The Institute of Fiscal Studies (IFS) has urged the government to take bold steps to check the growth of compensation expenditure and debt service cost.
Checking the growth of compensation expenditure and debt service cost, according to the IFS, would go a long way to generate fiscal space to fund productive public investment that would brighten future prospects of the economy.
Mr Leslie Dwight Mensah, an economist at IFS, made the call during a news briefing in Accra on the review of the 2020 budget statement and economic policy of the government.
To complement the government’s efforts, the IFS was pleased to announce that it would soon come out with a set of recommended strategies that could help the government address the compensation problem to create additional fiscal space.
Touching on fiscal performance and public debt developments, Mr Mensah said the fiscal position was projected to marginally deteriorate past what the mid-year budget statement foresaw, with the budget deficit in 2019 expected to be 0.2 percentage points, higher than the programmed ratio of 4.5 per cent of Gross Domestic Product (GDP.
“A careful look at the 2019 projected outturn data reveals that Ghana’s fiscal challenges seem to be compounding,” he said.
“The degree of rigidity in the budget has increased, with the three rigid expenditure items exceeding total revenue and grants by as high as 21.1 per cent, the highest under the Fourth Republic.”
“This trajectory is fiscally unsustainable, as it is the main cause of the rapid debt build-ups. Once again, the total revenue and grants target is unable to be met.”
Mr Mensah said the projected outturn of GH¢54.6 billion was 7.4 per cent below the mid-year revised projection and 1.2 percentage point lower in terms of GDP.
He said while all the major components of revenue were expected to be lower than the mid-year budget forecasts, foreign grants and international trade taxes were among the worst performers, with projected shortfalls of 24.9 per cent and 19.2 per cent respectively.
He said the weak international trade tax receipts was the result of the reduction in benchmark import values in April 2019, aimed at boosting the competitiveness of Ghana’s ports.
He said “As has become the norm, central government capital spending will suffer the worst cut”. Relative to the mid-year estimate, he said, projected capital spending shows a reduction of 21.7 percent.”
“In fact, the cutback to domestic-financed capital expenditure is as large as 38.7 percent,” he added.
Ghana’s public debt stock continues to mount as it climbed to GH¢208.6 billion in September 2019 from GH¢173.1 billion at the end of 2018, which Mr Mensah noted that, correspondingly, the debt-to-GDP ratio widened from 57.6 percent to 60.6 percent.
He said excluding the financial sector bailout bonds, the debt stock at end-September stood at GH¢197.9 billion, equivalent to 57.4 per cent of GDP.
He said “With the more expansionary fiscal stance projected for 2019, the debt stock and ratio will experience further hikes in the rest of the year, calling for tougher measures in 2020 and beyond to address underlying budget rigidities that impeded attempts to improve debt sustainability.” GNA
