2023 National Budget Review & Analysis: A Brief Assessment and Thoughts
Indeed, our debt sustainability analysis ranges between risky, highly risky and extremely risky on all the key indicator lines. As a result, and at least, we should be rated as ‘extremely risky’ i.e. we as a Country, are at extreme risk of debt distress or default hence the IMF deal. It will be catastrophic if we are unable to secure a deal.
Introduction
The Minister of Finance presented the Budget and Economic Policy for the year 2023 to Parliament on the 24th November, 2022. This budget was presented at a time that, our currency is the worst performing in the ranking of currencies by the IMF; our debt to Gross Domestic Product ratio hovers around 104% per IMF review; purchasing power of consumers is dwindling at an alarming rate; unemployment especially amongst our teaming youth is unprecedented; businesses are collapsing as a result of high administrative and operational costs; overbearing cost of living; amongst general hardships across the entire economic spectrum. As a result, I have decided to review the key components that I believe may have detrimental or otherwise, impact on the lives of the citizenry. I have decided to look at the fiscal component of the budget which includes the amount of revenue projected and how much of that will be expended over the year, and the possible amount of deficit that we will accrue over the period. I also intend to look at the Debt Exchange arrangement proposed therein. Unfortunately, I am of the view that, the expenditure reduction measures that were proposed in the budget are cosmetic and will amount to nothing hence its impact on the overall fiscal structure will be ephemeral just as the Debt Exchange Programme [DXP].
The Revenue-Expenditure Conundrum
The revenue-expenditure conundrum is one single most challenging component of our fiscal framework. Whereas, we fell short on projected revenues over the 2022 budgetary period, we went ahead to even spend beyond the projected expenditure over the period. According to the 2022 budget, the third quarter actuals showed total revenue including grants amounting to GHs65.4bill as against a target of GHs67.3bill whilst expenditure came to GHs109.4bill in excess of a target of GHs104.0bill resulting in a deficit of GHs44.0bill equivalent to 7.4% of GDP. This is what must be addressed properly and that requires political will a.k.a presidential authority.
The 2023 budget estimated a revenue of GHs144bill as against a total expenditure including capital expenditure [CAPEX] at GHs205bill leaving a deficit of GHs61bill. However, historical performance indicates that, we have not been able to meet our revenue targets but mostly exceed our projected expenditure leaving us with rather a worsened case of deficit. In my technical opinion, this budget should have focused on reducing our budget deficit to within the thresholds of 3% & 5% in 2023 and possibly 0.5% and 2% by end of the 2024 fiscal year. That will be the most comforting indication yet of commitment towards a medium-term fiscal consolidation. In which case, our discussions will focus on which models were used in simulating such projected outturns; the projected social fallouts and what mitigating measures needed to be instituted to protect the most affected. There is nothing like that, my people. It is just about trite knowledge that the targets for 2023 including GHs144bill revenue; Real GDP growth of 2.8%; non-oil real GDP growth of 3%; year-end inflation rate of 18.9%; primary reserve balance of 0.7% and GIR to cover 3.3 months of imports appeared unachievable based on our previous years’ performance. What is obvious is that we will exceed the projected expenditure of GHs205bill, resulting in the creation of deficit far and above the GHs61.47bill thereby worsening our primary balance position even the more. Out of the total projected expenditure, only GHs28bill is earmarked for CAPEX. This is unfortunate especially that our roads, bridges and drainage infrastructure are in dire need of huge investments.
The monetary policy measures such as using policy rate [increased from 14.5% to 24.5%] to control or contain inflation has not worked well for us. It may sound a little daring to say that Ghana has no monetary policy framework. There is virtually no equilibrium for fiscal and monetary policy regimes which implies that, there is no coordination between the two actors. Consequently, policies to contain and tame inflation have never been productive or rather been counter-productive. The Bank of Ghana as an institution has been turned into a mere bank for lodging deposits- inflows for government- and withdraw same for expenditure purposes. Indeed, monetary policy is dead in Ghana. This is why you will hear statements like, “you cannot blame inflation on the BoG” or “fighting inflation in Ghana is difficult”. For sure, you cannot eat your cake and have it.
The Haircut is here aka the Ghana Debt Exchange Programme
Indeed, our debt sustainability analysis ranges between risky, highly risky and extremely risky on all the key indicator lines. As a result, and at least, we should be rated as ‘extremely risky’ i.e. we as a Country, are at extreme risk of debt distress or default hence the IMF deal. It will be catastrophic if we are unable to secure a deal.
The Ghana Debt Exchange [GDX] programme is aimed at bringing our current debt stock to a sustainable threshold. Well, any Debt Exchange Programme (DXP) is mostly designed to offer relief through the reduction in coupon/interest rates and extension of maturities on mostly, domestically issued bonds with the ultimate aim of reducing the debt to sustainable levels, and this government has a lot of it. The challenge though is that, the domestic component of our debt is held mostly by pension funds, banks, asset management firms, insurance companies and allied institutions like savings & loans and rural banks, churches, etc. In my view, investors may be worse off by up-to 50% of their investments in real terms. Respectfully, there isn’t much time for the details here.
Debt exchange or swap affects financial system stability and credibility thereby impairing financial intermediation. Just like the redenomination, the impact of debt exchange sometimes is minimal. One must also be doubtful if any assessment or stress testing was done regarding whether the financial system has the ability to withstand the shocks arriving therefrom.
In the absence of a comprehensive fiscal reform strategy and long-term debt management plan to curtail the effects of debt overhang, the GDX programme will just be another stopgap measure. It will amount to nothing just like the E-Levy which is now reduced to 1% of transaction amount with new conditions. Unfortunately, the withdrawal and apathy syndrome has already set in, and there are doubts as to whether any such reduction can convince people back unto electronic transactional platforms.
Serious fiscal reforms must by necessity target a freeze on some civil service wages & salaries-, cut on Office of Government Machinery [OGM] expenditure instead of 50% reduction on fuel coupons for ‘political appointees’ with ephemeral impacts. There should have been focus on investments in high revenue generating areas including hospitality & tourism, oil & gas, renewable energy, non-traditional exports, tech-based businesses and agrobusinesses to create buffer for our rural folks.
Other Minor Essentials in the Budget
The import substitution package announced under “developing local capacity for production” lacks substance and detail, to reduce importation of the mentioned items therein. If we have the capacity to reduce our import bill by 45%, what there is to show? What impact has 1D1F created since 2016?
The Asutsuare-Tsopoli area is not an economic enclave, it is just a vast area of arable land with sparse population engaged in subsistence economic activities to make a living. Go and ask the few farmers around these areas and they will tell you that prices of fertilizers and chemicals have increased by over 300% in the past twenty-four months alone. The impact of GhanaCARES, YouStart, School Feeding & Capitation Grants, etc, needed to be assessed or they are just smokescreens without any penetrating effects on the (targeted) population. What will GHs1,98mill do to seventy [70] individuals/youth averaging GHs28k per head. What impact can such an amount have on any meaningful business. A national [not a constituency?] youth programme talking about 70 people with a head-start support of GHs28,200.00 equivalent to about US$2,000.00? What impact can such an intervention create on the livelihood of these 70 individuals out of the millions of under-40 unemployed population in this Country. Parliament will do this Country a great deal of good to call for critical audit of 1D1F projects. There are 275 Constituencies in this Country implying that by now, 1D1F projects should be seen across the length and breadth of this Country. I have not seen any such projects around my constituency.
Concerns about the 2023 Budget & Economic Policy
I do not believe that these measures will assure the credit or sovereign rating agencies to maintain or regain any confidence to review the Country’s status not to talk of the credibility signals that will be sent across the entire spectrum of the economy. The budget did not tell us anything about the current state of government engagement with the International Monetary Fund and if the so-called measures outlined therein will produce the needed results per the requirements of the Fund; and whether such measures will bring us to the debt sustainability levels as required.
What would have been a Great Unity Budget
A few thoughts on our expectations as a people:
- A budget that will actually indicate that, per measures put in place, our debt-to-GDP ratio will hover around the sustainable levels of between 55% and 65% by end of 2023 or at least, by end of year 2024;
- A budget that will audaciously cut OGM expenditure to under GHS1.2billion with sweeping freeze on government appointees’ and executive salaries over the next six or eight to twelve months; and reduce staff at the presidency to around 600;
- A budget that will focus on reforming key government institutions & SOEs such as COCOBOD, SSNIT, NHIS, GRA, GHAPOHA, TOR, ECG, GWSL, Ghana Gas, etc; and clearly indicating a reduction in the number of ministries to acceptable thresholds of between 20 & 25; supported by plans to return such institutions in profitability including Ghana International Bank in the United Kingdom;
- A budget that will show clearly the impact of the GDX Programme on our debt situation and plans to ensure that the financial services sector does not suffer beyond levels that will trigger another or further crisis through the establishment of some kind of financial sector support fund to provide safety-nets or liquidity buffers when the need arises especially for the participating institutions;
- A budget that will focus on building more infrastructure to spark or stimulate productive consumption that will dovetail into revenue generation for government; A budget that will look critically at Foreign Direct Investment and other volume investment areas such as oil & gas exploration and drilling of additional wells;
- A budget that will embark on interventions that will provide relief for the vulnerable and the extremely affected sections of society; and that which will state clearly and commit to paying all arrears to the MMDAs and all earmarked funds; and more.
By Dr Nene Adams Asafotei
