Fiscal stance of the Government of Ghana in the medium term (2019-2021): which way?

Introduction
Governments of natural resource rich countries in their economic planning are often challenged with
uncertainties in revenue mobilisation from natural resource, arising out of the cyclicality of resource prices. The
challenge is even dire in developing countries where developmental needs are high and there are pressures to
create jobs, requiring that spend more irrespective of market dynamics.

Multinational institutions particularly the International Monetary Fund (IMF), have advocated that Governments
dwell less on natural resource revenues in their economic planning to avoid hurting their economies. In this
brief, the fiscal stance of the Government of Ghana is determined through fiscal operations outlined in the 2019
National Budget and also institutional strengthening measures taken to ensure stability and sustainable
macroeconomic environment in the medium term.

Fiscal Operations
In 2018, Oil revenue stood at 1.4 percent of GDP. It is expected to increase to 1.7 percent in 2019 and remains
relatively stable at 2.1 percent of GDP as the end of 2021. Non-oil revenue stood at 20.8 percent of GDP. This is
expected to decline to 16 percent in 2019 and remained relatively stable at this same level in 2020 and further
decline sharply to 15.3 percent in 2021.

In 2018, the Government’s spent 26.6 percent of GDP. Government’s spending was reduced to 22.2 percent of
GDP and thereafter stabilise relatively around 20.8 percent in 2021.

Now let us study the overall balance. Chile started with a surplus of 3.9 percent of GDP in 2008, followed by
large deficit of 4.4 percent of GDP, due to higher spending and lower revenues.
In summary, the deterioration in the overall fiscal balance and subsequent improvement can only be ascertained
by looking at the components of revenues and spending.

Table 1: Fiscal Operations of Government of Ghana (2018 -2021)

2018 2019 2020 2021
GHS % of GHS % of GHS % of GHS % of
'Million GDP 'Million GDP 'Million GDP 'Million GDP
Total Revenue & Grants 51,039 22.2 58,905 18.0 67,818 18.0 74,746 17.4
Oil 3,207 1.4 5,430 1.7 7,813 2.1 8,970 2.1
Non-Oil 47,832 20.8 53,475 16.3 60,005 16.0 65,776 15.3

Expenditure 61,152 26.6 72,711 22.2 80,815 21.5 89,268 20.8

Overall Balance -10,113 -4.4 -13,806 -4.2 -12,997 -3.5 -14,522 -3.4

Non-Oil Overall Balance -13,320 -5.8 -19,235 -5.9 -20,810 -5.5 -23,491 -5.5

Interest Payment 14,910 6.5 18,646 5.7 16,018 4.3 18,004 4.2

Primary Balance 4,797 2.1 4,840 1.5 3,021 0.8 3,482 0.8

Non-Oil Primary Balance 1,590 0.7 -590 -0.2 -4,792 -1.3 -5,488 -1.3

Fiscal Impulse 0.4 0.9 1.1 0.0

Non-Oil Nominal GDP 229,558 100.0 327,279 100.0 376,080 100.0 429,698 100.0
Source: 2018 & 2019 Budget Statements of Ghana

Fiscal Impulse
Fiscal impulse measures change in fiscal balance (i.e. revenue minus expenditure) between successive financial
years. It enables an assessment of the contribution of fiscal policy to macro stability. We determine whether
fiscal policy is expansionary, contractionary, or neutral. If fiscal impulse is positive, then fiscal policy's
expansionary. If fiscal impulse is negative, then fiscal policy is contractionary. Fiscal impulse, if it's 0, then fiscal
policy is said to be neutral. For resource-rich countries, the measure of fiscal balance could be cyclically-adjusted
non-resource primary balance, or a structural non-resource primary balance, if available. Ideally, both should be
scaled by non-resource potential GDP