2021 Budget: Ghana pursues economic revitalisation

Ghana's 2021 budget has set ambitious targets, aiming for a 5% GDP growth while facing a 9.5% fiscal deficit and an inflation rate of 8%. However, Fitch Ratings has raised concerns about the significant risk of a revenue shortfall that could impede the country's economic goals. John Gatsi, the Dean of the School of Business at the University of Cape Coast, provided insights on the budget during a CNBC Africa interview. Gatsi highlighted the challenges ahead, emphasizing the need for effective revenue mobilization to reduce the widening deficit. As Ghana grapples with the economic impact of the COVID-19 pandemic, the budget projections paint a challenging picture. Gatsi acknowledged the risks associated with the forecasted inflation rate, citing potential upward pressure from various tax measures announced in the budget. These measures, if fully implemented, could lead to increased costs for consumers and businesses, ultimately affecting the inflation outlook for 2021. The looming threat of a revenue shortfall poses a significant macroeconomic stability concern for Ghana. Gatsi pointed out that the government may resort to increased borrowing to cover the deficit, a trend observed in the previous year. With an estimated expenditure exceeding revenue, the pressure mounts on the government's financial obligations, particularly in debt repayment and interest payments. The reliance on foreign currency for debt servicing amidst uncertain export performance adds another layer of vulnerability, potentially impacting the country's currency. Looking ahead, Gatsi cautiously anticipates the movement of the Ghanaian cedi in the fourth quarter of 2021. He highlighted the interconnected factors influencing the currency, such as global supply chain dynamics, demand for imports, and loan repayment pressures. While refraining from making a specific exchange rate forecast due to the volatile nature of currency markets, Gatsi emphasized the importance of monitoring potential shocks that could affect the cedi's performance. Despite the challenges, government spending post-COVID-19 is expected to drive growth in specific sectors. Gatsi emphasized the significance of investments in healthcare infrastructure, particularly hospitals and health facilities, as a key driver of growth. He noted the government's commitment to addressing COVID-19-related needs, including potential investments in vaccine procurement for Ghana's population. However, Gatsi cautioned against overestimating the direct impact of COVID-19 on the economy, highlighting the need for broader economic recovery measures. As Ghana navigates the uncertainties of 2021, effective fiscal management and strategic economic policies will be crucial in revitalizing the economy. The government's ability to address revenue shortfalls, control inflation, manage debt levels, and stimulate growth in key sectors will determine the country's economic trajectory in the coming year.