Parliament on Thursday approved the suspension of the Fiscal Responsibility Rules for the 2020 financial year in accordance with the 1992 Constitution of Ghana, to suspend the fiscal rules and targets for the period.
The need for the suspension arose as result of the Covid-19 pandemic which had led to an unanticipated increase in expenditure, and the request for the suspension, made by Finance Minister Ken Ofori-Atta was to suspend the fiscal responsibility rules contained in the Fiscal Responsibility Act, 2018 (Ac t 982).
The Minister made the request when he presented the Mid-Year Review Budget to the House on July 24, 2020.
The Covid-19 pandemic and its unforeseen economic condition, creating uncertainty and weakened economic growth, resulting in an expected deficit of 11.7 per cent of Gross Domestic Product (GDP) given rise to the suspension of the rules, according a Finance Committee Report.
Among the circumstances leading to the suspension of the set fiscal rules for 2020, were the creation of uncertainty and weakened economic growth, significant decline in remittances, and massive capital flight from low income countries.
Service operators and household businesses had equally been hard hit with significant job losses and reduced incomes and government revenues had considerably declined while expenditures were rising.
The report, presented to the plenary by Dr Mark Assibey-Yeboah, Chairman , Finance Committee, noted that the Act enjoined the Government of Ghana to ensure that the overall fiscal balance on cash basis for a particular year shall not exceed a deficit of five per cent of the GDP for that year, and maintain an annual positive primary balance.
“The scale of the damage and macroeconomic distortions caused by the pandemic is unprecedented in the country’s history. The Minister had no option than to suspend the fiscal rules and targets for the 202 fiscal year, “the report said.
Dr Assibey-Yeboah informed the House that Committee received information that the expected increase in expenditure is estimated at GH¢11,788 million representing 3.1 of revised GDP.
“The increased spending occurred simultaneously with a decline in revenues. The double impact of the pandemic has led to the Minister to further revise the fiscal of 11.4 per cent of GDP and the primary balance to a deficit of 4.6 per cent GDP.”
On commodity prices, the Finance Committee noted that at the time of preparing the 2020 budget, petroleum revenue was projected at $1,567.61 million, but due the pandemic, expected petroleum revenue receipts had been revised to $660.45 million.
The Benchmark petroleum volume had also been revised downwards from 70.2 million barrels to 66.6 million barrels, representing a 5.3 per cent decline.
“This together with other revenue shortfalls will result in a total revenue and grants shortfall of GH¢13,405 million, representing 3.5 per cent of GDP,” the report said.
As part of efforts to restore the economy and return the country to fiscal responsibility threshold of a deficit not exceeding 5 per cent of GDP and positive balance primary balance by 2024, the Government was implementing fiscal consolidation measures.
The report noted the need to mobilise revenue, and the Government measures to improve revenue collection include establishing a world class technology platform for tax identification, enforcing compliance and implementing an effective property rate collection.
Government also anticipated a recovery in crude oil prices above the revised 2020 projected average of $39.1 per barrel as well as an increase in the projected volume to help boost petroleum revenues.