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PART V: COMPONENTS OF
TOTAL EXPENDITURE
By Seth E. Terkper
Introduction
Part I discussed the increase in Public Debt, with and without the effect of banking
sector bailout costs, from 56.8 percent of GDP at end-2016 to 60.3 percent at end-September
2019. The Bank of Ghana (BOG) and International Monetary Fund (IMF) now confirm the
obvious conclusion that the end-2019 debt stock will be higher at between 63 and 65 percent.
These come in reviews by BOG’s Monetary Policy Committee (MPC) and the Fund’s Board
Statement on the 2019 Article IV Consultation.
Part II noted that projected end-2019 Fiscal Deficit of 4.5 percent is higher at about 5.2
percent, including bank bailout costs in the Budget Appendices. The IMF appear to follow the
conventional “gross-up” method which “discloses” material or exceptional items in total deficit
or debt stock. The grossed-up deficit could be higher than 5.2 percent, after adjustments such as
improperly adding arrears to amortization, offsets, and contingent liabilities that may crystallize.
Finally, Parts III and IV discuss the mobilization of revenues from domestic (i.e., tax and
non-tax) and external (i.e., aid or grants) sources. The burden or incidence of taxes are direct
(i.e., income tax) or indirect (e.g., VAT, excise duty, and tariffs) and, with its middle-income
country (MIC) status—due to GDP rebasing in 2010 and crude oil exports from 2011—grants
or aid has been tapering and falling. Table 1 (from Part IV) repeats the high-level revenue
sources and values as well as Gross Domestic Value (GDP) from 2013 to date.
Part V (this article) deals with the expenditures (excluding arrears) or the allocation of
revenues to various programs and government units—as nominal values and percentage of GDP
or revenues—to inform fiscal and macroeconomic management.
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Total expenditure
The annual budget process begins with presenting forecasts or estimates of revenues and
expenditures to Parliament. It ends with the House passing an “Appropriation” Act to approve
the “Estimates” for ministries, departments, and agencies (MDAs) and metropolitan, municipal
and district assemblies (MMDAs) on Budget. The “Estimates” include subsidies or transfers to
agencies that generate substantial “internally-generated funds” (IGFs) to fund their operations.
Through its Standing Committees, the House also approves various underlying policies,
programs, and activities for these institutions. It also considers and approves the Public Accounts
that show a summary of actual tax or revenue collected and disbursed to MDAs and MMDAs.
Table 2 shows the revenue (i.e., total, domestic, and tax) and expenditures (2013-20).
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Table 4 and Figure 1 (Panel 2) show that the constraint results in domestic revenues,
which excludes grants, barely covering compensation and interest payments.
Tables 5 and Figure 2 (Panel 3) show an even tighter tax-to-expenditure constraint; the
non-tax revenue element of total domestic tax is secondary to the tax revenue part.
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Figure 2: Tax Revenue Constraint
Rev&Expdx
Tax & Expdxs
Subsidies CapExp Tax Rev Dom Rev Tax Rev Total Expdx 1/
Figure 2 (Panel 4), which shows the cumulative total, domestic, and tax revenues
constraint, portrays the following—
large expenses such as compensation (i.e., wages, salaries, and allowances) and interest
(and amortization) easily “crowd out” spending on other vital recurrent and development
or capital expenditures;
since some revenue bases are volatile (e.g., due to primary commodities prices), the lack
of budget buffers results in periodical austerity programs (often under multilateral
agencies that “bail-out” Ghana and other low-income countries);
the size of the compensation and interest results in a “right size” of government debate
and need to generate domestic revenues to avoid unplanned borrowing and loans.
The right fiscal approach is sustained revenue generation and modernization, expenditure
or cost containment, and building fiscal buffers—as envisaged in the distribution of petroleum
revenues among savings, investment and budget stabilization goals under the Petroleum Revenue
Management Act (PRMA).
Composition of expenditures
This section deals with the weight of various expenditure items in the spending budget, in
terms of relative shares or ratios of GDP. Earlier, the discussions highlighted the sizeable
amounts of revenue spent on compensation and interest payments. Table 6 and Figure 3 show the
nominal values underlying the latter computations that express the expenditure items
proportional ratios and as percentages of GDP.
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Table 6: Nominal value of Expenditures (Ghc million)
Expenditure
2013 2014 2015 2016 2017 2018 2019 (P) 2020 (B)
Total Expdx 1/ 27,463.0 31,962.2 38,589.9 51,125.0 51,985.9 58,197.0 70,189.8 84,508.9
Cmpnsx 9,479.1 10,466.8 12,111.2 14,164.8 16,776.2 19,612.0 22,453.9 26,565.2
Gds & Svcs 1,449.1 1,776.6 1,388.2 3,220.8 2,482.1 5,127.9 6,925.8 8,330.8
Int pmts 4,397.0 7,080.9 9,075.3 10,770.4 13,572.1 15,821.8 19,595.1 21,691.5
Subsidies 1,158.1 473.7 25.0 0.0 0.0 125.3 180.3 229.3
CapExp 4,791.2 6,095.7 7,133.6 7,678.1 6,331.4 4,738.3 6,034.5 9,260.0
Compx + Int. 13,876.0 17,547.7 21,186.5 24,935.2 30,348.4 35,433.9 42,049.0 48,256.6
1/ Excludes "arrears"
Sources: Budgets and MOF Website
Nominal values
25,000.0
20,000.0 40,000.0
15,000.0 30,000.0 20,000.0
10,000.0 20,000.0 15,000.0
5,000.0 10,000.0 10,000.0
0.0 0.0 5,000.0
2013 2014 2015 2016 2017 2018 2019 2020 0.0
(P) (B) Cmpnsx Gds & Svcs Int pmts Subsidies CapExp
Compx + Int. Cmpnsx Gds & Svcs 2013 2015 2014 2016
Int pmts Subsidies CapExp 2017 2018 2019 (P) 2020 (B)
The following are some observations and explanations of the two panels in Figure 3.
Panels 1 and 2 confirm that compensation or wages and interest payments are dominant
shares of the revenue generated—also reflected in the total amount in the bars.
The nominal shares for these two items increase at the expense of the low expenditure
on goods and services (amount for running offices) and declining capital expenditures.
Panel 2, therefore, suggests that this unchanged position for nearly a decade requires a
focus on the size of government as well as borrowing and debt strategy.
Tables 7 and 8 (and Figure 4) as well as Figure 4 show the expense items as proportions
of expenditure and GDP ratios.
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Table 7: Composition of expenditures (percent of Total)
Percent of GDP
2013 2014 2015 2016 2017 2018 2019 (P) 2020 (B)
Total Expdx 1/ 22.2 20.6 21.4 23.8 20.3 19.4 20.3 21.2
Cmpnsx 7.7 6.7 6.7 6.6 6.5 6.5 6.5 6.7
Gds & Svcs 1.2 1.1 0.8 1.5 1.0 1.7 2.0 2.1
Int pmts 3.6 4.6 5.0 5.0 5.3 5.3 5.7 5.4
Subsidies 0.9 0.3 0.0 0.0 0.0 0.0 0.1 0.1
CapExp 3.9 3.9 4.0 3.6 2.5 1.6 1.7 2.3
Compx+Int 11.2 11.3 11.7 11.6 11.8 11.8 12.2 12.1
1/ Excludes "arrears"
Sources: Budgets and MOF Website
Expenditures
15.0
Compx+Int
15.0 6.0
10.0
10.0 4.0
5.0 5.0 2.0
0.0 0.0 0.0
2013 2014 2015 2016 2017 2018 2019 (P) 2020 (B) Cmpnsx Gds & Svcs Int pmts Subsidies CapExp
Cmpnsx Gds & Svcs Int pmts Subsidies 2013 2014 2015 2016
CapExp Total Expdx 1/ Compx+Int 2017 2018 2019 (P) 2020 (B)
It is necessary to make the following specific observations from the numbers and patterns
that showing in Tables 7 and 8 as well as Figure 4.
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The steady decline in compensation (wages and allowances) between 2013 and 2016
reflect the focus on single-spine salary scheme as a dominant fiscal item for the period—
together with the energy crisis that gave rise to ESLA.
In contrast, interest payments rose, flattened, and declined between the same period
(2013 to 2016) before starting to rise again from 2017.
Apart from interest payments, Figure 5 (from Part 1: Public Debt) reflects another effect
of stopping some debt management initiatives, including refinancing (to reduce roll-over risk
and extend tenor to ease repayments) and sinking fund (targeted amortization of principal). The
latter resulted in the liquidation of US$550 million (out of US$750 million) of Ghana’s first
Sovereign Bond from its crude oil revenues.
Total(w/B-O) Change (w/ B-O) Change (w/o B-O) Change (w/ B-O)
Conclusion
The gist of this article (Part V) is that despite the increase in petroleum output and
revenues, Ghana is experiencing fiscal constraints from stagnating non-oil revenues and
expanding expenditures. Thus, there are visible reversals of some of the positive outcomes from
past austerity and debt management initiatives—notably, the rise in compensation and interest
payments. It is necessary to reemphasize that the expenditure figures in this Article do not
include ordinary arrears and exceptional items (notably, the banking sector bail-out costs). As
discussed in the final (Part VI—Fiscal Balances and Financing) of this series, this makes the
situation a lot worse.
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