Fiscal consolidation may take up to four years – Standard Bank

Finance Minister Ken Ofori-Atta

Standard Bank, parent company of Stanbic Bank Ghana, have said the country may have to wait till 2024 to return to its deficit threshold of 5%.

In its March 2021 Flash Note of the African Markets Revealed (AMR) report, Standard Bank reported that this is not an isolated case as most African economies are expected to see fiscal consolidation between two and four years.

“The path to fiscal consolidation may take a further four years as the government does not expect to return to within the Fiscal Responsibility Act threshold of 5% of GDP until at least 2024. In fact, most African economies foresee some two to four years to fiscal consolidation given the disruption to economic activity and consequent impact on government revenues amid rising social costs. However, fiscal consolidation faster than that would be desirable given high interest payments and debt service costs,” the report said.

This, according to the report, comes at the back of a projected fiscal deficit of 9.5%in 2021.

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The report further noted that improvement in Ghana’s fiscal consolidation will depend largely on how the country recovers from the shocks of Covid-19.

The report said: “The Ghanaian government projects a 9.5% fiscal deficit-to-GDP ratio for 2021 amid rising social expenditure and interest payments, from 11.7% recorded in 2020. Including financial sector costs, fiscal deficit-to-GDP was 13.7% in 2020. Much of the progress on fiscal consolidation will depend of how quickly the economy can recover after the pandemic. The government forecasts growth of 5% y/y for 2021, roughly matching our base case of 4.8% y/y where we expect external demand to rebound more meaningfully in H2:21 due to vaccinations across the globe.”

The report further cautions government on its debt levels given the pace of growth of external commercial debt over the past few years.

The report noted that “though Ghana’s debt may seem sustainable, albeit with high risk of debt distress, the fast pace of growth of external commercial debt over the past few years calls for caution. Debt to- GDP levels rose to 76% in 2020 and could well hover around those levels in 2021 should GDP growth improve as we expect. Still, the split between domestic and external debt is almost even, at a 51:49 ratio. Moreover, commercial creditors, including Eurobond creditors, now account for near 50% of the external debt composition, underscoring debt investors’ sustainability concerns.”

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The African Markets Revealed Report is a monthly report issued by the Standard Bank Group, parent company of Stanbic Bank Ghana and focuses on the economic and financial outlook of African countries.

The report also reviews current economic situations and makes short to medium-term predictions about the economies of African countries.



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