The Bank of Ghana says government spending and arrears clearance was broadly within the expected target in the first seven months of this year.

However, concerns remain over potential arrears build-up particularly with some statutory payments, its September 2021 Fiscal Development Report has stated.

Government tight or low spending position has to a larger extent denied critical capital investments, whilst liquidity remains low throughout this year.

Being the biggest spender in an economy, any tendency by the government to slow down expenditure has far-reaching effects on the broader economy.

However, the government had no option but to adopt this position because of the large fiscal deficit due to accumulation of arrears, debt and inadequate revenue.

The Bank of Ghana’s Fiscal Development report also indicated that total expenditures & arrears clearance for the first seven months of 2021 amounted to ¢59.54 billion (13.6% of Gross Domestic Product), below the target of ¢61.08 billion (13.9% of GDP).

But this is higher than what was recorded during the same period last year.

Compensation of employees including wages and salaries, pensions and gratuities, and other wage related expenditure was ¢17.29 billion, a little below the target of ¢17.87 billion. This outturn represented 96.7% of the target.

In terms of fiscal flexibility, compensation of employees constituted 51.3% of domestic revenue mobilized at the end of the first seven months of 2021, lower than the 56.4% recorded in the corresponding period of 2020.

The use of Goods and Services for the period under review amounted to ¢5.62 billion, higher than the expected target of ¢3.51 billion.

The outturn was 59.9% above the target and broadly consistent with the higher expenses on covid-19 related payments. The outturn also represented an annual growth of about 46.7%.

Total interest payments amounted to ¢18.59 billion over the review period, lower than the envisioned target of ¢19.22 billion.

Domestic interest payments accounted for 80.9% of the total interest payments, while external interest payments constituted the remaining 19.1%.

For the period under review, total interest payments constituted 55.1% of domestic revenue, up from 50.7% in the corresponding period of 2020.

Grants to other Government units such as National Health Fund, Education Trust Fund (GET Fund, Road Fund, Energy Fund, District Assemblies Common Fund (DACF), Retention of IGFs, transfer to GNPC and other earmarked Funds amounted to ¢6.75 billion, significantly lower than the envisioned target of ¢9.56 billion.

With the exception of transfer to national oil company of ¢735.9 million which exceeded the target of ¢558.5 million by 31.8%, the report said remaining items were substantially below their respective targets raising concerns about potential build-up of arrears.

Capital expenditures for the period under review amounted to ¢8.179 billion (1.9% of GDP), higher than the envisaged target of ¢6.68 billion (1.5% of GDP) by 22.3%.

This outturn represented a year-on-year growth of 20.6%. Foreign-financed capital expenditure accounted for 76.0% of the total, higher than the 66.2% share in the corresponding period of 2020. Domestic financed capital expenditure made up the remaining 24%.