Government could reintroduce subsidies on fuel and utility tariffs – PFM Tax Africa

The rise in crude oil price and public sentiments against fuel and utility price adjustments could compel the government to reintroduce subsidies, accounting and tax firm, PFM Tax Africa has said.

Price of crude oil has gone above $70 dollars and with the recent pressure on the cedi, price of petroleum products may increase again at the pumps. This could push price of goods and services up.

But PFM Tax Africa in its second assessment of the fiscal economy expects government to cushion consumers against the expected shocks by providing some subsidies.

This also means the government could absorb some of the expected increment in utility tariffs that will be announced later.

However, this could affect its fiscal programme for the year as it will shoot up expenditure and widen the financing deficit.

The report also said the first quarter shortfall in revenue may make it difficult for the country to achieve the post-Covid-19 annual tax-to-Gross Domestic Product target of 12.9%— which is far below the more ambitious 17.5% for sub-Sahara Africa. It is also below the 20% or more for middle-income countries.

“The quarter one 2021 shortfalls may make it difficult to achieve the post-Covid-19 annual tax-to-GDP target of 12.9% — which is far below the more ambitious 17.5% or more ratio for sub-Sahara Africa (SSA). It is also below the 20% or more for middle income countries (MICs). Indeed, Ghana’s revenue-to-GDP ratio, which includes non-tax revenues and grants, is also below the band of 17.5-to-20% or more for the country’s middle income countries and other states.”

Interest payments now biggest expenditure

Interest payments now exceed compensation or wages, as the largest single budget expenditure item.

This PFM Tax said is likely to put significant fiscal pressure on expenditure as well as the possible rise in domestic and external debt financing.

“The recurrent budget “crowds out” the capital budget, which is only 0.7% or 0.8% for projected and actual quarter one 2021. The annual 2021 target of 2.7% for capital is less than the 3.8% for the first quarter of 2021 and provisional actual of 3.6% for interest plus compensation”, it explained.

Exceptional arrears

PFM Tax Africa also expressed worry about the exclusion of the bank bailout and energy sector arrears from its computation of arrears, fiscal deficit and debt stock.

However, it said the International Monetary Fund now adds the bank bailout costs to the balances under a novel “headline” deficit line, beginning from only 2017.

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