‘Terkpernomics’ Throws Budget Off Gear In Election Year

Despite the pledge made by the immediate-past National Democratic Congress (NDC) government to tighten public expenditure and ensure equilibrium in the economic structure of the country, it still went overdrive and spent beyond what had been budgeted for.  

The then NDC government assured Ghanaians late 2015 that, based on the experience of the 2012 general elections, where the government overshot its budget and created a huge deficit of over 11.8% of the Gross Domestic Product (GDP), it would tighten the noose on expenditure in the 2016 election year, to ensure that economic indexes were not disturbed.

The promise became necessary, because the same government had, in 2013, pledged to achieve a budget deficit of 9%, down from the 11.3% recorded earlier in 2012, but ended up recording a deficit of 10.8%. In most of the cases, the government attributed the development to shortfalls in revenue that could not match expenditure.

The government indicated that it was ready to pay the political price by sticking to its guns, and making sure Ghanaians do not go through another round of harsh economic measures that result from over expenditure.  The government then went ahead to project a budget deficit of 5.3% in the 2016 fiscal and financial policy. The International Monetary Fund (IMF), however, doubted whether the projected figure could be achieved, because of elections-related pressure, but the Mahama government stuck to its guns.

“Ghana is expected to achieve a budget deficit as low as 5.3 percent to GDP under the IMF, which provides a tighter fiscal space than originally anticipated; it is within this contest that we must practice an even greater degree of fiscal prudence in 2016; the bane of our economic management has been the cyclical huge election year budget deficit; it is an unfavourable narrative, for which Ghana has become famous.”

“I have assured the nation and our partners that my administration will exercise strict fiscal discipline, even in this election year, in order that we can transform this negative narrative of our country,” President Mahama said in his State of the Nation Address delivered in Parliament on Thursday February 25th, 2016.

But, addressing the media in Accra yesterday, after its 75th regular Monetary Policy Committee (MPC) meeting, the Bank of Ghana (BoG) revealed that the fiscal outturn for 2016 showed a higher deficit than targeted. According to the Central Bank, the overall provisional budget deficit was 8.7 percent of GDP, against a target of 5.0 percent, financed mainly from domestic sources.

The Central Bank attributed the fiscal slippage to both expenditure overruns and revenue shortfalls. The BoG was, however, happy that the 2017 budget has signaled a return to the path of fiscal consolidation, with a projected deficit of 6.5 percent of GDP, based on improved revenue mobilisation and controlled expenditures.

“The global economy is projected to pick up moderately in 2017, driven, largely, by the expected fiscal stimulus in the US, as well as recovery in the eurozone and emerging market economies. These projections may prompt a faster pace of monetary policy normalization, and, in turn, further tightening of global financing conditions. In addition, there remains considerable uncertainty in the international commodities market. These developments could adversely impact Ghana’s balance of payments, exchange rate and the inflation outlook.

“The external sector performance continues to improve. Provisional estimates of the trade account, through February 2017, recorded a surplus, largely due to higher export receipts and lower non-oil imports. For the same period, gross foreign assets increased to an equivalent of 3.7 months of import cover, up from 3.5 months in December 2016.

“The foreign exchange market witnessed increased pressures in the year to early March, partly attributed to a strengthening US dollar, seasonal demand factors, and speculative activities. However, the observed pressures have significantly eased in recent weeks, on the back of renewed confidence in the economy, and improved foreign exchange inflows. As at 24th March, 2017, the Ghana cedi had cumulatively depreciated by 3.5 percent against the US dollar, significantly recovering from 8.8 percent depreciation recorded by 8th March,” BoG noted.

The same BoG had, earlier in the year, told Ghanaians that “available data indicates that the total public debt stood at US$30.1 billion (71.9% of GDP) at the end of November 2016, compared with US$25.6 billion (69.5% of GDP) at the end of December 2015.” This means the immediate past government added almost $5 billion to the national debt stock within a year.

The revelation, which was contained in a monetary summary report, however noted that it was positive in some ways, because the domestic debt accounts for more than 55% of the overall debt. “Of the total, Domestic Debt accounted for over 55 per cent, compared with some 40 per cent share in 2015. The rising share of domestic debt in total public debt is a positive development for long term debt sustainability for two main reasons: First, it would help minimise the potential impact of unanticipated redemptions, and secondly, lower the sensitivity of the public debt profile to exchange rate volatility. It is, however, important to manage this process in a manner that does not crowd out the private sector from the loanable funds market,” the bank noted.

By Emmanuel Akli