… in order to contain headline fiscal deficit
Data emanating from the Ministry of Finance last week reveals that government incurred significantly higher than budgeted new payment arrears in 2017, in order to out perform its fiscal consolidation target for the year. Government has announced that provisional data show that its fiscal deficit for 2017 was 5.9% of Gross Domestic Product, which is significantly lower than the 6.3% it had targeted, and which most economic analysts had originally thought overly ambitious, coming on the back of fiscal slippages in 2016 which had generated an overall fiscal deficit of some 8.5% for that year.
However, new data reveals that behind the commendable, better than targeted, reduction in the headline fiscal deficit for 2017 – which has been computed on cash basis – is an accumulation of higher than planned new payment arrears which has resulted in a fiscal deficit on commitment basis of 5.1% of GDP, which is significantly higher than the 4.5% target set for the year.
Fiscal deficit on cash basis reflects how much actual cash government paid for its expenditures, over and above its revenues; while fiscal deficit on commitment basis takes into account both cash paid and payment promises made but not yet paid off.
The 0.6% of GDP higher than planned deficit on commitment basis reflects new payment arrears incurred last year, even as the President Nana Akufo-Addo administration paid down some GHc1.758 billion in earlier payment arrears it had inherited from its predecessor Mahama administration.
The situation thus removes part of the bright shine attributed to the incumbent government for sharply lowering the inordinate fiscal deficit it had inherited, in its very first year in office.
To be sure many economic analysts had expected a rise in new payment arrears during 2017, based on the sharply falling cash deficit figures that were being announced through the year.
However, economists still agree that government’s performance with regards to the resumption of fiscal consolidation is as commendable as it is direly needed.
In 2017, total revenues and grants, at GHc41.498 billion were some 9.5% lower than expected, but government responded by slashing its expenditure by an even larger proportion, to GHc51.986 billion, thus enabling the fiscal deficit on cash basis to fall below the budgetary target. However, the cost of this feat was heavy with regards to development project spending – capital expenditure was ruthlessly slashed to GHc6.331 billion, just 12.18% of total public expenditure for the year.
In comparison servicing of the inordinate public debt consumed over 26% of total government public expenditure; interest payments for the year totaled GHc13.572 billion, comprising GHc11.039 billion spent on servicing the domestic component of the debt and GHc2.533 billion spent on servicing the foreign component.
Spending on the public work force consumed another 32.3%. This vividly illustrates how little fiscal space that government has to operate in.