In spite of a 4.5 per cent moderation in expenditures in the first seven months of the year, the fiscal deficit widened to 3.8 per cent of gross domestic product (GDP), due to a drop in total revenue and grants within the period.
This means that the government exceeded its deficit target of 3.3 per cent of GDP by 0.5 percentage points between January and July.
The higher-than-budgeted deficit was occasioned by an almost nine per cent fall in revenue.
Provisional data on fiscal operations within the period showed that revenue and grants, which were budgeted to end July at GH¢27.17 billion (11.2 per cent of GDP), yielded GH¢24.73 billion (10.2 per cent of GDP).
On expenditures, the data showed that the government moderated its spending by 4.5 per cent and that led to a provisional outturn of GH¢33 billion, equivalent to 13.7 per cent of GDP.
In the 2018 mid-year budget review (MYBR) presented in July this year, total expenditure for the first seven months was revised down to GH¢34.6 billion, equivalent to 14.3 per cent.
Impact on end-year deficit
An Economist and Senior Research Fellow with the Institute of Fiscal Policy (IFS), Dr Said Boakye, told the GRAPHIC BUSINESS that the data followed the trend in recent years.
“Overall, I must say that the story is the same and I give the government credit for managing the economy in such a way that they do not overblow the deficit. That, overall, is good,” he said in a November 4 interview.
In spite of the higher-than-budgeted deficit for the period, Dr Boakye said he expected the deficit to end the year within target.
“Based on what they did last year, it looks like they (the government) try as much as possible to stay within target,” he said.
Another economist with the Economics Department of the University of Ghana, Dr Ebo Turkson, said he expected recently introduced tax measures to help boost revenue inflows and subsequently neutralise the impact on the deficit.
“For me, I do not think that it should throw up the end-year deficit target,” Dr Turkson, who is a senior lecturer, added.
Causes of high deficit
A GRAPHIC BUSINESS analysis of the data showed that the fall in revenue was in spite of a turn-up in corporate taxes from oil and programme grants.
The two revenue items were not budgeted for within the period, but yielded a combined sum of GH¢386.3 million.
The yields were, however, not enough to offset the falls in collections from the other lines.
Apart from social contributions, whose provisional actual exceeded budget target, all other revenue lines experienced declines.
On the expenditure side, the data showed that only two items – goods and services and other earmarked funds – registered excess actuals against targets.
All other items were below budget but not enough to lead to the deficit target of 3.4 per cent of GDP for the period.
Since 2017, the government has often matched its expenditure moderations with the revenue fall to help achieve the deficit target.
Dr Said of the IFS observed that the government was unable to do that this time round because of the “too many social intervention programmes”.
“Some of these are politically motivated and it makes managing of the deficit burdensome,” he lamented.
Since 2017, the government has expended some GH¢484 million on the Free Senior High School programme, which is entering its full next academic year.
It has also budgeted to expend GH¢600 million on the Nation Builders Corps (NaBCo).
Since 2016, revenue has always underperformed, forcing the government to cut expenditures in a bit to stay within the deficit target.
The shortfalls are often due to a combination of factors, including depressed growth in the non-oil economy, challenges with crude oil production in the midst of falling prices and unrealistic budgeting.
Dr Boakye of the IFS said recent trends showed that the government was also over-ambitious on its ability to collect revenue.
“They overestimated their strength in revenue collections.
Usually when you are in opposition, you think that someone is not doing well in collecting revenue and for you, when you come, you will collect the revenues.
“Secondly, the reality is that you cannot reduce taxes and expect revenue to increase right away.
Even if it will reflect in the economy, it has to take time,” he said, pointing to the impact of the removal and/or reduction of so-called nuisance taxes on collections.
With the 2019 budget due to be presented on November 15, Dr Boakye said he was worried that the government would increase its appetite for debt.
“It is 2019 that I am scared of because now they are thinking of borrowing,” he said, pointing to the planned issuance of a century bond.
“If they do that, it means they will have to reverse the fiscal consolidation plan and it will throw up the economy,” he noted.
He further warned against using the new GDP figures as a yardstick to borrow, explaining that such a practice would derail the gains achieved over the years and tighten conditions for the private sector.