Finance Minister, Ken Ofori-Atta, has said government’s growth projection of 6.3 percent will be met regardless of the shortfall in revenue recorded in the first quarter of the year.
The huge revenue plunge, however, was enough to force government to slash its ambitious original revenue target of GH¢44.5 billion to GH¢43.1 billion, which is about GH¢1.4 billion less of 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 downwards,” 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 downwards 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.
“To ensure that we do not compromise our fiscal consolidation objectives and targets, expenditures are planned to match the downward revision in revenues. The downward revision in revenues and expenditures, as well as reclassification of inflows from the sale of shares, have resulted in the revision of the fiscal deficit target from 6.5 percent of GDP to 6.3 percent.
These revisions are consistent with our fiscal and debt sustainability objectives. Being mindful of the high debt burden which has arisen largely because of high fiscal deficits in the past, the revision of the fiscal deficit further demonstrates our commitment to fiscal discipline,” he said.
With government nearly hitting double digit budget deficit last year, the 2.7 percent deficit (compared to 4 percent same period last year) recorded in the first half of the year gave government the encouragement that it indeed can do more hence the downward revision of the deficit.
But Mr. Ofori-Atta stated that, nevertheless the disappointment in revenue performance is worrying and that government is putting place measures to arrest the situation.
“Going forward, we will strengthen the implementation of revenue measures to ensure that 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,” Mr. Ofori-Atta said.
Boost to debt sustainability
Touching on government’s performance in the first six months, the Finance Minister said interest payments amounted to GH¢6.7 billion (3.3 percent of GDP) against a target of GH¢7.1 billion (3.5 percent of GDP), 5.5 percent lower than the target.
“Our liability management programme including re-profiling (extending maturity profile of domestic debt by issuing longer-dated instruments to replace shorter-dated instruments thereby reducing annual debt servicing cost and roll over risk) is expected to provide provisional savings of GH¢612 million.
Domestic interest payment for the period amounted to GH¢5.3 billion against a target of GH¢5.7 billion, indicating potential savings of GH¢374.6 million for the period, arising mainly from the re-profiling of maturing domestic debt,” he explained.
Poorer 2016 performance
Mr. Ofori-Atta said updated information available to government shows that as at end-2016 fiscal deficit was worse than previously estimated, at 9.3 percent of GDP compared to the provisional figure of 8.7 percent of GDP on cash basis at the time of presenting the 2017 budget.
The deficit on commitment basis is now at 10.9 percent of GDP up from the 10.3 percent previously reported.
“This revision has been occasioned by the reversal of interest payment on a non-marketable instrument that fell due at end-2016 but recorded as part of 2017 flows, as well as the revision of the 2016 GDP by the Ghana Statistical Service (GSS) in April 2017.
The interest payment reversed in 2016 amounted to GH¢758.5 million and the 2016 nominal GDP was revised from GH¢168.73 billion to GH¢167.31 billion,” the Minister revealed.