Ghana’s capital expenditure budget has been slashed yet again, under the 2019 mid-year budget review, continuing a worrying trend.
The fall in governments capital expenditure relative to overall public expenditure and the size of the economy, in recent years has worsened, as its share proportion of Gross Domestic Product (GDP) is on a continuous decline.
Capital expenditure (CapEx) fell from 4.0 percent of GDP in 2015 to a low of 1.6 percent of GDP in 2018, although government has projected CapEx to be 2.2 percent of GDP in 2019, which is only slightly more than half of the 2015 ratio. However even this target may not be met as CapEx is the first victim of public spending cuts in the face of revenue shortfalls; during the first half of 2019, public revenues were 9.5 percent short of target.
Indeed, provisional figures show that during the first half of 2019, capital expenditure amounted to GHc 2,572 million compared with a programmed target of GHc 4,652 million.
Government explains that the outturn in relation to the target was mainly driven by lower-than-programmed Foreign Financed Capital Expenditure.
However, over the same period, expenditure on goods and services grew from 0.8 percent of GDP to a projected 2.0 percent of GDP in 2019, which is nearly as much as what is going into capital investment. This implies that Cap Ex is being crowded out by expenditure on goods and services.
The Institute for Fiscal Studies (IFS) points out that capital expenditure is critically needed to ensure increase in productivity in all sectors for accelerated and sustained growth and development of the Ghanaian economy, hence the decline is of a huge concern.
The declines in the ratio resulted from slower growth in the nominal values of capital expenditure at a fast pace relative to growth in the nominal value of GDP.
Standing at GHc 7.7 billion in 2016, the nominal value of capital expenditure declined to GHc 6.3 billion in 2017, and further to GHc 4.6 billion in 2018. This is unprecedented in the Fourth Republic.
In the 2019 Budget Statement, capital expenditure was projected at GHc 8.5 billion. However, in the mid-year budget, the government has slashed this amount by GHc 819.9 million to GHc 7.7 billion, about its 2016 level.
What this means is that, whereas fiscal consolidation has contributed to the reduction in capital investment, another important factor is the growth of goods and services spending, which has been driven in recent times by the many new non-infrastructural policy initiatives the government is pursuing. It is estimated that Ghana needs to spend US$ 7.3 billion to bridge an urgent economic infrastructure gap.