Professor Newman Kwadwo Kusi, Executive Director of the Institute for Fiscal Studies (IFS) says the economic arena in 2016 would be tough for government in light of current fiscal and macroeconomic challenges persisting in the country.
Speaking at a 2016 budget Forum on ‘Making The Most Out of Petroleum Revenues’ organised by the Natural Resource Governance Institute and the IFS, Prof. Kusi said the challenges facing the economy, such as the depreciation of the cedi were likely to continue into 2016, posing challenges for the budget.
He said 2016 would be tough for government especially as it would be an election year and government would have to increase expenditures in some areas, while at the same time, the economy would not be growing.
Addressing the topic “Ghana: Fiscal Challenges and Risks: What should we expect in 2016”, Prof. Kusi noted that latest figures from the Bank of Ghana (BoG) showed that as at end of June 2015, Ghana public debt stock stood at GH¢94.5 billion, representing 70.9 per cent of the Gross Domestic Product (GDP); out of which external debt totaled GH¢58.6 biilion or 44 per cent of GDP, while domestic debt totaled GH¢35.9 billion or 26.6 per cent of GDP.
He said the debt levels were not sustainable, adding although government was trying to address this by emphasizing longer term borrowing, it also came at a price.
Other challenges he mentioned included higher than expected inflation levels since 2013, reaching 17.3 per cent in August 2015 and forcing the BoG to revise its inflation target from 11.5 to 13.7 per cent.
On the fiscal environment, Prof. Kusi said there was some improvement in the early part of the year driven by improved revenue mobilization due to an increase in both oil and non-oil revenues and expenditure containment.
“With total revenue and grants rising in the face of declining expenditure, the fiscal deficit, on cash basis, dropped to 2.2 per cent of GDP against a target of 3.4 per cent. The deficit was financed mainly from domestic sources, and included in the domestic sources of funding, the deficit was a drawdown of GH¢205.7 million from the Ghana Stabilisation Fund, attributed to shortfalls in oil revenue resulting from lower oil prices during the period,” he stated.
He said despite this impressed performance, government revised the budget, cutting both revenue and expenditure estimates and resulting in overall fiscal deficit of 7.3 per cent of GDP. The weakening of the cedi against major trading currencies coupled with increased trade balances, were all challenges that would have to be addressed.
Other risks facing the economy were the large informal sector of the economy which was not well documented and taxed, huge infrastructure deficits including roads, utilities and water supply, power shortages, corruption and an underlying weak economy reflected in a narrow production base, over-dependence on few primary and unprocessed export commodities, weak manufacturing base and high import dependence.
Prof. Kusi said in order to mitigate the effects of these challenges and risks and ensure growth, there was the need to implement sound fiscal policies and build strong buffers and mechanisms to manage risk.
The 2016 budget, he said, would need to acknowledge the importance of the private sector in economic growth and transformation and provide support for it. He also called for the institution of a well-grounded fiscal framework to anchor fiscal policy and address fiscal deficits. “The challenge is whether or not government can demonstrate fiscal prudence in the run-up to the 2016 elections”.
Other expectations for the 2016 budget, he outlined, included significant investment in infrastructure to ensure transformation, strengthen export diversification to improve trade balance by rewarding domestic production, and improved revenue domestic mobilization.