Fiscal offsets or consolidation?
PART 1: POSTPONING THE FISCAL PAIN
Ghana is praised for achieving fast decreases in budget deficit since FY2016 when the past government was alleged to have bequeathed GH¢7 billion arrears. As we argued in previous articles, the decreases are from fiscal ‘offsets’, not actual payments, of arrears. The reduction of end-2016 deficit of 10.3 per cent of GDP with an ‘offset’ of GH¢5 billion (3.3 per cent) in the same 2017 budget is now showing in several inconsistencies.
We have stated that the compilation of the GH¢7 billion (or GH¢5 billion arrears) falls outside the normal definition of arrears and is a bold attempt by the President Mahama administration to move Ghana to a semi-accrual accounting regime.
Logically, the accelerated deficit reduction should lead to less borrowing, not increase, in the rate of growth of the debt stock (debt-to-GDP ratio). Instead, as Figure 1 shows, the decline in the rate at which Ghana is borrowing has turned positive again, as it experiences a rising debt burden. It has acknowledged the revenue shortfalls, high expenditures, and recently revealed high levels of arrears.