Government unlikely to achieve fiscal deficit target – PFM Tax Africa

By Kofi Ahovi On Jul 7, 2021

Government will not be able to achieve its fiscal deficit target of 9.5% of Gross Domestic Product for this year, PFM Tax Africa has said.

This is because of its inability to meet revenue target for the first quarter of this year.

According to PFM Tax Africa, the first quarter fiscal outturns show low revenues against higher spending from last year, a situation that is likely to result in larger budget deficits, borrowing, and public debt.

This it said was the reason why Fitch Ratings recently reviewed the country’s economic outlook from stable to negative though it maintained its ‘B’ ratings.

The targets are unachievable since they reflect past sluggish Q1 trends and, hence, may be a factor in Fitch’s recent downgrade to B negative (B-). It follows Moody’s move and deepens alerts by the International Monetary Fund, World Bank, African Development Bank (AfDB) and other agencies”.

It further said “the article is based on recent fiscal data from the Ministry of Finance (MOF) and Bank of Ghana (BOG). It compares the original and adjusted Budgets for 2019, 2020 and 2021 with the provisional actual outcomes, including the exceptional costs (i.e., bank bailout costs) that GOG shows as budget footnotes or memoranda items from 2017.”

Continuing, the report said the stagnation in revenue since 2015 may make it difficult to achieve accelerated reduction in the deficit and debt in a post-Covid-19 recovery era from late 2020. This will subsequently deprive spending on key social programmes.

Domestic revenue for quarter one was ¢12.56bn

Domestic revenue for the first quarter of the year was estimated at ¢12.56 billion. Out of that, tax revenue was ¢10.4 billion and other domestic revenue was ¢2.15 billion.

The strategy for tax collection include increase in direct and indirect tax rates, extension of temporary tax “sunset” dates, and blocking Value Added Tax input tax credit (ITC).

PFM Tax said rather than increase revenues, these policies seem to encourage tax evasion and avoidance, explaining that “they are ineffective without automation, audit and training programmes that complement the creation of Ghana Revenue Authority as an apex body, segmentation of tax offices, integration of Internal Revenue Service, and revamp of tax laws under phase I of the tax modernization programme from 2009 to 2016.”

Expenditure for quarter one was ¢23.45bn

Expenditure for quarter one was estimated at ¢23.45 billion.

fiscal deficit PFM Tax Africa