Fitch Ratings has revised the country’s fiscal cash deficit forecasts to 9.1 percent of gross domestic product (GDP) in 2022, from 9.5 percent since the last downgrading of Ghana to ‘B-‘; with Outlook Negative in January 2022.
According to the latest report from the rating agency, issued on Tuesday, May 3, 2022, the forecast deficit is a drop from 15.1 percent in 2020 and 12.5 percent in 2021 – including three percent of GDP in domestic arrears clearance and payments related to the state-owned energy sector.
This forecast is 1.7 percentage points higher than what government envisages of a 7.4 percent fiscal deficit in 2022, representing an adjustment of 4.7 percentage points from 12.1 percent of GDP in 2021 and 5.5 percent in 2023, with a fall to below the legal deficit ceiling of 5 percent in 2024.
“The 2022 deficit will still be more than twice the 2022 ‘B’ median of 4.6 percent. Overall, risks to public finances remain high,” Fitch said.
Nonetheless, the Finance Minister, Ken Ofori-Atta – in the latest economic update in March 2022, assured investors of bringing the fiscal deficit down, as planned, through the various expenditure cuts and revenue measures, as government also targets a primary surplus of 0.1 percent of GDP in 2022 from a negative primary balance of 4.7 percent in 2021.
Largely, government’s fiscal consolidation plans are focused on revenue measures adopted in the 2022 budget, including a revised 1.5 percent E-levy on various digital transactions and changes to the calculation of certain taxes and import duties.
Fitch said the medium-term fiscal framework envisages that these new revenue measures, together with fading pandemic-related expenditure, will drive an increase in government revenue to 20 percent of GDP in 2022 from an estimated 15.4 percent in 2021.
However, Fitch believes that Ghana will achieve moderate medium-term fiscal consolidation, but that government’s forecasts are overly optimistic.
“We forecast the fiscal deficit will narrow by significantly less, to 9.5 percent of GDP in 2022 and approximately 8 percent in 2023, as government revenue experiences a smaller increase. Ghana has struggled with earlier efforts to raise revenue/GDP and public finances were deteriorating even before the pandemic, albeit partly related to the clean-up in the financial and energy sector,” the rating agency said in its January 2022 commentary.
The downgrade of Ghana’s issuer default ratings earlier this year reflected the country’s loss of access to Eurobond markets in the second half of 2021, following a COVID-19 pandemic-related surge in government debt; which indicates uncertainty about government’s ability to stabilise debt, especially against a backdrop of tightening global financing conditions.
“In our view, Ghana’s ability to deliver on planned fiscal consolidation efforts could be hindered by the heavier reliance on domestic debt issuance with higher interest costs, in the context of an already exceptionally high-interest expenditure to revenue ratio,” Fitch remarked.