I was already expecting the government to miss its fiscal target of 5-6% of GDP in an election year but according to the IMF, the target was widely missed and it’s now likely to be 9%.
The following is taken from the IMF statement after their latest visit:
In 2016, the overall fiscal deficit (on a cash basis) deteriorated to an estimated 9 percent of GDP, instead of declining to 5¼ percent of GDP as envisaged under the IMF-supported program. The large deviation was mainly due to poor oil and non-oil revenue performance and large expenditure overruns. As a result, the government debt-to GDP ratio increased further to close to 74 percent of GDP at end-2016.
The new government has expressed its intent to continue with the current program with the IMF. Officials outlined bold policies to restore fiscal discipline and debt sustainability and also to support growth and private sector development. The large fiscal slippages observed last year will, indeed, require strong efforts of fiscal consolidation to support debt sustainability. The new government’s intentions to reduce tax exemptions, improve tax compliance and review the widespread earmarking of revenues should help in this regard.
The IMF’s statement is clear that they last thing they expect is a stimulus, which was what was promised by President Akufo-Addo on the campaign trail. I have already written here that after winning a large mandate of 53%, the president should not rush with moves that could worsen the fiscal situation and make it harder to refinance our Eurobonds.
Instead he should continue on the path of fiscal consolidation and then ride on the confidence that our development of new oil fields will bring to attract investment, reduce borrowing costs and then fulfill his campaign promises.
Already the president’s pick for finance minister, Ken Ofori-Atta, has displayed pragmatism by planning to hold on to the energy sector levies on fuel which are needed to help reduce the debts choking Ghana’s power sector.
Continuing with the austerity programme to keep the confidence of our creditors is a necessary move. And from preliminary indications, it appears that is what is going to happen.