Ghana Public Sector Finances: Recent Developments and Issues

This paper provides a perspective on how Ghana has managed her public sector finances since the inception of the economic reforms programme in 1983. It reveals that Ghana continues to have a deficit in her public sector finances – Ghana’s current public sector deficit (5.5% of GDP) is of about the same size it was before the commencement of the economic reforms programme. This is contrary to the general perception of Ghana having succeeded in eliminating her public sector deficit, and that too over a relatively short period. The paper also shows that between 1982 and 1987 the Government of Ghana’s tax and nontax revenue as % of GDP grew by 8.5 percentage points (from 5.6 to 14.1%), with export duties alone accounting for roughly one-half of this impressive growth. With the government revenues growing, government consumption expenditure has also grown – from 6.5% of GDP in 1982 to 10.6% in 1987. In other words, government consumption expenditure increases alone absorbed 48.2% of the revenue growth – and as much as 113.9% of the growth in collections from export duties. The Ghana policymakers need to ponder over this development. Finally, a word must be said about capital spending which has risen from negligible level in 1983 to 8.3% of GDP in 1988. This is indeed a major achievement: capital spending has been used for rehabilitation of the country’s economic and social infrastructure which was allowed to deteriorate throughout the 1970s. however, with public savings being relatively small (e.g. 2.6% of GDP in 1988), the government has chosen to finance the shortfall (in resources required to finance higher levels of capital spending) through external resources, which Ghana so far has been able to mobilize on highly concessional terms. But what about the future? In case the terms harden, will Ghana be able to afford them?