The reading of the 2020 budget, amplified the authority of the fiscal responsibility Act especially section 2(a) in which the overall fiscal balance on cash basis shall not exceed 5% of GDP for a given fiscal year.
This condition must be achieved together with section 2(b) where it is required that an annual positive primary balance should be recorded. Primary balance doesn’t recognize interest bearing expenditure like interest cost.Interest cost of about Ghc18.6billion in 2019 and over Ghc21billion in 2020 Are not included in computing primary balance though interest cost is just a little lower than wage bill of over Ghc22billion.
In 2019, a deficit target of about 4.1%of GDP was not achieved. There was over spending of about 0.3% of GDP. The deficit target for 2020 of 4.7% given the out turn in 2019 indicate possible over expenditure. Also given an expenditure envelope of more than Ghc85.5billion with about Ghc55billion revenue target excluding non tax revenue and grants, there must be a conservative borrowing amounting to more than Ghc30billion in 2020. If non tax revenue and grants are added then there is likely going to be a minimum of Ghc11billion borrowing in 2020.
The real picture is revenue will not perform magic , hence revenue expectation may be the same as 2018 and 2019. In 2020 two compulsory expenditure items namely wages and interest payments which are not negotiable will consume about 79% of the projected revenue. The rest will not be enough to pay NHA, DACF among others. There will be an estimated borrowing of 2% of the projected revenue to be able to settle statutory funds. Implementation of programs and projects are not part. Meaning there is no direct investment of tax revenue mobilization .
Using total revenue of more than Ghc67billion that is If non tax revenue and grants are added then 32% of the revenue goes to cater for wages while 31 settles interest cost on loans.meaning 63% takes care of interest on loan and wages.
This threatens the 5% requirement in an election year with lower capital expenditure budget. The Minister, in an election year may not be guided by the 5% ceiling because of the provision in section 4 of the fiscal responsibility Act indicating that the basis of censure of the Finance Minister can only take place when he breaches the 5% rule by more than 1% meaning with 6% there shall be no censure.So in an election year there is a cover to overspend . In a crucial election with this cover will there be overspending beyond 5%?
Another incentive for over spending in an election year is article 82 where two- thirds majority of all members of parliament is required to censure the Minister of Finance. How will this be achieved when the over spending benefits the majority? Again, the Minister has the right to be heard during the censure debate. At that point , he will justify the overspending with some projects and programs . The point is the overrated fiscal responsibility Act together with Article 82 of the 1992 Constitution is not strong enough to discourage over expenditure even beyond 6% when a government has majority in parliament. It is all about about maximum 21 days of moving a motion , followed by usual partisan debate. Even in the worse case where Parliament votes two- thirds to censure, the President MAY revoke his or her appointment not shall revoke.
This analysis excludes promises in terms of projects and programs because revenue and expenditure define implementation, hence the focus on revenue, expenditure and their related issues
In an election where over expenditure is normally noticed during transition period, are we expecting the majority in parliament whose party is defeated to vote to censure their finance minister?
Whether or not the fiscal responsibility Act and Article 82 are the magic against over spending, unbridled deficit is a cost that will affect management of the economy especially when the over expenditure is not productive. The roadmap to over expenditure in 2020 is clearly seen in how the deficit target of 4.1% was not achieved and the deficit for 2020 is very close to the so- called 5% ceiling. 2020 therefore will be a year of huge borrowing, enhanced deficit,unattractive fiscal ratios because of the elections. The temptation is there to over spend, flee from it.
