This resulted in a fiscal deficit that is two per centage points wider than planned and agreed with the International Monetary Fund (IMF), the data on the execution of last year’s budget showed.

It revealed that the gap between expenditure and revenue ended the year at GH¢11.58 billion, equivalent to 3.9 per cent of GDP compared to a budget target GH¢10.97 billion, equivalent to 3.7 per cent of GDP.

The 2018 deficit target mirrored the end-year deficit projection agreed with the IMF under the US$918 million Extended Credit Facility (ECF) programme, which ends this April.

Although a deviation from the IMF target, a Professor in Economics, Prof. Peter Quartey, said the 3.9 per cent deficit was in order, explaining that “too much fiscal consolidation is not good.”

“Mind you, if we tighten our fiscal stance too much, we will be hurting growth and employment,” he said in an interview.

On implications on the IMF programme, an economist with fiscal policy think-tank, the Institute for Fiscal Studies (IFS), Dr Said Boakye, added that the deficit showed that the country was still fiscally prudent.

“It is good because if you do not have it, do not overspend but then the question is, why don’t you have it?” he said.

Good progress

The provisional fiscal data, which is available to the GRAPHIC BUSINESS, further showed that the deficit of 3.9 per cent of GDP excluded the financial sector clean up costs, roughly estimated at GH¢10.25 billion for 2018 minus interest.

Meanwhile, in a statement released on February 22, an IMF Staff Team quoted the deficit at 3.7 of GDP and observed that “recent economic performance has been favourable despite a less supportive external environment for frontier economies.”

Generally, the fund said, “good progress” had been made in implementing the ECF-supported programme with six out of nine end-December 2018 targets met and structural reforms advancing as planned.

Cause of slippage

The data indicates that the higher-than-programmed deficit was occasioned by an almost three per cent fall in revenue collections.

Although government’s overall spending was moderated by 1.37 per cent in response to the slower-than-planned revenue inflows, it was not enough to keep the deficit at the budget target of 3.7 per cent of GDP, the data indicated.

From the expenditure side, CAPEX was the worst victim, suffering a 27.5 per cent cut in a surprise move that could have negative implications on non-oil sector growth and job creation.

Compensation of employees, interest payments and grants to other government agencies and earmarked funds also suffered cuts though minimal.

On the other, the goods and services budget was overspent by 39.4 per cent, bringing to light the fiscal pressure that the government’s special projects, including the Free Senior High School Programme are exerting on the economy.
 
Implications

In the 2017 fiscal year, the government beat its deficit target by four per centage points, having ended the year with a deficit of 5.9 per cent of GDP compared to a target of 6.3 per cent of GDP.

The healthier-than-budgeted deficit was the result of a steep cut in spending to contain depressed revenues, an action that some analysts criticised as anti-growth.

Dr Boakye said it was commendable that the government had  been “fiscally prudent by not blowing the deficit, which could be devastating.”

He, however, observed that it was worrying that CAPEX was made to suffer the consequences of depressed revenue inflows, warning that such an act risked placing the economy on a cyclical dilemma.

“The population and the economy are growing so if you are not expanding the infrastructure, then the future potential of the economy is undermined to some extent,” he said.

With CAPEX being the fuel for non-oil growth from which comes a chuck of revenue, Dr Boakye said axing funding to infrastructure and related items could stunt economic growth in the long run, leading to a constant slowdown in revenue performance.

In the short-term, however, he said oil sector growth could make up for the shortfall on non-oil sector growth, creating a false impression that the entire economy was doing well.