The fiscal rules of a deficit not exceeding five per cent of GDP and a positive primary balance enshrined in the Fiscal Responsibility Act, 2018 (Act 982) will not be feasible in the next four years due to the impact of the COVID019 pandemic, the Minister of Finance, Mr Ken Ofori-Atta, has said.
He said the scale of the damage and macroeconomic distortions caused by the pandemic was unprecedented in the country and it would, therefore, take a while to return to the pre-COVID-19 fiscal path.
Presenting the mid-year budget to Parliament, he said, “According to our revised fiscal framework, the economy is only likely to return to the five per cent fiscal deficit threshold set in the Fiscal Responsibility Law no sooner than 2024.”
He said the government had, therefore, opted to suspend the fiscal rules and targets for the 2020 fiscal year.
“There are severe adverse contagion effects related to the drastic crude oil price declines and the deep deceleration in economic growth. Under these very severe conditions, and consistent with both Section 3 of the Fiscal Responsibility Act, 2018 (Act 982) and Section 18 of the Public Financial Management Act, 2016 (Act 921), the government has opted to suspend the fiscal rules and targets for the fiscal year 2020.
“Consequently, as required by Section 3(3) of the Fiscal Responsibility Law, the government will, within 30 days, present before this august House the necessary documentation that supports the suspension of the fiscal rules and targets for this year 2020,” he stated.
The minister, however, assured the House that the government would soon roll out some initiatives to ensure that the macroeconomic gains achieved over the last three years were not eroded.
“The government, through the COVID-19 Alleviation, Revitalisation and Enterprise Supports (CARES) Programme, will implement a number of strategies to stabilise and revitalise the economy and return it to the path of robust growth and to the five per cent fiscal deficit threshold as the law requires,” he noted.
2020 fiscal deficit revised to 11.4%
The minister revised the budget deficit for 2020 from 4.7 per cent of GDP to 11.4 per cent of GDP due to revisions in the country’s total revenue and expenditure.
The revisions in the Total Revenue and Grants and Total Expenditures resulted in a fiscal deficit (on cash basis) of GH¢44.1 billion (11.4% of GDP) for 2020, up from the original 2020 Budget target of GH¢18.9 billion (4.7 per cent of GDP).
He said the deficit was expected to be financed from both foreign and domestic sources.
The corresponding primary balance is also expected to worsen from a surplus of GH¢2.8 billion (0.7% of GDP) in the original 2020 Budget to a deficit of GH¢17.8 billion (4.61% of GDP).
Revisions to expenditures
Total expenditure (including clearance of arrears) for the year is now estimated at GH¢97.7 billion (25.4% of GDP), about 13.7 per cent higher than the 2020 Budget estimate of GH¢86.0 billion (21.6% of GDP).
The upward revision in expenditures is largely influenced by provision for additional expenditures for COVID-19 programmes and activities (including COVID-19 Preparedness Plan, COVID-19 Alleviation Programmes and health infrastructure) amounting to GH¢11,660 billion.
Interest payments have also been revised upwards by nearly 21.1 per cent from GH¢21.7 billion (5.4% of GDP) to GH¢26.3 billion (6.8% of GDP), mainly reflecting the effect of higher net domestic borrowing to meet additional COVID-19-related expenditures.
Capital expenditures are expected to remain relatively unchanged at GH¢9.3 billion (2.4% of GDP).
The minister pointed out that even though overall expenditures had been revised upwards, mainly as a result of COVID-19 expenditures, the original provision for MDAs for Goods and Services and Domestic Capex was revised downwards by GH¢738.4 million through re-prioritisation to create fiscal space to accommodate more critical expenditures induced by the pandemic.
Total revenue and grants have also been revised to GH¢53.7 billion (13.9% of GDP) in 2020, representing a 20.0 per cent decrease over the original 2020 Budget target of GH¢67.1 billion (16.9% of GDP) and 0.5 per cent higher than the 2019 outturn of GH¢53.4 billion (15.3% of GDP).
Total non-oil tax revenue has been revised to GH¢40.7 billion (10.6% of GDP), which is GH¢4.3 billion lower than the original budget target of GH¢45.0 billion (11.3% of GDP).
This is on account of a significant shortfall in import duties, as well as shortfall in both the domestic direct and indirect taxes.
As a result of the significant decline in crude oil prices on the international market, oil revenue was also revised downwards to GH¢3.8 billion (1.0% of GDP) from GH¢8.9 billion (2.2% of GDP) in the original 2020 Budget.
This represents a shortfall of GH¢5.1 billion (1.3% of GDP).
Non-tax revenues (non-oil) have also been revised downwards to GH¢4.5 billion (1.2% of GDP) from GH¢8.5 billion (2.1% of GDP), with grants also revised downwards by 1.3 per cent from GH¢1.24 billion to GH¢1.22 billion.