To deliver on campaign promises, gov’t likely to overspend budget in 2020- EIU predicts

The Economist Intelligence Unit (EIU) is predicting that the Akufo-Addo administration will overspend the 2020 budget in order to deliver on its campaign promises.

If it happens, it will be in breach of the fiscal responsibility law that places limit on how much government must spend.

It could also be a ground for the removal of the finance minister as provided for in the law that was passed in 2018.

The fiscal responsibility law limits budget deficit to a maximum 5 percent of Gross Domestic Products (GDP).

The EIU’s July report on Ghana says the government may miss it by 0.5 percentage points in 2020—the election year— due to rising expenditure.

“Following completion of the IMF programme in April 2019, and a period of fiscal consolidation, we expect to see some spending laxity. Moreover, the authorities will remain reluctant to lower public spending ahead of elections. The public­sector wage bill — together with high interest payments and capital expenditure to help to deliver ambitious industrialisation and infrastructure development promises — will drive expenditure increases.

“In December 2018, government passed a fiscal responsibility law aiming at limiting future budget deficits to a maximum 5 percent of GDP. However, overall, we expect the fiscal deficit to widen from 3.4 percent of GDP in 2018 to 5.5 percent of GDP by 2020 as a result of rising expenditure,” the EIU report stated.

The EIU, however, expects that public expenditure to decline over the 2021-2023 period as the government will seek fiscal consolidation.

“Such reductions are expected to come from moderation in growth of capital expenditure, although ongoing major government infrastructure development and industrialisation projects will keep such spending elevated…We then forecast a return to consolidation, leading to a lower deficit in 2023 of 3.3 percent of GDP.

“As a result of this tightening, the public debt stock will edge down from an estimated 53.5 percent of GDP at the end of 2018 to 45.8 percent of GDP by end-2023, owing to fiscal consolidation combined with robust economic growth. Nonetheless, longer-term debt sustainability will still require ongoing fiscal responsibility and sustained economic growth,” the report said.

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