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The government will not be able to meet its budget deficit target of 9.5% of gross domestic product for this year, PFM Tax Africa said.
This is due to its inability to meet the revenue target for the first quarter of this year.
According to PFM Tax Africa, the first quarter budget results show low income compared to higher spending compared to last year, a situation which is likely to lead to larger budget deficits, borrowing and public debt. .
This, he said, was the reason why Fitch Ratings recently reviewed the country’s economic outlook from stable to negative, despite maintaining its “B” ratings.
“Goals are unachievable because they reflect past gloomy trends from the first quarter and, therefore, may be a factor in Fitch’s recent downgrade to B negative (B-). It follows the movement of Moody’s and deepens the alerts of the International Monetary Fund, the World Bank, the African Development Bank (AfDB) and other agencies ”.
He added that “the article is based on recent tax data from the Ministry of Finance (MOF) and the Bank of Ghana (BOG). It compares the original and adjusted budgets for 2019, 2020 and 2021 with the provisional actual results, including one-off costs (i.e. bank bailout costs) that the GOG shows as footnotes of. budget page or memos from 2017. “
Continuing, the report states that the stagnation in income since 2015 could make it difficult to accelerate deficit and debt reduction in an era of post-Covid-19 recovery from the end of 2020. This will subsequently deprive spending on major social programs.
Domestic revenue for the first quarter was 12.56 billion yen
Domestic revenue for the first quarter of the year was estimated at 12.56 billion yen. Of this amount, tax revenue amounted to 10.4 billion yen and other domestic revenue to 2.15 billion yen.
The tax collection strategy includes increasing direct and indirect tax rates, extending temporary tax “sunset” dates, and blocking the Value Added Tax (ITC) credit.
PFM Tax said that rather than increasing revenues, these policies appear to encourage tax avoidance and evasion, explaining that “they are ineffective without automation, auditing and training programs that complement the creation of the Ghana Revenue Authority as the supreme body, the segmentation of tax offices, the Internal Revenue Service, and the overhaul of tax laws as part of phase I of the tax modernization program from 2009 to 2016. ”
First-quarter spending was 23.45 billion yen
Expenses for the first quarter were estimated at 23.45 billion yen.
Interest payments on government borrowings were estimated at 8.2 billion yen, while allowances or salaries and wages were estimated at 7.35 billion yen.
Capital expenditure was also estimated at 3.3 billion euros.
PFM’s tax report said that “spending has increased by more than 50% with the mid-year review budget 2020. This has resulted in revenue overruns for recurring expenses, including interest payments and debts. salaries, and lower annual provisions for capital expenditure.
He said major strategies to contain unsustainable spending, including free high school and other social programs, have been ineffective, adding “that they include” capping “earmarked funds and the like, embezzling oil revenues from oil revenues. their initial budget targets, the desire to clear arrears, through non-disclosure and borrowing, which has the effect of pushing the country into debt distress.
“In addition to boldly examining unsustainable policy agendas, the authorities must return to pursuing public financial management (PFM) reforms – based on the Ghana Integrated Financial Management Information System (GIFMIS) “, he added.
Conclusion
Recently, the IMF raised the debt stock for the year 2020 above 78% by adding the costs of the energy sector, which, according to PFM Tax, could have an impact on the budget deficit ( cash basis) for 2020 and 2021.
In addition, he said the finance ministry would likely make significant adjustments in the mid-year 2021 review for routine low arrears (including payment of interest and wages), no provision for exceptional (bailout). banking and energy costs) and more pressure on capital spending. or development costs and broader social costs, especially those related to the education sector under the Free Senior High School program.
The tax adviser however indicated that there is a positive note to improve the tax situation of the country but only marginally.
This is due to the inflows of the new taxes that took effect in the second quarter of this year, the post-covid-19 global recovery, and the sharp rise in commodity prices, including crude oil.
Ghana’s tax revenue to GDP of around 13% is one of the lowest on the African continent.
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