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Business News of Tuesday, 22 January 2013

Source: Elorm Desewu

Govt likely to tighten fiscal policy this year

Ghana is expected to experience some fiscal tightening in 2013 under the President John Mahama’s administration, narrowing the fiscal deficit for 2013 to 7 percent of Gross Domestic Product (GDP), according to an economic research by J P Morgan.
The economic research shows that the new administration’s fiscal plans notwithstanding, will still expect spending to be trimmed by about GHS2.0- 2.5 billion in 2013. This is likely to come mostly from an expected lower wage bill, following the clearance of most wage arrears in 2012. Public spending is also likely to be lower as a number of election-related expenditures are being eliminated.
According to the economic research, the planned start of gas-fueled electricity production would also help reduce spending on subsidies. Cumulatively, these measures could allow for 2%-3%-pts of GDP’s worth of savings this year, narrowing the deficit to about 7% of GDP
The new administration has not yet published its fiscal plans for 2013. During the election campaign, President Mahama pledged to reduce the deficit in the medium term to 5% of GDP. This would indicate that the new administration would likely pursue a tighter fiscal policy than the one adopted by the previous NDC administration under late President Atta Mills.
The government’s deficit forecast is 6.7%, following an upward revision from an earlier 4.8% after the July supplementary budget. Preliminary data indicate that the fiscal deficit already reached 7.3% of GDP at end-September 2012. It is difficult to estimate how much more unplanned spending could have been carried out in 4Q12 ahead of elections.

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