at end-May 2022 according to the Bank of Ghana (BoG), stands at GHS 391.9bn representing 78% of the country’s Gross Domestic Product (GDP).
Ghana’s public debt over the last few years (particularly during and after the Covid) has increased significantly, with fiscal deficits consistently above the mandated 5% fiscal deficit imposed on government by Fiscal Responsibility Act.
In view of that, the Finance Minister early this year announced a number of fiscal measures that are to ensure that rising expenditure and thereby rising public debt is curtailed.
But according to the World Bank, these fiscal measures would have to be accelerated to stabilise the country’s rising public debt.
The announced fiscal measures by the Finance Minister are as follows:
- 30% cut in discretionary spending: The Ministry of Finance is currently meeting with MDAs to review their spending plans for the rest of the three (3) quarters to achieve the discretionary expenditure cuts;
- A 50% cut in fuel coupon allocations for all political appointees and Heads of government institutions, including SOEs, effective 1st April 2022;
- Government has imposed a complete moratorium on the purchase of imported vehicles for the rest of the year. This will affect all new orders, especially 4-wheel drives.
- Government has imposed a moratorium on all foreign travels, except pre-approved critical/statutory travels
- Government will conclude on-going measures to eliminate “ghost” workers from the Government payroll by end December 2022;
- Government will conclude the renegotiation of the Energy Sector IPPs capacity charges by end of Q3-2022 to further reduce excess capacity payments by 20% to generate a total savings of GHS1.5 billion;
- Impose a moratorium on establishment of new public sector institutions by end April, 2022;
- Prioritise ongoing public projects over new projects. This is to enhance the efficient use of limited public funds over the period by finishing ongoing or stalled but approved projects;
- Reduce expenditure on all meetings and conferences by 50%, effective immediately;
- Cabinet approved that Ministers and the Heads of SOEs to contribute 30 percent of their salaries from April to December 2022 to the Consolidated Fund
- Pursue a comprehensive re-profiling strategies to reduce the interest expense burden on the fiscal; and
- liaise with Organised Labour and Employers Association to implement with immediate effect, the measures captured in the Kwahu Declaration of the 2022 National Labour 13 Conference, including reforms towards addressing salary inequities / inequalities (e.g. Article 71 Office Holders), the weak link between pay to productivity and the sustainability of the payroll
Meanwhile, the World Bank is warning Ghana and some African countries against the widening credit spreads and weakened currencies.
In the same report, the Bretton Wood institution, also said the tightening of monetary policy to combat rising inflation has also gathered pace in several Sub-Saharan African economies including Ghana, Namibia, Nigeria, Rwanda, Sierra Leone and South Africa.
Moreover, the rising core inflation in several countries (Cameroon, Nigeria, Uganda) points to broadening price pressures, further reducing room for accommodative policies.
“Sovereign credit spreads have already widened and currencies weakened in countries perceived to be at high risk of debt distress (Ghana)”, it explained.
“Fiscal policy, already constrained by high public debt and tightening global financial conditions, have become even less accommodative. Spending pressures to curb the impact of rising prices have been building in many countries, for example, fuel subsidies in Cameroon, Kenya, and Nigeria; a fuel levy reduction in South Africa, further straining fiscal positions”, the World Bank stated.
