NEW ERA AFRICA

REVIEW OF 2020 BUDGET

Prepared for NERA by Bernard Owusu-Mensa and Yaw Baafi Ayimadu

Refer all enquiries regarding this publication to the following:
dnkowusu@gmail.com +491 521 747 3925: +233 243 544 887
INTRODUCTION

New Era Africa (hereinafter called NERA) as part of its core objectives to champion real
development of Ghana/Africa and shape developmental thought patterns by actively
partaking in socio-economic discourse has initiated a policy decision to scrutinize,
criticize, applaud if necessary policy initiatives proffered by key stakeholders.

In pursuing this objective, NERA has decided to interrogate the 2020 budget, and paint
the economic picture for the 2020 fiscal year to the citizens in a reader friendly (touching
on hardcore economic issues in a non-economic) manner.

This document will analyze critical parts of the budget. To do this, the document is put in
sessions. They are:

• Overview of 2019 Performance

• Highlights for 2020 Macroeconomic Targets

• 2020 Policy Highlights

• How Achievable are the Budget’s fiscal projections?

• Interrogation of Some Policy Highlights

• Debt Management

• Financial Sector Development

• Conclusion

The 2020 government of Ghana’s budget which was presented to Ghana’s 7 th parliament
by Hon. Finance Minister Ken Ofori Atta was dubbed “Nk)so) and Nkabom” budget. This
budget, the fourth of Nana Addo's administration seeks to consolidate the needed
macroeconomic gains in order to create the necessary jobs for the teaming unemployed
citizens and accelerate road infrastructure hence 2020 is dubbed “the year of roads”. The
government holds the belief that the targets in the budget document are feasible looking
at the gains made from the "2017 Asempa", "2018 Adwuma” and “2019 Mpotuo” budgets.
This document in turn assesses the document following the guidelines stipulated above.

Overview of 2019 Performance

The GDP growth rate for the 2019 fiscal year is targeted at 7.1 percent. GDP Growth
stood at 5.7 percent by the end of Quarter 3 of 2019 as compared to 5.4 percent same
period in 2018. Non-oil GDP for the period under discussion is 4.3 percent relative to 5
percent in 2018. As it has been the trajectory for some past years, the services sector
outperformed the other sectors with a performance of 6.5%. Industry followed with 6.1%
mainly because of mining and quarrying though the manufacturing sector is picking up.
Surprisingly, the agriculture sector had an abysmal performance of 3.1 percent relative to
4.8 percent same period in 2018. Agriculture sector growth in 2019 averaged 2.6 percent,
1
3.1 percent in Quarter 1 and 2 respectively as against 4.7 percent and 4.8 percent
respectively in the same period 2018. The Livestock sub-sector pulled the best
performance in the agriculture sector followed by crop sector but logging, forestry and
fishing performed woefully. The fishing sub-sector has contracted since 2017 but the level
of contraction was worst in 2018. While the share of service to GDP has remained
constant, the share of agriculture to GDP contracted from 21.2 percent to 19.7 percent
while that of industry moved from 32.7 percent to 34 percent between 2017 and 2018.
Assessing the performance of the agriculture sector, it is very probable that the
projections for 2019 will not be attained.
Inflation as at August 2019 stood at 7.8 percent. This is a positive sign but it must be
stated that the base year and basket of goods that resulted in the 7.8% inflation rate is
different from the previous calculations hence there is no academic basis for comparative
analysis. This is positive because it engenders predictability and secures purchasing
power of consumers. However, inflationary pressures exist due to recent tariff hikes, ex-
pump price hikes resulting in hikes in transport fares.
For the first 8 months of 2019, merchandise exports stood at $10.66 billion representing
5.1 percent annual growth compared to $10.146 billion same period 2018. The country
experienced export gains from cocoa, oil and gold as well as other exports. Cocoa export
receipts rose by 3 percent, gold export proceeds stood at $4.119 billion compared to 3.86
billion last year. Crude oil export proceeds of $3.08 billion compared to 2.907 billion last
year. Other exports (non-traditional exports, electricity and other minerals) rose by 5.8
percent. On the other hand, Merchandise Imports stood at 8 billion indicating year on year
8.6 percent decline. Non- oil exports declined by 9.2 percent to 6.405 billion while Oil and
Gas imports declined by 5.9 percent to $1.596 billion. Surplus trade was therefore
recorded as a result of low import bill versus increase export earnings. Trade surplus
stood at 2.659 billion as against 1.395 billion last year. In analyzing the figures, 20 percent
increase in gold price was in 2019 which shot up the export bills. This rise in the gold
price is largely US-China trade tensions.
Gross Reserve increased from a stock position of 7.024 billion (December 2018) to 8.22
billion sufficient for 4.3 months import cover as at September 2019. Net International
reserve stood at $5.05 billion from $3.8 billion signifying a build-up of 1.19 billion.
Eurobond receipt increased Gross international reserve and provided strong forex buffer
after Quarter 1 depreciation. Cumulatively from January to July 2019, the cedi
depreciated against the dollar by 8.7 percent compared to 4.5 percent in 2018. The cedi
depreciated against the pound by 5.1 percent compared to 8.2 percent in 2018 and 15
percent depreciation of the cedi against the euro.
As at September 2019, an amount of 36.6 billion was realized as revenue and grant
compared to target representing 15.7 percent shortfall. Low import value resulted to low
international trade. Domestic revenue is 27.2 billion cedis compared to 23.89 billion in
2018 representing a 10.7 percent year on year increase. Tax revenue stood at 20.9 billion
cedis compared to 18.2 billion cedis representing 14.8 percent in 2019. Income and
property tax stood at 9.7 billion cedis representing 24.5 percent increase. Interestingly,
revenue from personal income tax stood at 5 billion cedis as at September 2019,
compared to the target of 7.1 billion cedis. Corporate tax of 5.6 billion cedis as against a

2
target of 10 billion cedis. Import duty of 4 billion cedis was realized compared to 5.1 billion
cedis. SSNIT Contribution to NHIL 103 million cedis against target 450 million cedis (over
63.2% below targets). Corporate income tax collections shortfall from income and
property tax constituted 49 percent of total shortfall in non-oil tax revenue.
Within the same period, the expenditure bill stood at 51.9 billion compared to 56 billion
projection. Many of the expenditure items were marginally missed except interest
repayments (missed substantially). Reference to the period under consideration an
amount of 15.3 billion cedis accrued in budget deficit representing 4.5 percent of GDP
compared to the 4.1 percent target.
The year has so far recorded total debt stock of 208.5 billion cedis from 173.07 billion
cedis in December 2018 and debt to GDP ratio of 60.55 percent (September 2019) from
53.1 percent (July 2018) and 57.6 percent (December 2018). External debt stock stood
107.2 billion cedis representing the 52.2 percent share of debt stock. Debt to GDP ratio
of 60.55 percent (September 2019) including financial sector cleanup cost. Without the
cost of the financial sector clean-up, debt to GDP ratio stood at 57.6 percent.

Highlights for 2020 Macroeconomic Targets

• Expenditure: the government proposes to spend (including clearance of areas)
GHS85.9 billion (21.6% of GDP), this represents a growth of 21.2 percent above
the projected outturn for 2019
• Receipts/Revenue: The receipts (total revenue and grants) for 2020 are projected
to increase to GHS67.1 billion (16.8% of GDP) up from a projected outturn of
GHS54.6 billion in 2019.
• GDP growth: the government has assumed an overall real GDP growth of 6.8
percent in 2020.
• Primary Balance: a proposed primary surplus of 0.7 percent (GHS2.8 billion) of
GDP to be achieved in the 2020 fiscal year
• Deficits: Fiscal deficit for 2020 is targeted at 18.9 billion equivalent to 4.7 percent
of GDP; this remains within the Fiscal Responsibility Act threshold of not more than
5 percent of GDP
• Gross International Reserves to cover at least 3.5 months of import of goods
and services
2020 Policy Highlights
• Domestic Resource Mobilization: the government proposes to raise the tax to
GDP ratio from under 13 percent currently to around 20 percent. This according to
them will be achieved through efficiency and base broadening rather than imposing
new taxes.
• Business Regulatory Reforms: a 3-year reform initiative to be implemented to
make Ghana one of the most transparent and efficiently regulated business
environments in Africa.
• Intensified Drive for FDI: to intensely driving FDI through GIPC by better
resourcing them with human and financial capital. In addition to this, government

3
 will establish an inter-ministerial committee to provide coordinated policy guidance
and support to the FDI drive
• Enhance Financial Support to Local Enterprise: government is expected to
deploy initiatives to enhance the access of business to finance, including medium
to long term capital. This include the establishment of the National Development
Bank, the Ghana Incentives – based Risk Sharing Systems for Agricultural lending,
the Ghana Commodity Exchange, and a strengthened Venture Capital Trust Fund
• International Financial Services Center: in the bid to realize government’s vision
of establishing Ghana as a regional financial services center in West Africa,
government is working to draft an International Financial Services Bill for broader
stakeholder consultations
• Digitization: government aims to use digitization to transform its development
path and thus has proposed to intensify its efforts to support the development of
Fintech and the knowledge economy in Ghana
• Accelerated Infrastructure Development: government intends to achieve this by
strengthening the capacity of the Ghana Infrastructure Investment Fund (GIIF) to
tap into global financial markets
• Science and Technology: government has through the Ministry of Science,
Environment, Technology and Innovation to establish the Ghana Design and
Manufacturing Center which will facilitate the incubation of new technological
industries and serve as a resource for national research institutions and private
industry

How Achievable are the 2020’s fiscal projections?

First of all, the 67.1 billion revenue target is an ambitious projection and may not be
realized looking at several factors. Taking a glance at the revenue flow of 2019, it is seen
that due to low imports, government missed its target of import duties by over 1 billion
cedis. However, the substantial targets missed were recorded in personal income tax and
companies tax. It may be hasty to conclude but looking at the seriousness of GRA in
ensuring compliance, it will may be far fetched to state that compliance was the issue. In
analyzing the data in totality, (a substantial miss of SSNIT contribution to NHIL, low
personal income tax and companies tax while taxes from self employed was near target),
the best conclusion is that the shake-up in the financial sector has adversely affected
corporations, staff hence low figures for GRA as tax. Again, with laxity in leveraging on
the much touted digitization drive, it is difficult to see how domestic tax mobilization will
drastically improve next year making the government (with GRA as principal actor) rake
in the 65.8 billion domestic revenue target. Ghana being a commodity exporting country
coupled with current uncertain geopolitical dynamics, any negative wave may affect
exports of these commodities which may affect tax revenues from exporting them.
With the constant revenue underperformance (despite nominal year on year increases),
many academics suggested that the expenditure budget be put under control. The 85.9
billion cedis projected as the expenditure budget represents a substantial increase of the
2019 projected figure. It comes with less shock particularly considering the fact that 2020
is an election year. Considering the fact that the 21.5 billion interest payment and 22.9

4
billion compensation estimates are mandatory, it is likely that the Capex estimate of 9.3
billion might be reviewed downwards (as done in 2019) should there be any need for
downward adjustments of the expenditure. This may be bad considering the country’s
infrastructural need.
Comparing the raw figures (expenditure versus revenue), a deficit of 18.8 billion
representing 4.7% of GDP. With the enactment of the fiscal responsibility law, it is
offensive for the Finance Minister to supervise a >5% deficit. It is very tricky how the
minister will maneuver this slippery slope (imminent revenue underperformance coupled
with huge expenditure projection).
The 6.8% GDP projection is attainable considering the performance in the last 3 years.
Despite the interventions, the agriculture sector has not lived up to the billing. The
continuous contraction in the fishing sector is a source of worry. Although the crop
subsector records positive growth, it has not been a sustained growth. It is therefore a
source of concern if the 400 million projected amount for Planting for Food and Job will
bring the needed gains. The livestock subsector has been doing great and with the
proposed interventions of supplying livestock (guinea fowl, fowl, pigs, sheep etc) to some
selected farmers, it will be fair to anticipate a boost in this subsector. The challenge
however stems from the fact that the agriculture sector has several initiatives under its
purview bringing into question its focus in the short to medium term.
Obtaining a surplus primary balance is achievable. However, the 20% and 30% of
Ghana’s exports land in China and Europe respectively. With a slowdown in growth of
these two markets, it is very likely Ghana will be affected negatively. Again, any negative
price impact in oil may adversely affect Ghana’s export proceeds. Should the US-China
trade persists, gold price is likely to see a rise despite the 20% rise in the first 9 months
of 2019. This will be positive for Ghana. Lastly with the phenomenal success attained with
the strategic collaboration with Ivory Coast, despite the swollen shoot virus and
projections of over production (in excess of 2 million metric tons) from Ivory Coast, the
quality of Ghana’s cocoa and the increased demand from North America will play out
favorably for Ghana.

Interrogation of Some Policy Highlights

• Domestic Resource Mobilization: the government proposes to raise the tax to
GDP ratio from under 13 percent target in 2019 to around 20 percent. This
according to them will be achieved through efficiency and base broadening rather
than imposing new taxes. In reality, for the first 9 months, tax to GDP ratio stood
at 10.2 percent. With this fact, coupled with the snail-paced approach in leveraging
on the national addressing system and Ghana card and increased appetite for tax
exemptions, it is hard to imagine how government will achieve this target (adding
9.8 percentage points to the current figure).
• Enhance Financial Support to Local Enterprise: Government is expected to
deploy initiatives to enhance the access of business to finance, including medium
to long term capital. This include the establishment of the National Development
Bank, the Ghana Incentives – based Risk Sharing Systems for Agricultural lending,

5
 the Ghana Commodity Exchange, and a strengthened Venture Capital Trust Fund.
This in NERA’s view is the central point of the 2020 budget as far as policy
intervention is concerned hence may take few time to exhaust it. Firstly, the
GIRSSAL initiative is a laudable idea. With the level of risks associated with
agricultural financing, this risk sharing vehicle spearheaded by the government if
properly executed may be the beginning of a healthy relationship between farmers
and the financial sector. Again, it has the tendency of encouraging mechanized
farming so that Ghana can be the food basket for West Africa. It may also be a
wand that will reduce rural poverty and inequality. In short, with proper execution
of the GIRSSAL project, the agricultural sector may see a turned around fortune.
Secondly, under this umbrella, the government has earmarked 100 million cedis
for small and micro credits. This intervention may be well-intended but NERA
anticipates challenges ahead. It is well intended because after the financial sector
clean-up, the small and micro businesses have been strangulated. This
intervention may help solve this challenge. However, with 2020 being election
year, with 22 percent loan recovery rate by Masloc in the periods before 2019 (the
recovery rate now is around 50%) coupled with the challenges (high default rate)
private firms that started advancing loans on mobile phones, it is hard to envisage
how government will recoup the 100 million cedis.
Lastly, the creation of National Development Bank. In principle, NERA is not
against the creation of this bank. The concern however is that, information
particularly on the shareholding structure of this bank is scanty. In the wisdom of
the Dr. Nkrumah, specialized banks were created to focus on critical sectors of the
economy. Today, NIB which was originally formed to do what this new NDB is
supposed to do has been mismanaged to the extent that it needs 2.2 billion cedis
to clean its books so as to make up for the 400 million new minimum capital
requirement. ADB, which was primarily to focus on agriculture, now does so many
things hence shifting its focus from its primary mandate. Lastly, the Ghana Exim
Bank is currently seen to be doing the work of NDB and so far has done well in
supporting entities under 1D1F. With all these history, we at NERA hold the view
that the real issues will be what will NDB do differently that NIB, ADB and or Exim
bank can’t do that makes securing of $250 million from World Bank for this project
worthy? And what will the shareholding structure be?
Debt Management
With a current debt of 208 billion cedis and a debt to GDP of 60.55 percent as of
September, Ghana is gradually getting overly exposed. The panic stems from the fact
that an excess of 21 billion is projected as interest payment. That means 33 percent of
the entire projected revenue will be used to settle interest on debts. What is even worse
is the debt composition. Of the 208 billion cedis, about 52 percent constitutes foreign
exposure. Again, with Ghana’s exchange rate vulnerability, it is very likely that by March
2020, interest repayments may outpace compensation budget.
Financial Sector Development
So far, in excess of 16 billion cedis has been expended on the financial sector since 2017.
According to the finance minister, banks are now profitable. However, figures from the

6
budget show contraction in the financial sector. Since all these variables measure
averages, both should be looked into. In doing so, it is clear to state that profitability may
be necessary but is not a sufficient justification for impactful banks. Focus must therefore
be channeled on making these banks impactful both to clients and the general growth
vision of the country.

Conclusion
It is fair to admit that the government in the past three years has made positive strides as
far as the management of the macroeconomic fundamentals are concerned. It has also
shown the desire to be fiscally discipline. With an election due in 12 months, spending
plans of government will be a real test of fiscal discipline as government has pledged to
maintain after it exited a four year extended credit facility program with the IMF in April
2019
However, in terms of revenue mobilization, we believe that the government has not shown
enough commitment in carrying through its policies outlined and we recommend that
government should be creative in its revenue mobilization drive. In terms of expenditure,
we recommend that government should be circumspect with its expenditure execution in
order to stay within the budget deficit target since it may not meet the revenue targets for
the 2020 fiscal year due to inadequate measures. The government is also likely to face
public outcry from citizens and unions across the country owing to the fact that it is an
election year, adding further pressure to government objectives. Giving in to pressures to
execute “vote buying projects” could result in more than expected deficit hence abusing
the Fiscal Responsibility Act.
The 2020 budget shows that government will embark on aggressive expansionary fiscal
policy and thus the Bank of Ghana (BoG) must therefore critically balance its inflation-
targeting objective with the expansionary fiscal policy of government so that the
macroeconomic fundamentals are not thrown off balance.