2020 budget just about ready

As expected, government’s 2020 budget proposals will seek to juggle two seemingly opposing objectives – fiscal consolidation and increased public spending on development projects. Goldstreet Business learnt from usually reliable sources at the weekend that government is targeting a fiscal deficit of 4.8 percent of Gross Domestic Product although this is still the subject of some last-minute deliberations. That target, however, would keep government within its self-imposed, cap of 5.0 percent while enabling government considerable fiscal space for increased public spending in the run-up to the 2020 general elections. While significantly higher than the original 4.2 percent target for 2019, as contained in this year’s budget it is only marginally higher than the 4.5 percent revised target contained in the mid-year review. Instructively, the actual outturn by late October was 4.7 percent and unless government spends considerably less than it earns during the last quarter of the year, the actual deficit for 2019 will be close to the 5.0 percent cap, although Ministry of Finance officials are supremely confident that it will not be exceeded this year or next year for that matter.

The government’s thinking is that general election expenses that will have to be met justifies a second consecutive increase in the fiscal deficit target. President Nana Akuffo-Addo has declared that in line with his “Ghana Beyond Aid” vision, his administration wants to finance the elections from the state’s own purse rather than rely heavily on foreign aid as has been invariably the case for previous general elections.

Emphasis will be on the completion of projects and programmes where possible, ahead of next year’s polls, followed by further progress with regards to medium and long term initiatives. New initiatives that would take considerably more than one fiscal year to complete will receive the least attention and resources.

This priority structure results from a combination of economic pragmatism and political expediency. The pragmatism aspect derives from the recognition that any development initiative which is still in its early stages could likely be canceled anyway, in the event of a change of government following the 2020 polls so starting medium to long term initiatives in the run-up to the general elections could conceivably end up being a waste of resources. The expediency aspect derives from the administration’s desire to present as many fully implemented programmes and completed projects as possible to the electorate ahead of the elections.

Goldstreet Business understands that once again government is counting on a significant increase in public revenues, particularly tax revenues, to fund a major increase in public spending without churning up an inordinate fiscal deficit. However, it appears that this has generated considerable disagreement within government itself since similarly overly ambitious revenue targets have not been achieved over the past three years of the incumbent government, forcing draconian expenditure cuts during each year’s mid-year review. Consequently, there are worries by some that if this situation repeats itself next year  – as is highly likely – voters may regard government’s inability to execute whatever initiatives have their funding slashed as a failure of government in general terms, a picture which the political opposition would certainly seek to paint.

Government’s financing dilemma is further exacerbated by its recognition that an election year is not one during which it should introduce new taxes. Consequently, increased revenues are to be derived from more efficient tax administration – particularly the use of tax identification numbers – rather than new sources of tax revenues. Here though government appears ready to bite the bullet by being willing to antagonize voters by forcing them to pay the income taxes they hitherto have been evading.

No firm decision appears to have been taken as to whether to do another Eurobond issuance in 2020.  For now government is holding that card in reserve, willing to do an issuance if the ongoing monetary easing in the United States enables Ghana to borrow more cheaply than some of the current issuances and thus refinance part of its existing foreign debt to lower debt servicing costs and lengthen the average tenor of the public debt.

By the weekend Ministry of Finance officials were putting the finishing touches on the 2020 budget proposals for them to be ready to be presented to Parliament on Thursday, November 14.

Source: goldstreetbusiness.com