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100% increase in domestically financed capital expenditure from GH9.3 billion to GH18.24 billion worrying — IFS warns

Economy & Investments 100 increase in domestically financed capital expenditure from GH9.3 billion to GH18.24 billion worrying — IFSwarns
DEC 6, 2023 LISTEN

The Institute of Fiscal Studies (IFS), a non-profit think tank, is worried about the government’s decision to increase its domestically financed Capital Expenditure (Capex) from GH9.3 billion in 2023 to GH18.24 billion in 2024.

The increment, which was captured in the 2024 Budget, takes the domestic capex as a ratio of Total Revenue and Grants from 7.0 per cent in 2023 to 10.3 per cent in 2024.

Meanwhile, the budget for foreign financed capex was GH₵10.48 billion as against GH₵9.22 billion in 2023, representing an increment of about 12 per cent.

“Since IFS has long called for increased budgetary allocations to capital expenditure to help accelerate economic growth and development, the budgeted increases in capital spending in 2024 should ordinarily be welcomed by us.

“However, given the country's fragile fiscal position, and because governments have historically used capital spending to pursue political goals in election years, helping to generate fiscal overruns and macroeconomic instability, the large increase in domestically financed capital expenditure is concerning to us,” said Dr Said Boakye, the Acting Executive Director of IFS at a press briefing.

He warned that if the move is politically motivated, some of the expenditures were likely to be inefficient, because certain projects would be selected based on political rather than economic reasons, as has happened in the past.

“In that case, it would be much better to save some of this expenditure to help cut the deficit and reduce associated debt service payments,” he said.

According to budget estimates, overall capex for 2024 was set at GH28.72 billion, representing a capex ratio of 16.3 percent to total revenue and grants.

This contrasted with GH₵18.61 billion in total capex in 2023, which represented a ratio of 13.9 per cent to total revenue and grants.

According to IFS, fiscal prudence, manifested in positive fiscal balance backed by strong and sustained fiscal consolidation, was a critical driver of macroeconomic stability in Ghana.

“Therefore, any interventionist policy by the government in the real sector aimed at stimulating economic growth, which will end up worsening the country's fiscal balance will undermine macroeconomic stability,” said Dr Boakye.

GNA

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