Ghana is praised for achieving fast decreases in budget deficit since FY2016, when the past government was alleged to have bequeathed GH¢7 billion arrears. As we argued in previous articles, the decreases are from fiscal ‘offsets’, not actual payments, of arrears. The reduction of end-2016 deficit of 10.3 percent of GDP with an ‘offset’ of GH¢5 billion (3.3 percent) in the same 2017 budget is now showing in several inconsistencies.
We have stated that the compilation of the GH¢7 billion (or GH¢5 billion arrears) falls outside the normal definition of arrears and is a bold attempt by the President Mahama administration to move Ghana to a semi-accrual accounting regime.
Logically, the accelerated deficit reduction should lead to less borrowing, not increase, in the rate of growth of the debt stock (debt-to-GDP ratio). Instead, as Figure 1 shows, the decline in the rate at which Ghana is borrowing has turned positive again, as it experiences a rising debt burden.
It has acknowledges the revenue shortfalls, high expenditures, and recently revealed high levels of arrears.
The borrowing to support the budget is worrisome because it is in the context of the high petroleum revenues (from output and price increase) topping a 25 percent increase in GDP.
Government officials complain about high wage and interest expenses, each said to exceed 50 percent of total expenditure (i.e., ratio of 1:1 or 100 percent plus). The high expenditure is a factor in the rapid depreciation of the cedi, partly due to an exit of non-resident domestic bond holders.
Yet, the primary balance, which is the ratio of total revenue to total expenditure (less interest), has been positive for two successive years. Ghana is being urged to reduce expenditures to tame the rising debt—true but without a critical look at how it could be achieving a fast pace of fiscal balance reduction under such fiscal situation.
Hence, it comes as no surprise that the 2018 Public Debt Report increases the Fiscal (Budget) Deficit at end-2018 to 7.2 percent, above the 3.4 or 3.9 percent of nominal Gross Domestic Product (GDP) in the 2019 Budget. To achieve and tout the low levels of fiscal deficit and public debt, the government decided to exclude the financial sector ‘bailout costs’ from the computations. The Minister for Finance presents the debt report to Parliament under Section 72 of the Public Financial Management Act, 2016 (Act 921).