With a potential GH¢30.2 billion fiscal deficit by the end of this year due to the COVID-19 crisis, the government is boldly responding with a raft of fiscal measures to reduce it to GH¢26.3 billion.
The proposed target, which represents 6.6 per cent of Gross Domestic Product (GDP), is still way off the original target of 4.7 per cent, equivalent to GH¢18.9 billion.
This underlines the considerable ramifications of the raging coronavirus pandemic, which has brought vast swathes of the economy to a standstill as the government battles to control the spread of the virus.
The government’s primary balance, which shows the extent to which it is limiting the growth of debt, will now show a deficit of GH¢5.6 billion (1.4 per cent of GDP), in contrast to the initially projected surplus of GH¢2.8 billion (0.7 per cent of GDP).
The blunt implication of these numbers is that government borrowing will rise in response to the coronavirus crisis, with Finance Minister Ken Ofori- Atta seeking to mitigate the impact with the proposals he outlined this week.
Government has taken some radical steps both on the expenditure and revenue sides to limit the impact of the crisis on the country’s fiscal position.
On the expenditure side, the government is cutting down outlays on goods and services and capital assets by GH¢1.25 billion, and also arranging with its creditors, through the Bank of Ghana, to defer interest payments on non-marketable instruments, estimated at GH¢1.22 billion to 2022 and beyond. In addition, allocations to the Ghana National Petroleum Corporation (GNPC) will be sharply reduced by half.
To mobilise extra financing, one controversial proposal is to sacrifice the ‘sacred cow’, the Ghana Heritage Fund, which boasts $591.1 million in savings, by amending the Petroleum Revenue Management Act to allow a withdrawal to undertake urgent expenditures in relation to the coronavirus pandemic.
Other financing measures include securing a World Bank facility of GH¢1.72 billion and an International Monetary Fund (IMF) Rapid Credit Facility of GH¢3.15 billion. The IMF financing is available at zero interest rate with a five- and-a-half year moratorium on principal repayment.
While the government programmed a crude oil price of US$62.60 per barrel for the 2020 Budget, global crude oil prices have declined significantly since the outbreak of the coronavirus. As of 30th March, 2020, crude oil prices (Brent) were down to US$22.9 per barrel from the December 2019 price of US$65.9 per barrel.
Preliminary analysis shows that at an average crude oil price of US$30 per barrel for 2020, the government will register a shortfall in crude oil receipts amounting to GH¢5.68 billion.
The corresponding projected shortfall in Annual Budget Funding Amount (ABFA) is GH¢3.53 billion, while shortfalls in the Ghana Stabilisation Fund and the Ghana Heritage Fund are GH¢1.06 billion and GH¢453 million, respectively.
Shortfalls in tax revenues
The anticipated decline in import volumes and values, as well as the slowdown in economic activities, will lead to shortfalls in both import duties and other tax revenues.
Preliminary analysis shows that import duties will fall short of target by GH¢808 million. Similarly, the projected slowdown in non-oil GDP as a result of the pandemic is expected to result in shortfalls in tax revenues (excluding oil tax revenues and import duties) amounting to GH¢1.45 billion, bringing the total estimated shortfall in non-oil tax revenues to GH¢2.25 billion.
The total estimated fiscal impact from the revenue shortfalls, the cost of the preparedness plan and the cost of the Coronavirus Alleviation Programme is GH¢9.51 billion (2.5 per cent of revised GDP).
Impact on the hospitality industry
Among the worst hit are hotels, airlines, tourist sites and attractions, car rental services. Hotel occupancy is down from 70 per cent to under 30 per cent, and staff are being sent home. Even before the impact of the lockdown, restaurants were ahead experiencing an average drop of 6 per cent in patronage.
Transportation services have been impacted due to social distancing, closure of schools and the ban on gatherings.