7/28/2019 THE ECONOMY IS ON AN UNSUSTAINABLE PATH WITH THE HIGHEST BUDGET DEFICIT IN GHANAS HISTORY.

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THE ECONOMY IS ON AN UNSUSTAINABLE PATH WITH THE HIGHEST

BUDGET DEFICIT IN GHANAS HISTORY.

DR. MAHAMUDU BAWUMIA

The data coming in on Ghanas economic performance in 2012 indicates quite simply that public

finances are out of control and the economy is in trouble. At the end of 2012, Ghanas budget deficit

was a whopping Ghc 8.7 billion, amounting to 12.1% of GDP using the rebased GDP numbers (or some

20% of GDP in terms of the old GDP series). This is the highest recorded budget deficit in Ghanas

history. From Nkrumah through Acheampong, Rawlings and Kufuor, no government has incurred this

level of budget deficit. What is more worrying is that this provisional deficit figure excludes some Ghc

4.0 billion in commitments and arrears yet to be paid to contractors and other service providers. If we

include these arrears the deficit for 2012 would be some 23% of GDP using rebased numbers (or some

35% of GDP using the old GDP series). These are mindboggling numbers. The crux of the problem is that

government spending increased astronomically to 34.5% of GDP even though government revenues

amounted to 16.1% of GDP (a gap of over 100%) for the year.

The provisional 2012 budget deficit of 12.1% of GDP is almost double the budget deficit of 6.5% in 2008

using the rebased GDP numbers (or 11.2% of GDP using the old GDP series) notwithstanding the fact

that Ghana enjoyed more favorable economic circumstances in 2012. In 2008 Ghana was not an oil

producer and the global economy was in crisis. In 2012 on the other hand, Ghana was an oil producer

facing a favorable external environment for its exports and yet managed to double the 2008 budget

(which this government described at the time as reckless) and in the process achieve what is a truly

unprecedented budget deficit in Ghanas history. The government promised last year that its

management of the economy would be more prudent than that of other governments in previous

election years. Despite all the favorable opportunities at its disposal, 2012 has turned out to be the

worst election year outcome in Ghanas history in terms of the management of public finances. This is

also yet another failed NDC promise.

For any economy with this historic budget deficit combined with an increasing balance of payments

deficit (some 13% of rebased GDP) and mounting public debt, this state of affairs will raise alarm bells,

but not so in Ghana. The government has found a way to delay tackling critical economic problems

through borrowing domestically and internationally and falsely claiming unprecedented achievements

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at home. In the process, Ghanas total public debt has increased from Ghc 9.6 billion in 2008 to Ghc 33.5

billion in 2012 (an increase of 248% in 4 years!). As has been demonstrated for Ghana and many

countries in the past however, this path and manner of managing an economy is unsustainable.

Take the example of the management of oil revenues. It turns out that the NDC government forecast oil

revenues from corporate taxes of Ghc 384.1 million for 2012 knowing full well that revenue would not

materialize. This is because the Jubilee partners are entitled to capital cost recovery under the

Petroleum Income Tax Law 1987 (PNDC Law 188) and the government knew this. The government

nonetheless forecast the receipt of these revenues because the provisions of the Petroleum Revenue

Management Act 2011 are such that the proportion of then oil revenues that accrues to the budget (The

Annual Budget Funding Amount) is based on projected benchmark oil revenue. Under the Act, 70% of

projected oil revenue accrues to the budget and 30% is divided between the Stabilization (21%) and

Heritage (9%) funds. The government therefore over projected the oil revenue so as to get more of the

oil revenue into the budget. In the meantime, the projected revenues were spent through government

borrowing. Is it therefore a surprise that with such economic management the budget deficit would

increase astronomically?

Poor economic management has consequences. Unfortunately, the burden of the inevitable

consequences of the NDCs management of the economy is bound to fall disproportionately on the

segments of society which are least able to afford it, as prices for petroleum products (whatever

happened to the oil hedging policy?), transportation, water, electricity (in the face of water and power

shortages), school fees, tax increases, expenditure cuts, unemployment, wage pressures, inflation,

interest rates etc. shoot up and non-oil GDP growth slows down. This reality is already being felt and

will soon be patently obvious for all to see.