Pandemic leaves economy cash-strapped…as payments eclipse revenue by 202%

• Quartey urges gov’t to invest in productive sectors

A B&FT analysis on the country’s fiscal situation has revealed that the economy is severely cash-strapped, as data show government’s payment obligations are more than 200 percent of the revenue that comes in – leaving no option other than resorting to borrowing.

The Statistical Bulletin report (October 2020) recently published by the Bank of Ghana shows that while total revenue from January to October 2020 was GH¢39.5billion, total payments – which include interests on debts, wages and salaries, among others – recorded more than GH¢80billion, representing 202 percent of the revenue figure.

A further breakdown of the figures shows that interest payment on debt (both domestic and foreign) guzzled more than 54 percent of total revenue generated – leaving the rest of government expenditure, which includes payment of wages and salaries and other commitments, to rely on less than half of the revenue generated in the country; a situation that leaves the economy with no option other than borrowing to take care of the remaining expenditure… thereby soaring the public debt to GH¢286.9billion, representing 74 percent of GDP as of November 2020.

Commenting on this in an interview with the B&FT, Professor Peter Quartey attributed the worsening fiscal state to impact of the coronavirus pandemic on the economy, saying the pandemic’s onslaught reduced government revenue and increased expenditure abnormally.

“We have always had challenges with revenue and expenditure, but it has been made worse with the coming of COVID-19. In terms of revenue, the borders were closed, some businesses closed down, and others had to defer their tax obligations, etc.

“When the country started recording cases, PPE had to be provided to schools and hospitals; frontline workers had to be given incentives, among other unplanned expenditure.  In the past, these were not all factored into our expenditure. And given the situation we find ourselves in, one would argue that we need to save lives first and look at the way forward.

“All these led to decreased revenue. So, while revenue is being challenged, expenditure is going up. The question is, what options do we have? I think the only option in this situation is to borrow in order to fight the pandemic. We are not in it alone; many countries are facing similar challenges. We have a very tight fiscal space, and this has been made worse due to the COVID-19 and its related associated challenges on revenue and expenditure,” he said.

He however urged government to be judicious in the way borrowed monies are spent, by channeling the resources into sectors which will become profitable amid the pandemic; so as to keep revenue streams flowing to take care of the country’s needs.

“So yes, the fiscal space is very tight; but I see it as a temporary situation. If we are able to manage this very pandemic very well, we should get out of this tight fiscal space in the coming years. But that will also depend on where government invests. Some sectors are very resilient in these times, and therefore if we invest in them we will be able to recoup and move out of this tight fiscal space and accelerate growth.

“Once the vaccines come and we are able to reduce the infections and eliminate it completely, the economy will bounce back,” he said.