Ghana’s budget deficit will be more than double the initial forecast as the drop in oil prices and the coronavirus pandemic weigh on state income and economic growth.
The shortfall is now seen at 11.4% of gross domestic product compared with a projection of 4.7% at the end of last year, Finance Minister Ken Ofori-Atta said Thursday in a mid-year budget review presented to lawmakers in the capital, Accra. Economic growth is now projected at 0.9%, compared with 6.8% forecast in November and 1.5% estimated in March.
Prior to the global pandemic, the West African nation was on track to keep its budget deficit below 5% of GDP for a third year, in line with legislation passed in 2018. The virus has brought an abrupt end to three years of economic growth of 6% or more and reversed some of the fiscal gains made under an International Monetary Fund program that ended in April 2019. That was Ghana’s 16th bailout plan from the Washington-based lender.
“The evidence of our superior management was clear for all to see” back in November, Ofori-Atta said on Thursday. “A lot has happened since then.
A shortfall of 5.3 billion cedis ($915 million) in petroleum receipts and lower tax income will widen the revenue gap to 14 billion cedis, Ofori-Atta said. Spending will increase by 13 billion cedis, due mainly to the impact of fighting the coronavirus. To reduce the cost of data for people working from home, the government will cut communication services tax to 5% from 9%.
“The fiscal cost of the COVID-19 pandemic is enormous,” he said.
The economy will be a key issue in a Dec. 7 vote when President Nana Akufo-Addo will seek to renew his mandate for another four years, facing off against his predecessor, John Mahama of the National Democratic Congress.
The West African country’s debt burden is exacerbated by its failure to renegotiate power-procurement deals since it committed to do so nearly a year ago. The contracts led to installed capacity almost doubling the country’s peak demand of 2,700 megawatts, but Ghana now pays about 2.5 billion cedis per year for power it doesn’t need.
A group of independent power producers, which together account for about 1,262 megawatts, said this week the government owed them more than $1.4 billion as of June 30. The Ministry of Finance said Tuesday it’s still in talks with the producers.
The failure to switch to “take-and-pay” contracts, where the government would be billed only for the electricity it uses, has weighed on public debt, which expanded to 59.3% of GDP in March from 56.7% a year earlier.
The cedi was little changed at 5.7925 against the dollar at the close on Thursday after weakening 2.3% so far this year.