Government exceeded its fiscal deficit target of 1.4 percent of Gross Domestic Product for the first quarter of 2019, instead recording an out turn of 1.8 percent. Similarly, it recorded a primary balance deficit of 0.8 percent, as against a target of 0.3 percent of GDP.
The failure to stay within target is the result of both revenue shortfalls and government’s inability to match these with commensurate public spending cuts as it did in its two previous years in office. While total revenues and grants for the first quarter of this year amounted to GHc10.1 billion, well short of the GHc12.4 billion target, total expenditures amounted to GHc16.5 billion, although this was actually lower than the GHc17.3 billion government had planned to spend during the first three months of the year.
This has rekindled worries expressed both locally and abroad, that with the expiration of the International Monetary Fund’s Extended Credit Facility programme (which ended on April 2) and looming general elections scheduled for next year, government may revert, at least partially, to its customary old ways of fiscal indiscipline which could in turn usher in renewed macro-economic instability – total public expenditures were 37.7 percent higher in the first quarter of this year than they were in the corresponding period of last year.
Such fears have been exacerbated by the fact that government, in line with its 2016 election campaign promise, is increasingly turning towards supply side driven expansionary economics rather than the demand management policies which it inherited under the IMF’s programme for the restoration of macro-economic stability. Indeed, the fiscal deficit target for 2019, at 4,2 percent of GDP, is higher than last year’s target of 3.9 percent (which was achieved), this being the first such deliberately programmed increase since the IMF ushered in fiscal consolidation in April 2019 with the commencement of its ECF programme.
Although total revenues increased in the first quarter of 2019, as compared with the corresponding period of 2018, the increase in projected GDP for 2019 being used for the computations means that revenues as a proportion of GDP declined from 3.1 percent to 2.5 percent this year. However the tax revenues ratio remained unchanged at 2.4 percent.
Similarly, the total expenditure ratio, as measured against GDP remained unchanged at 4.2 percent, although encouragingly, the ratio for capital expenditure increased by a third from 0.3 percent to 0.4 percent of GDP.
Conversely though, the 0.8 percent primary balance deficit represents a regression from the 0.0 percent recorded in the first quarter of last year.
The wider than anticipated fiscal deficit for the first quarter pushed the public debt up to GHc198.0 billion by the end of March this year, up from GHc173.2 billion as at the end of 2018. However this increase is in part the result of cedi depreciation during the quarter; in dollar terms the public debt increased from US$35.9 billion to US$38.9 billion. Despite the increase in absolute terms however over the three month period, the increase in the GDP level used for computations (government uses projected end of year GDP figures for all its computations during the year) means that the public debt as a proportion of GDP actually fell from 58.0 percent to 57.5 percent during the period.
Instructively, the difficulties government had in selling domestic debt securities during the first quarter of 2019, which persuaded it to go to the Eurobond market in March to raise US$3 billion, translated into a decrease in net domestic financing of its deficit to the tune of 2.2 percent of GDP as against an increase of 1.0 percent during the corresponding period of 2018. This was however made up for by a sharp increase in net foreign financing through the Eurobond issuance.
While government is targeting a fiscal deficit of 4.2 percent of GDP this year, it has passed new legislation which caps the fiscal deficit at not more than five percent of GDP in any given year, although there are still doubts as to whether this can be consistently adhered to, especially in election years.