The bank is optimistic that increased revenues in the last half of the year would help compensate for a 0.5 per cent deficit variance in the target recorded in the first half of the year, when the deficit ended June 2016 at 3.1 per cent compared to a budget target of 2.6 per cent.

The presence of the International Monetary Fund (IMF) under the three-year extended Credit Facility (ECF) should also help ensure that fiscal indiscipline, which is typical in election years, is curtailed, leading to the posting of a healthy election year deficit by December, the Governor of the BoG, Dr Abdul-Nashiru Issahaku, said in Accra at the Monetary Policy Committee (MPC) of the bank.

“First of all, we are under a fund programme right now and we have committed to a certain expenditure pattern, which we cannot deviate from. “The second thing is that some of the things are seasonal; revenues will come in at the second half of the year and that should, more than, compensate for the deficit,” Dr Issahaku said at the MPC press conference, where the bank maintained its benchmark rate, the policy rate, at 26 per cent.

“So, the thing is that we are certain that the deficit will be met by the end of the year,” he added.

Trends

Apart from 2004, when Ghana's budget deficit in an election year dropped to 3.2 per cent from 3.4 per cent in 2003, large budget deficits have virtually become synonymous with election years, with the 2012 figure of 11.5 per cent, a jump from the 2011 close of four per cent, being the worst so far recorded.

The overspending is always the outcome of a combination of push and pull factors, majority of which bother on excessive demands from public sector workers for improved conditions of service, an urge to please the electorate with new projects and subsidies on utilities, the intermittent slump in commodity prices and the  resulting impact on budgeted revenues.

Already, the three main causes of the country's expenditure overruns – labour demands, subsidies on utilities and a drop in commodity prices – have resurfaced, with labour already agitating for market premiums from the government.

Already, the government finances within the first six months of the year showed that it has exhausted 60 per cent of its deficit target even before the budget takes on the real shocks of election year spending.

The 3.1 deficit was largely due to corresponding shortfalls in revenues from petroleum as well as tax earnings from income and property taxes.

Threats to growth

Despite the optimism on the deficit side, the governor said pressures from public sector workers for increased pay and continuous weakness in tax revenue mobilisation still threatened public expenditure growth.

“The materialisation of these risks could slow the pace of fiscal consolidation and hinder efforts to restore macroeconomic stability,” Dr Issahaku said.

Inflation target

This is the sixth consecutive time that the MPC has maintained the rate this year.

The move is attributed to the moderation in headline inflation since July on the back of continued cedi stability, easing inflation pressures, and tight credit conditions, which reflected sustained monetary policy tightness.

Based on these, the governor said the bank was optimistic it will meet its inflation target by the second quarter of next year contrary to earlier projections that the medium term target band of 8-+ would be met in the third quarter of 2017.

“Despite these positive developments, the committee observed that the current level of inflation is still high compared to the medium term target,” he stated. He said it would, therefore, continue to monitor developments in the economy and take appropriate actions, if necessary, towards attaining the medium-term inflation target over the forecast horizon.

“Going forward, the continued monetary and fiscal policy tightness, together with stability in the foreign exchange market should support the disinflation process,” he mentioned.

Cedi stability

The local currency has been relatively stable since the beginning of the year. As at September 15, 2016, the cedi had cumulatively depreciated by 4.1 per cent compared to 16 per cent in the same period last year.

The stability was achieved on the back of tight policy stance and improved foreign exchange inflows. He said the stability was expected to be sustained through continued policy tightness, proceeds from the recently issued Eurobond, inflows from donors and the US$1.8 billion pre-export finance facility for cocoa.