Budget targets now elusive - Finance minister makes revisions this week
The Minister of Finance, Mr Ken Ofori-Atta, will revise this year’s fiscal deficit target of 6.5 per cent of gross domestic product (GD) upward, after revenue shortfalls in the first half of the year validated earlier concerns that the gap between public expenditure and revenue will widen beyond earlier expectations.
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The new target is expected to hover above seven per cent of GDP on cash basis and will be the result of a downward moderation in the revenue target of GH¢34 billion announced in the 2017 Budget.
With tax revenue underperforming and prices of cocoa, crude oil and gold declining by 36.3 per cent, 1.3 per cent and 4.7 per cent respectively in the first six months, it is almost certain that plans to rake in GH¢34 billion this year are now elusive, hence the need for revision.
The new figure will, however, be guided by an anticipated uptick in public expenditures and marginal improvements in revenue in the second half of the year.
The Graphic Business understands that the revision to the deficit will be one of other “slight moderations” that the Finance Minister will be announcing this week, when he appears before Parliament to present the Mid-year review of the 2017 Budget. He will, however, not present a supplementary budget.
Another key index that is likely to be altered is the growth target of 6.3 per cent of GDP, which could be revised downward to around six per cent or less. End-year inflation target of 11.2 per cent is also expected to be revised down to around 10.8 per cent to reflect the disinflationary pressures that are beginning to set in.
The moderations in the growth and fiscal deficit targets will reflect Mr Offori-Atta’s stern posture on public spending, which informed the earlier decision to cap the deficit at 6.5 per cent in the budget, one of the sources familiar with the preparations told the paper.
Context
The presentation is in line with the Public Financial Management Act, (2015), Act 921, which requires the Finance Minister to, “not later than July 31 of each financial year, prepare and submit to Parliament a mid-year fiscal policy review.”
Thus, this year’s review, the first by Mr Ofori-Atta, is expected to begin with an update of macroeconomic forecasts, analysis of the total revenue, expenditure and financing performance for the first half, a presentation of a revised budget outlook for the next half and the implication of the revised budget outlook for the Medium-Term Fiscal and Expenditure Framework With private sector growth a bit sluggish, revenue falling short of expectations and public expenditures, especially at the assembly levels, yet to properly kick in, trimming the deficit and growth target downwards will be necessary to help make them more realistic.
Although unwelcoming for the government, the revisions will be a validation of earlier concerns by some policy think-tanks and analysts that the deficit and growth targets were over ambitious, given that the economy performed poorly in the past three years.
In May, this year, US-based rating agency, Fitch, said it expected the deficit to narrow to 7.5 per cent of total economic output, measured by GDP.
“The government's 2017 deficit forecast of 6.5 per cent of GDP is based on an expected increase in tax revenues and a cut to capital expenditures.”
“Fitch believes that the expected increase in tax revenues will be difficult to realise, as the budget contains significant tax cuts aimed at boosting the business climate. Fitch notes that Ghana has historically underperformed its budgeted revenue projections,” the agency said in a release issued on May 12.
In June, the International Monetary Fund (IMF) also revised its 2017 growth forecast to 5.9 per cent of GDP, citing developments in the first five months of the year the projected impact of domestic and global economy on growth prospects.
Credibility concerns
While admitting that the challenges with revenue generation would mean that the growth and deficit targets remain elusive, the Head of the Economics Department of the University of Ghana (UG), Prof. Peter Quartey, said raising the deficit target too high could create credibility issues for the country.
“If it will be changed at all, it should be marginal because we need this to ensure credibility. If the deficit is show high, it means we are going to borrow so high and that will not help with the credibility,” he said. With talks of ending the three year macroeconomic stability programme with the IMF, Prof Quartey said “if we do not tackle the deficit problem, we will really suffer for it because our policy credibility will be in question and we will pay high for risks.”
As a result, he advised that the government come out with credible measures that will help grow revenue to make up for the losses in the first half. Should that not be tenable, he said the government should muster the courage and revise expenditures downwards.