Fiscal stability slowing down; mid-year review must correct – BoG

Company News on Tuesday, July 23, 2019

Source: Graphic.com.gh

2019-07-23

For the first time since taking office in April 2017, Dr. Ernest Addison, Governor of the Bank of Ghana (BoG) and Chairman of the Monetary Policy Committee (MPC), has been openly concerned about the budgetary situation of the country. countries, explaining that public spending is gradually picking up at a time when fiscal consolidation is expected to gain ground.

He said on 19 July that, while spending was steadily increasing, revenues were comparatively low, creating a gap that threatened to undermine the 2019 deficit target and thereby jeopardize the fiscal stability achieved in these countries. last years.

Reading the commission's press release at a press conference in Accra, the governor said the commission "observed that the pace of fiscal consolidation had slowed, mainly reflecting deficiencies in the revenue mobilization as the pace of spending increased.
"This could pose a risk to macroeconomic stability, if nothing is done," he said.

He went on to explain during the question-and-answer session that the committee had noticed "an increasing rate of expenditure and, therefore, you do not see the same amount of offsetting reduction in expenditures, say in 2018, in relation to what we are seeing now. 2019.

"In a sense, it gives you an idea of ​​the qualitative evolution of the fiscal stance, moving from a consolidated position to a less consolidated situation in 2019," he said.

Mid-year badessment

"We say that we have seen a certain underperformance of the income in relation to the target and that this has been the main source of the problem in terms of taxation," said the governor, stressing that the situation called for " corrective measures "in the form of: reduction of expenditure and sharp increase in revenue" in order to stay within the budget ceiling ".

These measures, he said, could be announced at the mid-year review of the budget to be presented to Parliament on July 29.

"This should help solve the funding gap and manage the risks of large non-budgeted payments in the energy sector that could negatively impact foreign exchange reserves and undermine the gains in macroeconomic stability achieved. until now, "he said.

First quarter performance

Although data on budget execution in the first half of the year have not yet been released, preliminary figures from the Ministry of Finance showed that revenues were below Target of 17.54% in the first quarter compared to under budget spending. target of 9.62% over the same period.

This resulted in a budget deficit of 1.6% of gross domestic product (GDP), above the target of 1.4% of GDP set for the period.

Professor Peter Quartey, professor of economics, said Dr. Addison's concerns were well-founded because he was talking about "numbers".

He stated that recent developments in revenue and expenditure have shown that the half-yearly targets would record "incremental gaps" that the budget review should correct.

"Certainly, there should be new income measures; if some of the taxes do not work, they should be examined, "he said, citing the luxury vehicle tax that the government says would be reviewed.

Speaking of spending, he said that "unnecessary spending should be pruned, but warned that excessive cuts could hurt investment and growth.

"If we have to reduce, then it should be unnecessary spending. In addition, we should target this issue of corruption and get value for money, "said Prof. Quartey, of the Institute for Statistical, Social and Economic Research (ISSER).

Expansionary budget

The 2019 budget forecasts a deficit of 4.2% of GDP, compared to 3.9% of the deficit forecast for 2018.

Ken Ofori-Atta's third, this year's budget was the first tool for estimating revenues and expenditures to target a higher deficit, making it an expansion-oriented budget.

In his post-budget review, the Institute for Fiscal Policy, the Institute for Policy (IFS), said last year that the policy change was visible in the fact that government spending for 2019 are expected to increase significantly.

"In 2019, public spending is expected to increase by 15.62 billion GH ¢, up from the increases of 5.78 billion GH ¢ in 2017 and 5.88 billion GH ¢ in 2018.

"If it is achieved, the increase in public spending in 2019 will be the highest in absolute value of the Fourth Republic.

"In percentage terms, the projected 27% increase in public spending in 2019 is the highest since 2012," the report says.

He noted that, even though he was not expecting exactly the policy reversal, "that was not surprising, since the sanitation process had seriously limited fiscal policy and affected economic growth ".

"Therefore, it was only a matter of time for some stimulus measures to be injected into the economy."