COVID-19: How Ghana plans to fund its widening budget deficit

Ghana is facing a significant challenge as its total public debt stock has surged to 67% of GDP by the end of June this year, compared to just 6.4% at the end of 2019. The country's parliament recently approved 11.9 billion Ghanaian cedis as supplementary estimates for the 2020 financial year, highlighting the strain on the nation's finances. Immanuel Rana, a China Economic Policy Analyst, discussed the implications of funding Ghana's budget in the midst of the ongoing COVID-19 pandemic. Rana explained that the surge in debt levels is primarily due to the economic fallout caused by the global health crisis, which has severely impacted revenue generation. With businesses operating at reduced capacity and struggling to produce, government revenue has fallen short of expectations, leading to an increase in the debt burden. The government has been grappling with a shortfall in revenue, with collections amounting to only 53 billion cedis compared to the anticipated 65 billion cedis. The escalating debt is further exacerbated by rising expenses related to compensation and debt servicing, putting additional pressure on the budget. As Ghana navigates through an election year, the government faces heightened financial requirements, further straining its resources. However, securing additional funding from external partners has proven challenging due to the widespread impact of the pandemic. In response to the crisis, the government has implemented various social interventions, including subsidizing water bills and partial payment of electricity bills, aimed at providing relief to citizens and supporting struggling businesses. Despite these efforts, Ghana's fiscal policy options are limited. Rana suggested that pursuing debt relief measures could be a viable solution to alleviate the mounting debt burden and create room for economic recovery. By reducing the debt-servicing ratio, the government could potentially ease financial constraints and enable a quicker rebound from the current economic challenges. The analyst emphasized the importance of adopting strategic measures to address the crisis and emphasized the need for long-term planning to ensure sustainable economic growth. Inflation poses another significant hurdle for Ghana, with the economy facing challenges in meeting targets amidst the pandemic-induced slowdown. While initially aiming to maintain inflation within the single-digit range, the current economic landscape suggests a prolonged recovery period. The government's plan to restore inflation to the target range over a three to four-year period reflects the realistic approach to managing economic stability amid uncertainties caused by the pandemic. Rana highlighted the complexity of the situation and emphasized the government's commitment to gradually steer the economy back to stability, acknowledging the time and effort required to achieve sustainable growth.