Ghana’s fiscal outlook faces headwinds as Fitch warns of widening deficit amid election spending

Fitch Solutions has projected a widening fiscal deficit for Ghana in the coming year, defying expectations set by the International Monetary Fund Programme.

Despite the ongoing economic recovery efforts, Fitch Solutions anticipates the fiscal deficit to reach nearly 6% of the Gross Domestic Product (GDP) in 2024, a significant increase from the 4% recorded in 2023.

The 2024 Budget presented by the Finance Minister, Ken Ofori-Atta, had outlined a deficit projection of 5.9% of GDP, amounting to GHS 61.9 billion. The divergence in forecasts signals lingering economic challenges and the potential impact of election-related spending.

Orson Gard, Country Risk Analyst for Sub-Saharan Africa at Fitch Solutions, highlighted the historical trend in Ghana, emphasizing that election years typically witness a surge in fiscal deficits.

“This is on the back of history showing that the government tends to overrun spending targets during election years and that’s even under an IMF programme,” he noted.

Fitch Solutions expects the majority of the deficit to be covered through increased domestic borrowing, a strategy that raises concerns about crowding out private sector lending. This, in turn, poses risks to macroeconomic stability and the banking sector.

Mr. Gard expanded the analysis to a broader African context, stating, “We expect that governments across the region [Africa] will continue to run a wide budget deficit in 2024 and that’s despite concerted efforts at fiscal consolidation.”

He attributed this trend to elevated spending on debt servicing, driven by high global and domestic exchange rates.

Highlighting a specific concern, Mr. Gard pointed out that interest payments as a proportion of government revenue in Africa are projected to escalate to 41.3% in 2024, a significant surge from the 22% average observed between 2013 and 2022.

This underscores the financial strain faced by African nations in servicing their debts amid challenging economic conditions.