GhanaMacroeconomic update

8 August 2022

Ghana sings the budget blues

In brief

  • John F. Kennedy, a former president of the United States (US), once said “The Federal Government is the people and the budget is a reflection of their need”.

 

  • But in reality, budgets are more about politics and offer a window into the priorities of the government of the day, rather than meeting the economic needs of the populace.

 

  • Given its extremely volatile fiscal space, Ghana has had its fair share of macro-financial stress and finds itself in a long-held war on deficits and debt – amid perpetually weak domestic revenues.

 

  • Underperforming revenues were a recurring theme in the country’s previous International Monetary Fund (IMF) programs, and it has contributed considerably to the sharp deterioration in public finances in recent times.

 

  • The resulting fiscal deficits – a development that is unsettling for investors – not only complicate the political calculus and threaten economic prospects, but will also complicate ongoing negotiations with the IMF for an Enhanced Domestic Programme (EDP).

 

  • Therefore, the government of Ghana (GoG) is currently under pressure to stabilise public finances, but the 2022 Mid-Year Fiscal Policy Review (MYFPR) felt more like dropping a one-cent piece into a 44-gallon drum.

 

  • The GoG needs to do more to reassure its investors that it is capable of reining in the fiscal deficit to avert more severe financial constraints and a dangerously high debt burden that could compel it to make much more overwhelming and self-inflicting adjustments in the future.

 

  • As George Pataki – a former Governor of New York – once expressed, a budget should always reflect the right choice which may not always be easy.

 

  • And the right choice will always be the one that takes the responsible and prudent path to fiscal stability and economic growth.