The government is upbeat about the mid-year revisions it has made to the 2023 budget following Ghana’s entry into a new International Monetary Fund bailout programme.

However, reality is not quite so bright. … examines the prospects offered by the first budgetary adjustments made under the country’s latest IMF programme.

Inordinate optimism has been widely recognised by politically non-partisan public policy analysts and commentators as a particularly strong forte of the incumbent President Nana Akufo-Addo administration and this is illuminated most vividly in its take on Ghana’s economic circumstances.

On Monday, July 31, 2023, this tendency was on show again as Finance Minister, Ken Ofori Atta, presented the mid-year review of the 2023 budget to Parliament. Accompanied by his customary Biblical quotations calling for faith as a weapon against disconcerting macroeconomic data, the finance minister claimed that Ghana’s economy has already turned the corner,” an assertion that unsurprisingly has generated controversy among political opponents and economic and financial technocrats alike even as the International Monetary Fund, which has returned to its reoccurring role as “crash prevention pilot” as the Ghanaian economy looks on.

However, vested interest groups such as the commercial banking industry and pensioners are vehemently disputing the Finance Minister’s assertion, some of the key statistics he has presented to legislators back up his claim. For instance, while the cedi’s depreciation against the United States dollar between the start of this year and July 17, 2023, amounts to a very significant 22.1%, most of this (20%) occurred in January, and since then the local currency has been more or less stable, sliding by a mere 1.84% over the subsequent nearly six months. Just as importantly, headline inflation, which peaked at 54.4% in December last year, has since fallen back to barely 43%.

This points to the restoration of macroeconomic stability after the intense turbulence the economy suffered all through 2022.

But even more encouraging for households and businesses alike in Ghana is the fact that contrary to widespread expectations, no new taxes—neither income taxes nor consumption taxes—were announced in the mid-year budget review, an indication that the Finance Ministry’s latest computations suggest that the recent array of tax measures coupled with the ongoing restructuring of the public debt should be enough to see the economy climb out of the pit into which it had been falling since international bondholders pulled the plug in December 2021.

However, the finance minister admits in his presentation that there are still some major hurdles to be cleared, and sharp observers will have identified some more that the Minister declined to identify.

The height of those hurdles is illuminated by the magnitude of the revisions that the government has made to the original key macroeconomic targets set in the 2023 budget presented to Parliament in November last year.

The central revision is the reduction in the projected overall Gross Domestic Product (GDP) growth rate for 2023 from 2.8% to 1.5% and in the non-oil economic growth rate from 3.05 to 1.5% as growth in the agricultural, manufacturing, and services sectors is all now expected to be curtailed by fiscal consolidation and difficult economic conditions globally. Alongside this is the upward recalibration of the projected end-of-year headline inflation rate of 31.3%, up from 18.9%, as the impact of higher taxes and public utility tariffs dampens the effects of monetary tightening by the Bank of Ghana. But the most frightening is the new projection that by year’s end, Gross International Reserves will only be enough to cover 0.8 months of imports.

The government has committed to cutting its expenditures to match expected shortfalls in public revenues, which will arise primarily out of lower than originally anticipated oil export revenues due to a fall in the global average oil price from US$88 per barrel in the original budget to US$74 per barrel now envisaged, and so the overall fiscal deficit is not forecast to change from the original 5.8% of GDP projected in the budget. However, the primary balance, measured on a commitment basis, is now expected to be a deficit of 0.5% of GDP as against the original target of a 0.7% surplus.

While all this has given the government’s critics plenty of ammunition, they are failing to acknowledge that the incumbent administration is finally giving in to their most strident demand: that the cost of government be significantly reduced. In response to revenue shortfalls during the first half of 2023 (total revenues and grants were ¢59.3 billion, which was 8.4% below the target of ¢64.7 billion, the government restricted its spending to ¢68.5 billion, which was 26.7% lower than its budgeted expenditure of ¢92.9 billion for the period. The spending cuts affected all aspects of the government’s activities except for its wage bill, which rose significantly because of the 30% increase in base pay agreed with labour.

This enabled the government to restrict its fiscal deficit, measured on a commitment basis, to ¢6.3 billion (0.8% of GDP), which is dramatically smaller than the original target for the first half of the year of ¢28.3 billion (3.5% of GDP). Even more tellingly, this amounted to a primary balance surplus, measured on a commitment basis, of GHc8.8 billion, a vast improvement over the target of just ¢310 million.

This feat is made all the more impressive when placed against the government’s fiscal performance in 2022, when it aimed for a fiscal deficit amounting to ¢37.00 billion (6.3% of GDP) but ended up incurring a deficit of ¢72.19 billion (11.8% of GDP). The performance for the first half of 2023 suggests that the arrival of the IMF has brought fiscal discipline and spending restraint that the incumbent administration could not exercise on its own accord; indeed, it is instructive that the last time it showed such discipline in cutting expenditure in line with revenue shortfalls was during the period it was still in the previous Extended Credit Facility programme inherited from the Mahama administration.

While this is debatable, it is undeniable that the IMF-imposed framework is restricting the current government. This framework insists on the use of public accounts drawn up on a commitment basis alongside a cash basis, which effectively prevents the government from hiding its buildup of payment arrears. Prior to the latest IMF programme, the administration had continuously blamed its predecessors for building up payment arrears that it was striving to pay off while accumulating even bigger payment arrears of its own outside of the public glare, the size of which only became known recently when groups such as the school feeding programme contractors began picketing over the debts owed them.

The framework also insists on recognising portions of the public debt hitherto classified as not being the government’s sovereign liability even though it actually is, such as the cost of the recent financial sector reforms and the energy sector legacy debts. Consequently, the IMF’s framework has cut the government’s fiscal space for new deficit spending by making it own up to its already existing public debt obligations.

However, while this has imposed better fiscal discipline on the incumbent administration due to more realistic financial reporting of past and present circumstances, there are still lingering doubts as to the credibility of its projections going forward, on which much of its current optimism is based. Simply put, some analysts doubt the realism of the projections being made because of failures to meet projections in the recent past.

For instance, in 2022, the government targeted an overall fiscal deficit of ¢37.00 billion (6.3% of GDP), and at the time it was presenting its 2023 budget in November last year, it projected a higher outturn of ¢60.93 billion (9.9% of GDP), only for the actual outturn to be significantly higher at ¢72.19 billion (11.8% of GDP). Similarly, its target primary balance deficit for 2022 was ¢4.36 billion (0.7% of GDP), and by November, the government was projecting a significantly higher deficit of ¢16.92 billion (2.7% of GDP), only for the eventual actual outturn to be dramatically higher at ¢26.51 billion (4.31% of GDP).

Critics wonder how far off from the targets the actual outturns for 2023 will be and when the variations will actually be revealed.

Despite such worries, there is cause for optimism. If only the government would act appropriately and responsibly by departing from the ‘’Ponzi’ economic policy scheme that brought the Ghanaian economy to this unhealthy state. The country's economic growth rate has been revised from 3.2% to 1.5% by the end of the year. The government has been pursuing supply-side expansionary economics with a target of over 6% economic growth with its flagship programmes, which have not yielded any positive results.

Finally, the most pressing question for Ken Ofori-Atta on behalf of the estimated 400,000 Ghanaians who have been pushed below the poverty line since the economic downturn began at the beginning of last year is whether this is the help they desperately require. They need to get out of the current cost-of-living crisis, which the revised 2023 budget cannot provide.