Financial Economist, Professor Lord Mensah is warning that government’s quest to reduce interest rates and inflation may face some setbacks in 2024.
He is concerned the projected budget deficit for next year, and the expenditure targets set in the 2024 Budget could derail the inflation forecast and interest rates target.
Government is planning to spend about ¢61 billion above its projected income in 2024.
Professor Mensah is worried that financing the deficit of about ¢61 billion may end up, pushing interest rates up on the market.
He disclosed this on PM Express Business Edition on November 16, 2023 with host George Wiafe.
“Government average issue of treasury bill on the market which is highly concentrated in the 91-day papers is around ¢3 billion. Even with that, government is struggling to bring interest rates down”, he said.
“So if we are trying to finance the deficit of about ¢61 billion from domestic sources, then we are likely to borrow around ¢5 billion every month to finance this deficit”, he added.
He is of the view that the development will definitely put pressure on interest rates.
“If we should go strictly by this budget, then I don’t think that, interest rates will drop from the current levels. It will rather be going up”, he warned.
According to him, the situation will put pressure on the private sector as government will be compelled to compete with businesses for funds.
The Financial Economist maintained that the 2024 Budget cannot be described as business friendly.
“I was expecting this budget to narrow the deficit, rather than embarking on initiatives that will increase the deficit”.
Background
Government in the 2024 Budget is hoping to spend ¢226 billion while Total Revenue and Grants is pegged at ¢176 billion.
Government is expecting tax revenue on the other hand to reach ¢135 billion by the end of December 2024.
Government’s 2024 expenditure and inflation target
Professor Mensah also pointed out that the government’s target of ending the year at 15% inflation is over ambitious.
“We have seen how much government is planning to spend on goods and services in the budget as well as capital expenditure”.
The development means that the government is planning to spend more in an election year and that could put some fresh pressure on inflation in 2024.
Proposed Tax relief and Measures for 2024
Speaking on the same programme, Partner and Leader of Financial Advisory Unit at Deloitte Ghana, Yaw Lartey described some of the tax reliefs by government as good.
He described measures to promote the green economy as a laudable idea that must be supported.
“For instance we can talk about reviewing the tax on locally produced sanitary pads, will go a long way to support industry that manufacture these pads and ensure that you make it accessible to girls in the country”.
Mr Lartey however added that the impact of the tax reliefs on businesses may be negligible.
“I believe that reviewing taxes like the COVID -19 levy and the E-Levy may have been more impactful than what has been done”, he observed.
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