IMF Projects Higher Budget Deficit In 2021

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The International fund (IMF) has projected an end-year fiscal deficit of 12.6 percent of gross domestic product (GDP) for Ghana, above the government’s projection of 10.8 percent including financial sector costs.

According to the April 2021 edition of the IMF’s Fiscal Monitor, the fiscal deficit will remain elevated within the medium term but is predicted to return to its pre-pandemic level by 2026, largely aided by revenue increases.

The Fund further predicted that the deficit will decline to 9.1 percent of GDP in 2024 and 6.8 percent of GDP at the top of 2026.

Referring to Ghana and other low-income developing countries, the Fund noted that near-term debt vulnerabilities remain high, and added that “financing large deficits is challenging, given limited market access and restricted ability to extend revenues within the near term.”

The Fund said for these countries, average debt levels are projected to peak in 2021 while continuing to climb in some countries.

“Nonetheless, the typical debt is projected to stabilise over the medium term, with elevated debt service relative to tax revenues in many countries (exceeding 20 percent in Ghana, Kenya, Nigeria, and Zambia) and debt distress risks in several others.”

It advised policymakers to balance the risks from large and growing public and personal debt with the risks from premature withdrawal of fiscal support, which could slow the recovery.

“Credible medium-term fiscal frameworks are critical for attaining such balance, setting a path for rebuilding fiscal buffers at a pace contingent the recovery. This effort might be supported by improving the planning of fiscal rules or recalibrating their limits to make sure a reputable path of adjustments or legislation, like ‘preapproving’ future tax reforms.”