Ghana’s fiscal deficit could be higher than earlier reported – World Bank

Ghana’s fiscal deficit of Gross Domestic Product could be more than 15% in 2021, a new World Bank report indicates.

Government reported a fiscal gap of about 11.7% of GDP in 2021, but the report dubbed “Finance for an Equitable Recovery” contradicts that.

In actual fact, the percentage of arrears by the country in 2021 was estimated at almost 5% of GDP.

This ranked the nation 16th in sub-Saharan Africa with the highest arrears.

It confirmed concerns by some economists and analysts that the country’s fiscal situation was deteriorating prior to Covid-19.

The report urged governments including Ghana to mobilize new revenue to pay off debts incurred for the crisis response and preserve their ability to support the Covid-19 recovery, adding, the potential return to economic growth during the recovery will help.

Again, it called for continued access to credit for households and businesses, saying, many households and businesses are at acute risk of losing access to formal credit as a result of the COVID-19 crisis. Additionally, such a loss could dampen the recovery.

 

Managing domestic risks to the recovery

In the short term, it said, resource-constrained governments face the challenge of scaling back fiscal support to households and firms without dampening the recovery.

“In many countries, direct payments to households and firms have served as the main pillar of the crisis response and were designed to protect the livelihoods of economically disadvantaged groups—such as workers in the informal sector and those in unskilled occupations—and the survival of businesses in the sectors most severely affected by the crisis.”

“However, few countries have the resources to maintain these policies in the longer term, and in many cases countries will need to phase out support before economic activity has fully recovered.”

Managing risks to government budgets

 

It said governments will also need to mobilize new revenue to pay off debts incurred for the crisis response and preserve their ability to support the recovery.

However, governments must also pursue complementary, longer-term structural policies to increase their revenue base, adding, most emerging economies, for example, lack the institutional capacity to tax incomes and instead rely primarily on taxing consumption.

 

Managing risks to financial stability

In many economies, the report said the withdrawal of stimulus programmes may also pose a threat to financial stability.

This is because many support programmes will be scaled back before the incomes of households and businesses have fully recovered, and therefor regulators and financial institutions should be prepared to address an increase in loan defaults.