IFS’ Assessment of the Government of Ghana’s Fiscal Consolidation Efforts in the Face of the Rapidly Deteriorating Macroeconomic Environment

Finance Minister Ken Ofori-Atta presented the mid-year review of the 2022 budget statement to Parliament on Monday, July 25, 2022. As expected, the review contained revisions to the 2022 macroeconomic forecasts, in light of economic developments since the 2022 budget was announced in November last year. More importantly, it revised the 2022 fiscal projections to take account of budgetary outcomes in the first half of the year, aimed at putting Ghana on a fiscal consolidation path, as a means of addressing the rising macroeconomic instability the country is currently witnessing.

Having registered large fiscal deficits in the past decade, which reached its peak in 2020 with an unprecedented deficit of 14.7% of GDP, and thus sharply increasing the country’s debt stock and debt service costs, thereby creating enormous budgetary difficulties, the government of Ghana naturally aimed at achieving fiscal consolidation in the original 2022 budget. However, after assessing the 2022 budget statement presented to Parliament in November 2021, IFS concluded that the budget lacked credibility, as the revenue target was overoptimistic and unlikely to be met, which called into question the credibility of the expenditure program and the envisaged fiscal consolidation, since the consolidation plan in the 2022 budget was entirely revenue-based. Against this backdrop, we are going to review the 2022 mid-year budget statement and assess the government’s renewed efforts at fiscal consolidation, which aim at addressing the rising macroeconomic instability, taking into account the fundamental causes of the macroeconomic instability. Before we do this, however, let us first briefly discuss macroeconomic developments during the first seven months of 2022.