Accra, Ghana, November 19, 2019//-Professor John Gatsi of the University of Cape Coast (UCC) has questioned the government’s 5% fiscal deficit ceiling for election year announced in the country’s 2020 budget.
According to him, the 2020 budget amplified the authority of the fiscal responsibility Act especially section 2(a) in which the overall fiscal balance on cash basis shall not exceed 5% of GDP for a given fiscal year.
This condition he said must be achieved together with section 2(b), where it is required that an annual positive primary balance should be recorded. Primary balance does not recognize interest bearing expenditures like interest cost.
“Interest cost of about Ghc18.6 billion in 2019 and over Ghc21 billion in 2020 are not included in computing primary balance though the projected interest cost is just a little lower than wage bill of over Ghc22 billion:.
Prof Gatsi observed that by third quarter of 2019, a deficit target of about 4.1% of GDP could not be achieved by the government. There is overspending of about 0.3% of GDP pending the end of the fiscal year.
The deficit target for 2020 of 4.7% given the outturn in 2019 indicates indicates possible overspending. Also, given an expenditure envelope of more than Ghc85.5 billion with about Ghc55 billion revenue target excluding non tax revenue and grants, there must be a conservative borrowing amounting to more than Ghc30 billion in 2020. If non tax revenue and grants are added then there is likely to be a minimum of Ghc11 billion borrowing in 2020.
The real picture is that revenue will just not perform magic, hence revenue expectation may be the same as 2018 and 2019. In 2020, two compulsory expenditure items namely; wages and interest payments which are not negotiable will consume about 79% of the projected revenue.
The rest will not be enough to pay NHA, DACF among others. There will be an estimated borrowing of 2% of the projected revenue to be able to settle statutory funds. Implementation of programs and projects are not inclusive. This means there is no direct investment of tax revenue, Prof Gatsi who is also the Dean of the School of Business at the UCC, stressed.
Using total revenue of more than Ghc67 billion, that is if non tax revenue and grants are added, then 32% of the revenue goes to cater for wages while 31% settles interest cost on loans. This also means 63% takes care of interest on loan and wages.
This Prof Gatsi said threatens the 5% deficit requirement in an election year with lower capital expenditure budget.
The finance Minister, in an election year, may not be guided by the 5% ceiling because of the provision in section 4 of the fiscal responsibility Act, indicating that the basis of censure of the Finance Minister by Parliament can only take place when he breaches the 5% rule by more than 1%.
This also means with 6% there shall be no censure. So in an election year there is a cover to overspend. In a crucial election year with this cover in the Fiscal Responsibility Act, will there not be overspending beyond 5%? He questioned.
Another incentive for over spending in an election year is in Article 82. where two-thirds majority of all members of parliament is required to censure the Minister of Finance.
How will this be achieved when the over spending benefits the majority? Again, the Minister has the right to be heard during the censure debate.
At that point , finance minister will justify the overspending with some projects and programs . The point is the overrated Fiscal Responsibility Act together with Article 82 of the 1992 Constitution is not strong enough to discourage over expenditure even beyond 6% when a government has majority in parliament.
It is all about about maximum 21 days of moving a motion, followed by usual partisan debate. Even in the worst case where Parliament votes two-thirds to censure, the President MAY revoke his or her appointment, not shall revoke.
This analysis excludes promises in terms of projects and programs because revenue and expenditure define their implementation, hence the focus on revenue, expenditure and their related issues .
In an election where over expenditure is normally noticed during the transition period, are we expecting the majority in parliament whose party is defeated to vote to censure their finance minister?
Whether or not the Fiscal Responsibility Act and Article 82 are the magic against over spending, unbridled deficit is a cost that will affect management of the economy especially when the over expenditure is not productive, Prof Gatsi argued.
The roadmap to over expenditure in 2020 is clearly seen in how the deficit target of 4.1% was not achieved and the deficit for 2020 is very close to the so- called 5% ceiling.
“Therefore, year 2020 will be a year of huge borrowing, increased deficit, and unattractive fiscal ratios because of the elections. The temptation is there to over spend, but government must flee from it”.
African Eye Report
