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Research Ghana’s 2021 fiscal deficit at 9.5%

June 1, 2021

By Maxwell Nkansah

In its May 2021 edition of the African Markets Revealed (AMR) report, the Standard Bank says this may make the path to fiscal consolidation longer than expected.

The government projects a 9.5% fiscal deficit-to-GDP ratio for 2021 amid rising social expenditure and interest payments, from 11.7% in 2020. Including financial sector costs, the fiscal deficit to-GDP ratio was 13.7% in 2020. Therefore, the path to fiscal consolidation may take a further 4-y as the government does not expect to return to within the Fiscal Responsibility Act threshold of 5% of GDP until at least 2024, the report said. The report added: Fiscal consolidation faster than that would be desirable given the elevated debt service costs. Indeed, the IMF adjudges Ghana as at high risk of debt distress. Total revenue (including grants) for 2021 is projected to increase by 32%, to GHS72.45bn (c.17% of GDP), from GHS54.92bn (14% of GDP) in 2020; 77% of that

will likely come from domestic tax revenues. The government is looking to put a few tax measures in place, such as a percentage point increase each in the National Health Insurance levy and the VAT flat rate.

This, notwithstanding, the May 2021 AMR sees a swift recovery for the country’s economy this year.

According to the report, despite Ghanaian economy had slid into recession in the third quarter of 2020, managing growth of 3.3% year-on-year in the fourth quarter ensured marginal growth of 0.4% year-on-year for 2020. However, the annual growth numbers for the first three quarters of 2020 have been revised. Provisional data had shown 4.9% year-on-year growth in the first quarter of 2020 but that was revised to 6.8% year-on-year. The AMR also attributes the swift economic recovery to strong performances in the agricultural and services sectors.

Agricultural sector led this economy in 2020. This sector grew by 8.2% year-on-year in the last quarter of 2020, while the real estate and ICT sub-sectors drove the recovery in the services sector, which expanded by 4.6% year-on-year in the same quarter. Our base case foresees growth in 2021 and partly assumes no stringent lockdown measures, which should allow for a more meaningful, and broader, economic recovery, the report said. The African Markets Revealed Report is a monthly report issued by the Standard Bank Group and focuses on the economic and financial outlook of African countries.

The report also reviews current economic situations and makes short to medium-term predictions about the economies of African countries.

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