Provisional data from the Bank of Ghana (BoG) show that the deficit ended 2017 at six per cent of gross domestic product (GDP) – 300 per centage points lower than the year’s target of 6.3 per cent of GDP.

The lower-than-budgeted deficit for 2017 is second only to the feat achieved in 2011. In that year, total revenue and grants exceeded target, then resulting in a deficit of 3.9 per cent of GDP, lower than the budget target of 5.1 per cent of GDP.

But unlike the 2011 feat, GRAPHIC BUSINESS analysis showed that last year’s lower-than-budgeted deficit was due to a 6.1 per cent (GH?3.4 billion) cut in total expenditure.

The squeeze in spending was to help accommodate a corresponding 6.03 per cent drop in revenues and grants.

Compared to a budget target of GH?55.9 billion (27.7 per cent of GDP) and GH?43.1 billion (21.3 per cent of GDP), the paper found that provisional outturns for expenditure and revenues and grants was GH?52.5 billion and GH?40.5 billion respectively.

Implications for economy

Beyond being a landmark achievement for the government, the lower deficit is a testament of the preparedness of the Finance Minister, Mr Ken Ofori-Atta to stick to his pledge of reining in expenditures to help avoid frivolous spending while consolidating the economy.

Since assuming office in January last year, Mr Ofori-Atta has preached fiscal discipline, prudent spending and consolidation to help narrow the deficit which closed 2016 at 10.3 per cent of GDP.

In presenting the mid-year review in August last year, the minister said “unlike the practice in the recent past where government expenditures have actually increased in the face of declining revenues, we are now in a regime where spending is based on recognised revenues and expected receipts.”

That resolve, he said, was to help ensure that Ghana does not accumulate excess debt by borrowing heavily to finance larger deficits.

As a result of the healthy deficit, the primary balance which measures the difference between government’s current expenditure on goods and services and current revenue from all tax types registered a surplus of 0.5 per cent of GDP.

An economist with the Institute of Economic Affairs (IEA), Dr Eric Osei Asibey said the surplus “is a good sign that we are gradually reducing the debt stock.”

Deserving credit

Like Dr Asibey, another economist and Senior Research Fellow at the Institute for Fiscal Studies (IFS), Dr Said Baokye, said the government deserved credit for keeping expenditures within budget.

“The tendency in this country has always been that the government does not stick to the spending programme”.

“However, this government is managing expenditure quite well at an aggregate level and that means they are not spending frivolously,” he told the paper on April 1.
Given that revenues were dragging, he said it was prudent for the government to reduce expenditures, resulting in the healthy deficit.

Flip side

Although a sign of prudence and fiscal discipline, the 2017 provisional deficit was achieved on the back of a tight spending envelope.

Dr Boakye said “this is troubling” and cited the gradual decline in the capital or development budget as evidence.

“The development budget is suffering from two angles; aggregate revenue is not coming in and because the deficit is the anchor, they have to cut the budget but because of GDP, there is no place to cut except the development budget.

“Second, other things have been brought on board which are not necessarily developmental in the short-term – Free SHS and others – and these are leading to the cutting of the same development budget and that is quite terrible,” he said.

He added that the “drastic cut in capital expenditure” as witnessed in 2017 was not “desirable” for the economy, insisting that sacrificing growth for fiscal consolidation was dangerous, especially for a developing economy with a yawning infrastructure.

At his vetting in January 2017, the Finance Minister pledged to double investment in infrastructure, explaining that Ghana’s status as a lower middle-income country required that 30 per cent, not 15 per cent of total revenue, is channeled into infrastructure development.

Ideal way

While consolidation is good, Dr Asibey and Dr Boakye said it would be disingenuous in the long-term.

Given that economic growth is driven largely by government expenditures, they insist that cutting expenditure to register a healthy growth amounts to strangulating growth.

“The economy now is slow and we need to stimulate it and the only way we can stimulate it is through expenditure. If you do well in revenues, you can still achieve consolidation without cutting expenditure,” Dr Asibey, who lectures at the Economics Department of the University of Ghana, Legon, said.

Fears

“For me, the government has done well but it cannot be sustained. If you continue to do that, then it means you will not grow the economy”, he warned.

He explained that “infrastructure will lag behind and there will not be jobs. By and large, if you do not want to overspend, then you have to grow your revenues so that you do not keep cutting expenditures,” he added.