The country’s Fiscal Consolidation programme which the 2021 Budget is hinged on is slow, Tax and Accounting Consultant, PFM Tax Africa has said.
The programme, which is a practice of drastic revenue mobilization through introduction of new taxes as against low spending, according to the firm, headed by former Finance Minister, Seth Tekper has not achieved its purpose.
According to PFM Tax Africa, the budget deficit target for this year will be missed because revenue has increased by only 2%, whilst expenditure has also gone up by 0.9%, leaving a huge gap of 14.9%. This it said will require tougher measures going forward to lower the deficit and put the economy on a sound footing.
“Revenue fell from 2019 to 2022, increased in 2021 and is stagnant into 2022. Expenditure rises steeply (2019 to 2022), remains stagnant in 2021 and declines steeply in 2022 but is above 2019 levels. The steep decline in overall deficit in 2022 (3.5%) is based on almost exclusively on a 2022 austerity based on decline in expenditure by only (3.5%)”, the statement explained.
However, critical sectors of the economy may be denied adequate funding to grow and create job opportunities.
The country’s tax to Gross Domestic Product or total value of goods and services that the economy produce within a period is still very low, at about 13.50%, a situation which is making it difficult for her to raise enough revenue to take care of expenditure including interest payments.
“All-expense Austerity Budget” predicted
PFM Tax Africa again said the 2022 National Budget will require austere measures in order to open up the fiscal space going forward and create more room for spending.
“While IMF adjusts for non-zero bailout cost impact in 2021 and keeps spending stagnant, the nation must await and prepare for a steep and ambitious decline (3.6%) in deficit in 2022 (10.4%) based on revenue rise and an all ‘All-expense Austerity Budget” in 2022.”
It also argued that the budget deficit on broad basis have never been reduced significantly since 2017 due to omission of bailout costs, among others.
“The deficit, on a broad basis, has never been reduced significantly since 2017 given fiscal offsets in 2016, complete omission of bailout costs in 2017 and others”
This it said is in line with the International Monetary Fund recent estimates on the Article IV Consultation Document.
IMF fiscal deficit forecast contradicts government’s target
The Fund put the country’s deficit at 15.2% for last year but projected a financing gap of 13.9%, far higher than government’s 9%+.
PFM Tax Africa said the Mid-Year Review will indicate whether these ambitious targets are attainable.
“As noted earlier, the IMF’s deficit reduction from 14% to 10.4% from 2021 to 2022 is ambitious. It is based on virtually no increase in revenue (14.9% and 15%) – same as Government of Ghana and steep decline in spending (29.9% to 25.6%). Furthermore, the adjustment for bailout costs of only 1% in 2022 (from 3.9% in 2021) also seems modest.”
“The 2020 Mid-Year Review will indicate whether these ambitious targets are attainable”, it added.