Revised 2023 budget shows slight deficit amid IMF alignment – GCB Capital Research
Finance Minister Ken Ofori-Atta presented the highly anticipated mid-year budget review to parliamentarians on Monday, July 31, 2023. The revised 2023 budget, while reflecting encouraging adjustments to the fiscal framework, reveals a slight deficit. The Minister notably re-calibrated headline fiscal and macroeconomic targets to align with IMF expectations ahead of the program’s first review in September.
Research Lead at GCB Capital, Courage Boti, highlighted that the fiscal numbers for the first half of 2023 show an 8.4% revenue shortfall relative to the target of GHS 59.3 billion (7.4% of GDP). This shortfall was driven by various factors, including revenue shortfalls from petroleum sources, lower collection from excise taxes, and the E-levy, among other revenue streams.
However, despite the revenue challenges, the government managed to slow down the rate of expenditure accumulation during the period. Pronounced cuts in capital expenditure (CAPEX), interest savings resulting from Debt and Debt Service Management (DDEP), a freeze on external debt service, and significant reductions in subsidies to government agencies led to a remarkable compression in total expenditure (commitment) by 26.3% below the target, amounting to GHS 68.50 billion.
The revised budget also projects a higher end-period inflation rate, escalating to 31.3% from the earlier 18.9%. Furthermore, both the oil and non-oil real GDP growth outlooks were significantly reduced to 1.5% from previous estimates of 2.8% and 3%, respectively. Notably, the nominal GDP outlook was raised to GHS 854.83 billion from GHS 800.92 billion.
In a move to further align the 2023 budget with the targets of the IMF-supported PC-PEG (Policy Coordination Instrument and Policy Support Instrument), the government revised the revenue outlook lower to GHS 134.91 billion (15% of GDP). This was achieved by trimming revenue expectations from taxes on oil and the E-levy, among other revenue sources. On the expenditure side, the government also made adjustments, reducing the 2023 expenditure target by 3.7% to GHS 183.86 billion (21.5% of GDP).
Nevertheless, these fiscal adjustments resulted in a higher nominal budget deficit (on a commitment basis), causing the primary balance to swing into a deficit equal to 0.5% of GDP. This contrasts with the initial target of achieving a primary surplus equivalent to 0.7% of GDP. While the higher nominal GDP is expected to improve liability ratios, the expansion of the deficit during a period of fiscal consolidation raises concerns among market participants.
As Ghana prepares for the first review of the IMF program in September, the focus will be on how the country navigates these fiscal challenges. Policymakers and investors alike will closely monitor the economic performance and the government’s efforts to maintain fiscal discipline while promoting sustainable growth.
