The fiscal rules of a deficit not exceeding 5% of GDP and a positive primary balance, enshrined in the Fiscal Responsibility Act 2018 (Act 982), will not be feasible for the next four years because of the impact of COVID-19, the Minister for Finance, Ken Ofori-Atta, has said.
He said the scale of the damage and macroeconomic distortions caused by the pandemic was unprecedented in this country: it will take a while, therefore, to return to the pre-COVID-19 fiscal path.
Presenting the Mid-year Budget Review to Parliament, the minister said: “According to our revised fiscal framework, the economy is only likely to return to the 5% fiscal deficit threshold set in the Fiscal Responsibility Law no sooner than 2024.”
He said the government has therefore opted to suspend the fiscal rules and targets for the 2020 fiscal year.
“There are severe adverse contagion effects related to the drastic crude oil price declines and the deep deceleration in economic growth. Under these very severe conditions, and consistent with both Section 3 of the Fiscal Responsibility Act 2018 (Act 982) and Section 18 of the Public Financial Management Act 2016 (Act 921), the government has opted to suspend the fiscal rules and targets for the fiscal year 2020.
“Consequently, as required by Section 3(3) of the Fiscal Responsibility Law, the government will, within 30 days, present before this august House the necessary documentation that supports the suspension of the fiscal rules and targets for this year 2020,” he said.
Ofori-Atta assured Parliament, however, that the government will soon roll out initiatives to ensure that the macroeconomic gains achieved over the past three years are not eroded.
“The government, through the COVID-19 Alleviation, Revitalisation and Enterprise Support (CARES) programme, will implement a number of strategies to stabilise and revitalise the economy and return it to the path of robust growth and to the 5% fiscal deficit threshold as the law requires,” he said.
2020 fiscal deficit revised to 11.4%
The Finance Minister revised the Budget deficit for 2020 from 4.7% of GDP to 11.4%, in line with revisions to the country’s total revenue and expenditure.
The revisions in the total revenue and grants and total expenditures resulted in a fiscal deficit of GHC44.1 billion (11.4% of GDP) for 2020, up from the original 2020 Budget target of GHC18.9 billion (4.7% of GDP).
The Finance Minister said the deficit was expected to be financed from both foreign and domestic sources.
The corresponding primary balance is also expected to worsen from a surplus of GHC2.8 billion (0.7% of GDP) in the original 2020 Budget to a deficit of GHC17.8 billion (4.61% of GDP).
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