Accra - Ghanaian Finance Minister Seth Terkper is set to outline plans today to rein in the budget deficit that may include spending cuts requested by the International Monetary Fund.
Terkper, 57, will probably ask parliament to approve a fiscal shortfall of about 8 percent of gross domestic product for 2015, Angus Downie, London-based head of economic research at Ecobank Transnational, said by phone November 17.
The deficit for this year may reach 10 percent, he said.
Ballooning debt amid a surge in government spending fuelled a 35 percent plunge in the currency against the dollar in the first seven months of the year.
The cedi has rebounded 14 percent since August, when authorities began talks with the IMF on possible austerity measures and a loan program.
“The kind of figure that they will be coming up with is going to be relatively modest,” Downie said.
“It has to show that there’s a deficit-reduction strategy in place. The IMF is keen on the deficit coming down.”
Standard & Poor’s last month cut Ghana’s credit rating to B-, six levels below investment grade, concerned that authorities won’t be able to rein in the budget deficit.
The IMF is forecasting a deficit of 9.75 percent of GDP in 2014 compared with the government’s target of 8.8 percent.
IMF Aid
Ghana is seeking about $800 million in loans from the IMF in a program that may begin in January, Terkper said on October 20.
Negotiations between the government and an IMF team resumed in Accra, the capital, earlier this month.
As part of the IMF talks, Terkper will probably outline plans in his budget to slow wage increases, eliminate ghost workers from the payroll and be more selective on capital projects, Downie said.
Revenue measures will likely include a reduction in cash concessions for companies and widening the tax net to capture new economic activities, he said.
“This budget will be seen as the most likely sign that Ghana has reached an agreement with the IMF on the measures that it will adopt to qualify for IMF assistance,” Razia Khan, head of Africa research at Standard Chartered Bank in London, said yesterday in response to e-mailed questions.
Any budget deficit outcome that improves on previously outlined plans will be positively received, she said.
Terkper may seek to further lower the target to 7 percent to 8 percent of GDP by cutting subsidies for fuel and electricity and limiting wage increases, Yvonne Mhango, a sub-Saharan Africa economist at Renaissance Capital said by phone from Johannesburg yesterday.
A reduction in spending and higher interest rates will probably limit economic growth to 4.5 percent next year from a forecast of 5.7 percent this year, Mhango said.
That’s below the government’s estimate of 6.9 percent this year.
The central bank raised borrowing costs 200 basis points to 21 percent last week to tame inflation, which soared to 16.9 percent in October.
“There’s a tight monetary policy in place,” she said.
“If you’re tightening up on the budget as well, that’s going to impact growth.” - Bloomberg News