Ghana’s fiscal deficit to GDP ratio in 2021 to remain high at 14.5%

Ghana’s fiscal deficit to Gross Domestic Product (GDP) ratio for this year will not be much different from that of 2020, according to the International Monetary Fund’s October 2021 Fiscal Monitor.
The Fund is forecasting a fiscal deficit to GDP ratio of 14.5% in 2021, which is not too far from the 15.7% recorded in 2020.
According to the data from the Bretton Wood institution, the nation’s fiscal deficit to GDP ratio is among the highest within the low-income developing economies category.
This indicates that the fiscal consolidation exercise that the 2020 Budget hinges on is unachievable. Some market watchers have already attributed that to poor revenue mobilization as Ghana’s tax revenue to GDP ratio is about 12.5%, placing it among one of the lowest in sub-Saharan Africa.
The resultant effect is that the government may have to delay or postpone some capital expenditure or social projects till the situation improves in subsequent years. Similarly, the government may not be able to honour some obligations.
However, the IMF said the fiscal deficit to GDP ratio will narrow to 11.1% in 2022, and subsequently move further down. That, however, will depend on government’s prudent economic policies.
The government in the 2021 Budget and Economic Policy said its fiscal deficit to GDP ratio was estimated at 11.7%. It is however anticipating a reduction to about 9.3% in 2020.
In 2023, 2024 and 2025, the Bretton Wood institution is forecasting a fiscal deficit to GDP ratio of 10.3%, 10.1% and 9.0% respectively.
All things being equal, the gap between revenue and expenditure in relation to GDP will fall to 8.1% in 2026, compared with the April 2021 forecast of 6.8%.

Overall Budget Balance and Financing
The government said in the 2021 Budget and Economic Policy that its fiscal operations resulted in a cash basis deficit of GH¢44.898 billion, equivalent to 11.7% of GDP. This is compared to the revised target of GH¢44.07, equivalent to 11.4% of GDP.
Also, the corresponding Primary Balance recorded a deficit of GH¢20.299 billion, equivalent to 5.3 percent of GDP, 14.0 percentage points higher than the programmed deficit of GH¢17.806 billion, equivalent to 4.6 percent of GDP.
Revenue performance
With regard to revenue performance, the government said in the 2021 Budget and Economic Policy that total revenue and grants for the fiscal year 2020 amounted to GH¢55.128 billion, compared with the target of GH¢53.6 billion.
It pointed out that the 2020 outturn exceeded the 2019 performance by 3.3% and the target for the year by 2.7%.
Also, non-oil tax revenue, comprising taxes on non-oil Income and Property, domestic goods and services, and international trade, amounted to GH¢42.4 billion (11.1 percent of GDP). The recorded outturn exceeded the revised budget target of GH¢40.7 billion (10.6% of GDP) by 4.1%.
Expenditure Performance
On expenditure, the government said the execution of expenditures for the period exceeded the programme target slightly by 2.3%.
“The higher than programmed target reflects the unanticipated expenses incurred to mitigate the negative impact of COVID-19. Consequently, Total Expenditures (including arrears clearance) for the period amounted to GH¢100.026 billion compared to a programme target of GH¢97.740 billion and represents a year-on-year growth of 42.3%”, the World Bank said.