Ghana’s budget credibility has been called into question by the Institute for Fiscal Studies (IFRS), which has highlighted the country’s poor track record in having credible budgets.
According to the IFRS, Ghana’s budget statements have consistently featured over-projected revenues, which has led to a significant deviation from actual revenue collection.
“Effective fiscal policy rests, among others, on credible budgets. If a budget lacks credibility, its policy intentions are less likely to be achieved. Where this is a chronic challenge, it is likely to reduce confidence in fiscal policy, undercutting its effectiveness,” the IFRS explained.
The think tank noted that Ghana’s actual total revenue and grants were below the budget target every year from 2013 to 2023, with an average deviation of -7.4%.
This is more than twice the lower limit of the ideal range of -3% to +6% under the Public Expenditure and Accountability (PEFA) framework.
The IFRS attributed this poor performance to unrealistic revenue targets, which are a cornerstone of any budget.
“An essential feature of a credible budget is realistic revenue targets since revenue is the cornerstone of any budget,” the IFRS stated.
To address this issue, the IFRS recommended that the Ministry of Finance review its macro-fiscal forecasting framework and processes to address possible optimism bias in revenue projections.
The think tank also suggested improving estimation of the revenue impact of new tax policies by strengthening underlying data and analyses, and involving independent experts to evaluate and advise the Ministry about its forecasts.
The IFRS’s concerns about Ghana’s budget credibility come at a time when the country is facing significant economic challenges, including a depreciating currency, high inflation, and a large fiscal deficit.
The government has announced plans to present the 2025 budget, which is expected to outline measures to address these challenges.
In the past, Ghana has struggled to achieve its fiscal targets, with actual revenue collection consistently falling short of projections.
For instance, in 2022, the government’s revenue collection was below target, with an average deviation of -7.4%.
The IFRS’s report highlights the need for Ghana to improve its budget credibility to achieve its fiscal targets and address its economic challenges.
