Government will not be able to achieve its fiscal deficit target of 9.5% of Gross Domestic Product for this year, PFM Tax Africa has said.
This is because of its inability to meet revenue target for the first quarter of this year.
According to PFM Tax Africa, the first quarter fiscal outturns show low revenues against higher spending from last year, a situation that is likely to result in larger budget deficits, borrowing, and public debt.
This, it said, was the reason why Fitch Ratings recently reviewed the country’s economic outlook from stable to negative though it maintained its ‘B’ ratings.
“The targets are unachievable since they reflect past sluggish Q1 trends and, hence, may be a factor in Fitch’s recent downgrade to B negative (B-). It follows Moody’s move and deepens alerts by the International Monetary Fund, World Bank, African Development Bank (AfDB) and other agencies”.
It further said “the article is based on recent fiscal data from the Ministry of Finance (MOF) and Bank of Ghana (BOG). It compares the original and adjusted Budgets for 2019, 2020 and 2021 with the provisional actual outcomes, including the exceptional costs (i.e., bank bailout costs) that GOG shows as budget footnotes or memoranda items from 2017.”
Continuing, the report said the stagnation in revenue since 2015 may make it difficult to achieve accelerated reduction in the deficit and debt in a post-Covid-19 recovery era from late 2020. This will subsequently deprive spending on key social programmes.
Domestic revenue for 1st quarter
Domestic revenue for the first quarter of the year was estimated at GH¢12.56 billion. Out of that, tax revenue was GH¢10.4 billion and other domestic revenue was GH¢2.15 billion.
The strategy for tax collection includes increase in direct and indirect tax rates, extension of temporary tax “sunset” dates, and blocking Value Added Tax input tax credit (ITC).
PFM Tax said rather than increase revenues, these policies seem to encourage tax evasion and avoidance, explaining that “they are ineffective without automation, audit and training programmes that complement the creation of Ghana Revenue Authority as an apex body, segmentation of tax offices, integration of Internal Revenue Service, and revamp of tax laws under phase I of the tax modernization programme from 2009 to 2016.”
Expenditure for quarter
Expenditure for quarter one was estimated at ¢23.45 billion.
Interest payment on monies borrowed by government was estimated at GH¢8.2 billion, whilst compensation or wages and salaries was estimated at GH¢7.35 billion.
Capital expenditure was also estimated at GH¢3.3 billion.
PFM Tax Report said “expenditures increased by more than 50% with the 2020 Mid-Year Review Budget. This has resulted in revenue overruns for recurrent expenses, notably interest payments and wages, and declining annual provisions for capital expenditure.”
It said the main strategies to contain the unsustainable expenditures, notably the Free Senior High School and other social programmes have been ineffective, adding “they include “capping” earmarked and other funds, diversion of petroleum revenues from their original fiscal goals, wishing away arrears through non-disclosure, and borrowing—which outcome is to push the country into debt distress.”
“Apart from boldly reviewing unsustainable political programmes, the authorities must revert to continuing the public financial management (PFM) reforms—based on the Ghana Integrated Financial Management Information System (GIFMIS)”, it added.
Conclusion
Recently, the IMF raised the full-year 2020 debt stock above 78% by adding the energy sector costs, which PFM Tax said could have an impact on the fiscal deficit (cash basis) for both 2020 and 2021.
Also, it said the Finance Ministry is likely to make significant adjustments in the 2021 Mid-Year Review for low routine arrears (including interest payment and wages), zero provision for exceptional (bank bailout and energy costs), and more expenditures pressures from capital or development costs and expanded social costs, notably those associated with the education sector under the Free Senior High School programme.
The tax consultant however said there is a positive note to improve the fiscal situation of the country but only marginally.
This is from inflows from the new taxes that took effect from the second quarter of this year, the post-covid-19 global recovery, and robust increases in commodity prices, including crude oil.
Ghana’ tax revenue to GDP of about 13% is one of the lowest on the African continent.
