Poor Revenue Could Derail Fiscal Consolidation, BoG warns
The central bank says government’s inability to meet its projected revenue performance poses considerable danger to government’s fiscal consolidation efforts.
Revenue and grants performance for the first seven months of the year – GH¢20.8billion is more than GH¢3.2billion short of the GH¢24billion target for the period under review.
According to the bank’s latest monetary policy summary report: “The continued revenue underperformance could pose some challenges to the fiscal outlook. Revenue performance has been undermined by low import levels, slower pace of implementing specific tax measures, a revision to tax assessments, and a sluggish non-oil real sector”.
Nevertheless, the bank stated that government’s fiscal consolidation process is broadly on course despite the lower-than-expected revenue performance.
The report issued earlier this week revealed that government had to cut its expenditure by about GH¢3.5billion in view of the revenue shortfall. Total expenditures and arrears clearance, as a result, stood at GH¢28.8billion (14.3% of GDP) relative to the target of GH¢32.3billion (16% of GDP).
These resulted in an overall budget deficit of four percent of GDP as of July 2017, lower than the target of 4.1 percent of GDP. The deficit, the bank said, was financed mainly from domestic sources.
“Although expenditures remained within target, the pace of spending picked up in June and July. Available data indicates that the total public debt stood at US$31.7billion (68.6% of GDP) at the end of June 2017, compared with US$29.2billion (73.2% of GDP) and US$32.billion (68% of GDP) at the end of December 2016 and May 2017 respectively.
Of the total, domestic debt accounted for about 46 percent, compared with some 43.7 percent share in 2016 and 46.6 percent in May 2017,” the bank’s report said.
Poor Revenue won’t impact growth
Finance Minister Ken Ofori-Atta, who is expected to present his government’s second budget to Parliament in some few weeks’ time, has insisted that government’s growth projection of 6.3 percent will be met regardless of the shortfall in revenue.
The Finance Minister in his mid-year budget review cut government’s revenue target of GH¢44.5billion to GH¢43.1billion, which is about GH¢1.4billion less than the 2017 estimate announced in March.
“These revisions have mainly been informed by lower than anticipated corporate taxes and lower import volumes for the first six months of the year. Even though the trend is expected to improve, we still find it prudent to revise the projections downward,” Ofori-Atta told Parliament when he presented government’s mid-year budget review.
Apart from reducing the revenue projection, the Finance Minister also announced that government’s expenditure has been slashed downward by as much as GH¢2.2bn to compensate for the revenue shortfall, as well as enable government meet its newly-revised deficit target of 6.3 percent for 2017.
Mr. Ofori-Atta told Parliament in August, “Going forward, we will strengthen the implementation of revenue measures to ensure we meet our revised revenue targets. To ensure that the fiscal objectives and targets are not compromised, we will make the necessary downward adjustment to discretionary expenditures in the event that we are not able to meet our revenue targets”.