• On Wednesday, 13th November 2019, Finance Minister Hon. Ken Ofori-Atta delivered a GH¢67.1 billion (+23% YoY) budget, with significant allocations to the fulfillment of the NPP government’s flagship programs (Free SHS, Road Infrastructure, Nation Builders Corp.,etc.) and a bouquet of subsidies in the form of personal reliefs for the populace and adjustment of tax bands.
• The revenue targets are quite ambitious with most revenue lines projected to record double-digit growth which we think is stretching. Revenue risks include potential underperformance on income and property tax collection, and a potential recession in the developed markets and lower consequent demand and prices of commodities (oil, cocoa, gold) in the world markets.
• Total expenditure is budgeted to increase by 21% to GH¢ 85.9 billion in 2020. While labor compensation costs can be predicted and managed well, there is significant room for overspending on CAPEX in an election year. Market uncertainties, particularly from offshore and the risks of portfolio reversal in an election year or due to global market factors (with higher interest costs) are extant. There could well also be significant latent costs associated with the clean-up of the financial sector. Resultantly, without a positive performance from revenue sources, there is a considerable risk of government breaching the 5% fiscal deficit rule.
• For the capital markets, the government’s borrowing plans to finance the 4.7% budget deficit present new investment opportunities for domestic and offshore investors. The large increase in issuance size will likely keep yields stable or cause an upward trend.
• While we are cautiously optimistic about growth prospects for economic output in 2020, with increased oil production expected to anchor forecast GDP growth of 6.8% in 2020, the budgeted 21% increase in government spending is likely to be inflationary. We do not expect the MPC to begin to ease in the short-term.

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