Fiscal PolicyGhanaInsightsMacroeconomic update

3 August 2023

Ghana’s Mid-Year Budget Review : Reality Check

In brief

  • In our November 2022 note on the FY2023 budget – In a Pickle – we argued that the revenue measures were broad-based and the new tax handles will build on the existing revenue collection framework. However, we opined that the authorities’ target revenue growth of 47.0% y/y appeared bullish against our forecast revenue growth of 31.0%, given the challenging macroeconomic backdrop and perennial difficulties with revenue administration.
  • In view of this, the revised macro-fiscal framework for 2023 appears to align with reality and the key forecasts under the IMF-supported Extended Credit Facility (ECF) arrangement aimed at restoring policy credibility.
  • Fiscal consolidation and adjustments are on track with overall budget deficit (on cash basis) in 1H2023 at 1.3% of GDP, well below the 4.4% target for the period. On commitment basis, the primary balance recorded a surplus of GHS 8.8bn (1.1% of GDP) against a target of zero primary balance for the period. This translates into a year-on-year fiscal adjustment equivalent to 2.5% of GDP and raises our optimism about the authorities’ capacity to achieve the revised adjustment target for FY2023.
  • Fiscal adjustment will slow down marginally in 2H2023 but remains frontloaded in FY2023 while real GDP growth will soften under the squeeze of fiscal tightening.
  • Inflation will remain sticky in 3Q2023 before enjoying a favourable base effect in 4Q2023. Against the sticky inflation backdrop and amidst elevated borrowing pressure, we believe domestic yields have found a new impetus for sustained rise in the near-term.