[ 2015-06-02 ]

Gov’t Unlikely To Attain Fiscal Targets – Report
A recent report by Africa Economics LLC, an
international research organization, says Ghana
faces stark choices with the new International
Monetary Fund (IMF) programme since government’s
political will, commodity price fluctuations and
power supply challenges will affect its ability to
attain some of the major fiscal targets in 2015
and 2016.

The report, co-authored by Theo Acheampong and
Alex Barkers-Okwan, said broad short-to-medium
term options available to the government
ultimately will come with political consequences.

“For example, making drastic cut backs in public
sector expenditure, especially public sector
wages, will be difficult for the government, as
the 2016 elections draw near, making it more than
likely that these cuts will delay until after the
elections. Furthermore, it is more likely that the
government, will at best, maintain current
spending levels envisaged within the 2015
budget.”

The report also indicated that moves to increase
revenues by widening the tax base and improving
efficiency in collection are unlikely to yield any
significant short-term impacts due to weak
structures such as inefficient public and business
address systems.

However, it said the government could bolster its
finances through prudent fiscal housekeeping and
accountability in public expenditure.

Fiscal consolidation will drastically dampen
non-oil economic growth initially from 2015-16 but
this is forecast to rebound in subsequent years,
it said.

The IMF estimates non-oil GDP growth to decelerate
further to 2.3% of GDP in 2015 before picking up
in the following years to reach 5.5% of GDP by
2017.

Commodity prices

Since the Ghanaian economy is heavily dependent on
cocoa, gold and oil, accounting for 75% of its
exports, the report said the prices of all three
key exports have recently declined on the world
market compared to 2013 price levels.

“This state of affairs could easily worsen the
country’s trade balance for 2015.
Consequentially, government is very likely to
struggle with persistent current account deficits
and balance of payment challenges for the
remainder of 2015.

“Ghana’s forex reserves have also been heavily
depleted due to a fall in commodity exports,
falling from US$5.89bn in November 2014 to US$5.46
billion in December 2014, representing a 7.9%
decline.”

Government’s expectations

It revealed that the first tranche of the long
awaited credit facility of $114m aimed at shoring
up the BoG forex reserves was unlikely to do much
to stabilize the cedi.

“The Mahama administration is hoping that the
new IMF loan and three-year debt sustainability
programme will trigger a ripple effect that will
cause other development partners to release donor
funds to the tune of $500m for budgetary support.
These donor funds were frozen as the perception
that payroll fraud, corruption and excessive
government spending had led to the evident
mismanagement of the public sector purse. Whether
these donor funds will actually be released or
disbursed remains to be seen during the course of
2015.”

Challenges

Against the backdrop of the foregoing
developments, the report said it was becoming
increasingly unlikely that the government will
have the requisite political will and fiscal
discipline to meet the conditions of the IMF loan
facility with an election year just around the
corner in 2016.

“A key challenge faced by government is how it
proposes to cut down the wage bill from its
current expenditure. Government currently presides
over a bloated and inefficient public workforce
that is severely draining the government purse,
depriving it of the much-needed finance for
important capital expenditure projects such as
major roads linking economic zones in the
different regions.”

Source - Daily Guide

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