No easy choices for government in these times, tougher times ahead – Fitch projects

A research and investment advisory firm, Fitch Solutions, has stated that Ghana’s government will have to make some bold decisions to reduce the impact of the current economic hardships on the country. According to Fitch, the government has to decide to either cut expenditures or increase its tax collection by huge margins. Fitch Solutions further explained that “the government has really two options at the moment to improve fiscal position; either capital expenditure or significantly increasing the countries tax base,” it said. The firm noted that whatever step the government decides to take will be difficult therefore, “they are no easy choices for the government”. Ghana’s debt levels have increased according to Fitch, due to the high-interest payment and excessive borrowing. “Expenditure has risen and this is driven by interest expenditure. Ghana took a lot of expensive debt and continue to borrow during the pandemic and this means interest payments are very elevated now,” it noted. “They account for about 55% of total government fiscal intake, keeping expenditure elevated. Given the rigid nature of Ghana’s expenditure profile, the government cannot easily reform spending resulting in that wide fiscal deficit,” the firm added. Fitch also noted that the government must be proactive in securing an IMF deal as soon as possible. “As part of an IMF deal, however, we expect that the government will have to implement fiscal consolidation measures in 2023 including the widening of the tax base. We expect that the commitment to fiscal consolidation will lead to gradual improvement in public finances,” Fitch added. “And we also expect the government to be quite eager to meet the IMF target as the authorities will aim to restore investor sentiments and so regain access to international capital markets,” it concluded. Watch the latest episode of BizTech below: SSD/FNOQ