Compensation and interest payment continued to bite government as the biggest expenditure for the first quarter of this year, PFM Tax Africa, an accounting and tax firm has stated.

“The 2020 Revised Budget and quarter one 2021 target for interest and compensation, both recurrent budget items, exceeded 200%, as is the provisional actuals for 2020 and quarter one 2021.”

The firm which is headed by former Finance Minister, Seth Tekper said “expenditure-to-total tax revenue is expected to rise above the total revenue figures but now exceeds 200 percent. Given a tax revenue structure that is heavily earmarked, the performance shows a tightness that is worse than other countries.”

It further pointed out that the pressure from interest and compensation will continue, with the recent negotiation of the minimum and basic salaries leading to an increase in arrears— and also from more borrowing in the second half and, likely, other quarters to finance a widening deficit.

With gaps rising to 80% of total revenue and 100% of tax revenue (2020 Revised Budget and Quarter 1-2021 provisional actual), it urged the country to double its revenue intake to reach an ideal balanced budget goal.

Exclusion of banking and energy sector costs from budget deficit not right

PFM Tax Africa also expressed concern about the exclusion of banking and energy sector costs in calculating budget deficit, a situation which is not giving a true picture of the economy.

“It is common knowledge that, since 2017, the current government has not followed its predecessors, by excluding the exceptional arrears, notably, the banking and energy sector bailout costs or arrears from calculations of conventional arrears. Instead, it includes the Appendix to the Budgets as Memoranda items”, it explained.

It said these anomalies have failed to influence the level of borrowing that the government undertakes to finance the budget deficit or fiscal balance and this will increase the debt stock that has become unsustainable because government has not continued with measures started by the previous administration to reduce the rate of accumulation of the debt stock.