We’ll stick to election expenditure limits but IMF casts doubts
The Government plans to stick to spending restrictions imposed by the International Monetary Fund to help an economy in challenges in exchange for a three year aid programme.
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Delivering his mid-year budget review and supplementary estimates for the 2016 financial year in Parliament last week Finance Minister, Mr Seth Terkper reechoed President Mahama’s promise to keep expenditure limits in 2016.
He assured that government would resist budget overruns, often associated with elections, manage the public debt to ensure debt sustainability, sustain fiscal discipline and invest in infrastructure to ensure a better Ghana for all.
In 2012 which was an election year, the country’s budget deficit reached about 12 per cent of GDP and dropped to about 10.8 per cent the following year.
According to the Finance Minister, government plans to lower the fiscal deficit to five per cent of GDP this year, after a strong reduction to 6.3 per cent of GDP in 2015.
The fiscal figures for the first five months of this year show that the government has spent more than GH¢2 billion than forecasted.
The latest development is raising concerns over government ability to deal with election-year pressure and demand from labour and communities yearning for basic developmental needs.
Government and economist have always blamed the country’s widening fiscal deficit, to overspending during election years, a situation the bailout programme is expected to curtail.
IMF throws challenge
But Managing Director of the International Monetary Fund (IMF), Christine Lagarde who spoke to the media at a post IMF/World Bank spring meetings in April this year admitted that that the real test for Ghana’s commitment to the current bailout programmes would be 2016 which is the election year.
According to her, just like other country across the world, election years are always difficult for countries under any programme because they struggle to meet their targets.
“…Whether it’s Ghana or any other country in the world, election years are always difficult for countries under program because they’re targets, because there are sometimes hard decisions to be made. Election years are not very conducive to those decisions, which is why for the Ghana’s situation a lot of the fiscal adjustment was frontloaded in 2015.”
Ms Christine Lagard said because the fund anticipated the difficulties Ghana would encounter during the election year, a lot of what she called front-loaded fiscal adjustment have been done for 2015.
“So many of the hard decisions have already been taken, which should hopefully make 2016 not a neutral year, but a year when the hard decisions are at a lower level. So I’m very hopeful that Ghana continues to deliver and continues to restore the economic stability that it had and is sensible about its borrowing capacity,” she added.
Economist raise concerns
But an Economist at Databank, Mr Courage Kingsley Martey has raised some concerns about the reduction in the revenue shortfall for the first five months of the year.
According to him, total revenue for the five months to May 2016 was GH¢13.46 billion, which was 45.3 per cent below the target of GH¢24.60 billion, undermined by an 81.7 per cent shortfall in non-tax revenue of GH¢2.32 billion.
“While we note that government’s finances are seasonally strained in the first half of the year, we also flag the revenue projection for the five months to May 2016 as quite ambitious when compared to the first half of 2015 target of GH¢14.20 billion,” Mr Martey said.
“We believe that the revenue outturn (so far in 2016) is broadly consistent with the level of economic activity as observed with the amount mobilised as at first half of 2015 was GH¢14.99 billion,” he added.
The revenue outturn from direct taxes (GH¢3.64 billion) was 15.6 per cent less than target and indicative of a slowdown in the earning capacity of businesses and individuals (in our opinion). This could undermine gross national savings, capital formation and economic growth.
Fiscal deficit for the first five months of 2016 was 2.5 per cent exceeded the budget limit of 2.2 per cent for the period and the 2.4 per cent for the first half of 2015, emphasising analysts’ perception of an elevated risk to the pace of narrowing the fiscal deficit.
“Although total employee compensation during the first five months of 2016 was contained within budget limit, we observed a 3.7 per cent overrun in the wage bill of GH¢5.06 billion contrasting the first half of 2015 when it was contained within the limit,” Mr Martey said.