The government is expected to spend ¢55.93 billion in 2024 as interest payment, about 5.3% of Gross Domestic Product (GDP), the Institute of Fiscal Studies (IFS) has revealed.
This is compared with ¢34.77 billion in 2023, about 4.1% of GDP.
On the other hand, non-interest expenditure is budgeted to grow in nominal terms to ¢182.36 billion in 2024 from ¢144.20 billion in 2023. As a ratio of GDP, non-interest expenditure is expected to increase from 17.0% in 2023 to 17.4% in 2024.
IFS therefore wants the foreign debt restructuring to be expedited, and the government work to secure debt cancellation as part of its agreement with creditors.
“Interest payment is budgeted to increase significantly in 2024. This partly reflects large accrued foreign debt service obligations that have to be budgeted for since the foreign debt restructuring process has not been completed. We therefore urge the government to expedite the restructuring to secure the much-needed debt service relief to aid its fiscal recovery. In addition, for the relief to be significant and impactful, it should include the cancellation of some of the debts”.
It added that further efforts to rein in non-interest expenditures should be pursued by, among others, reviewing the flagship programs.
“While the budgeted decreases in compensation expenditure and goods and services as ratios of total revenue and grants are commendable, the government must take further steps to reduce these expenditures, especially in the face of the still-large debt service obligations despite the debt relief already secured. To this end, we urge the government to act on its commitment under the IMF [International Monetary Fund] programme to review its flagship programs to help cut down budgetary spending and improve efficiency”, it mentioned.
Again, it wants the government to review the extractive sector component of its Medium-Term Revenue Strategy (MTRS) in line with IFS’ recommendations, stating, “The MTRS fails woefully to tackle Ghana’s weak revenue generation from the extractive sector. The government should therefore reconsider the extractive sector component of the strategy and revise it to incorporate recommendations long advocated by IFS, most importantly our call for active state participation in the sector and/or the use of production-sharing agreements to substantially improve revenue generation”.
Fiscal balance
The government expects its overall fiscal balance in 2023 to turn out better than targeted, with the budget deficit (on cash basis) projected at ¢49.09 billion (5.3% of GDP) against the mid-year budget target of ¢54.95 billion (6.4% of GDP).
However, revenue is expected to be below target, with a projected outturn of ¢133.88 billion (15.7% of GDP), compared to the mid-year budget estimate of ¢134.91 billion (15.8% of GDP).
IFS said this means the projected lower deficit rests solely on lower expenditure, with total expenditure and arrears clearance forecast to be ¢178.97 billion (21.0% of GDP) against the mid-year budget figure of ¢189.86 billion (22.2% of GDP).
This implies a reduction of ¢10.90 billion (1.3% of GDP). More than 90% of the reduction, equivalent to ¢10.09 billion, is expected to result from lower interest payment.