Ghana’s economic managers lauded for keeping fiscal deficit low

The World Bank has reported that fiscal balances in Ghana and other Sub-Saharan African nations are showing signs of improvement, driven by a combination of expenditure-cutting and revenue-raising policies.

Despite these positive developments, the pace of fiscal consolidation is beginning to slow, according to the October 2024 Africa Pulse report. Governments across the region, including Ghana, have been focusing on measures to stabilize public finances amid restricted fiscal space and limited access to external borrowing, a challenge many have faced since the global economic disruptions of recent years.

In its forecast for Ghana, the World Bank predicts a fiscal deficit of 4.2% of Gross Domestic Product (GDP) in 2024, slightly higher than the 3.5% deficit recorded in 2023 but significantly lower than the alarming 11.0% deficit experienced in 2022. This trajectory signals gradual fiscal recovery, although it highlights that Ghana, like many other Sub-Saharan nations, still has a way to go to achieve full fiscal stability.

The World Bank attributed this fiscal improvement to several successful reforms and strategies. Among the key measures mentioned were the tightening of administrative oversight over spending programs, which included eliminating “ghost workers” from government payrolls, a problem that has long plagued public sectors across the continent. In addition, tax reforms have been implemented to enhance compliance and streamline tax administration. These reforms aim to increase government revenue while reducing inefficiencies. Policies such as revising tax rates, reducing government incentives, and eliminating unnecessary value-added tax (VAT) exemptions have also played a significant role in improving the fiscal situation.

Another critical aspect of the fiscal reforms is the restructuring of subsidies, with governments reprioritizing public spending towards programs with higher growth potential and job creation multipliers. This reallocation of resources is expected to not only improve fiscal health but also spur economic growth, creating jobs and driving development in sectors that hold the most promise for the future.

The Africa Pulse report further highlighted that the broader Sub-Saharan African region is experiencing a trend of fiscal consolidation. The median fiscal deficit for the region is projected to decrease from 3.9% of GDP in 2023 to 3.3% in 2024. This figure is expected to decline further to 2.9% of GDP between 2025 and 2026, signaling that more governments are making headway in their efforts to achieve fiscal sustainability.

Notably, the report predicts that fiscal balances for the majority of Sub-Saharan African countries—29 out of 47—will improve in 2024, with ten countries expected to have fiscal deficits of less than 3.0% of GDP or even shift into a fiscal surplus. This demonstrates that several nations are making considerable progress in managing their public finances, despite the external challenges posed by global economic volatility, inflationary pressures, and reduced access to international capital markets.

For Ghana, while the projected 2024 fiscal deficit is slightly higher than that of 2023, the country’s economic managers are being commended for keeping the deficit much lower than in 2022. The Bank of Ghana, together with the Ministry of Finance, has been working to contain public debt, rationalize government expenditure, and optimize revenue collection, all part of a broader strategy to avoid reliance on external borrowing. The fiscal space, however, remains tight, and there is an urgent need for sustained reforms and more efficient public financial management to ensure long-term stability. In the wider African context, the report cautioned that while the fiscal situation is improving, countries must remain vigilant against fiscal slippages. Continued global economic challenges, including the uncertainty in commodity prices and high inflation, could derail these gains. Additionally, with limited access to international capital markets, countries may face difficulties financing their fiscal needs without strong domestic revenue mobilization strategies in place.