Announcing the budget yesterday, finance minister Seth Terkper said shortfalls in tax revenues and higher than planned spending combined to push the deficit up to 12% of gross domestic product, compared with the 6.7% target. The deficit in 2011 was just 4% of GDP.

A shortfall in corporate tax incomes was equivalent to 1% of GDP last year, Terkper said. At the same time, the cost of implementing changes to the public sector pay structure – introduced by the previous government – amounted to 2.7% of GDP

Describing the budget deficit as the ‘main fiscal challenge’ facing the Ghanaian government, Terkper said more needed to be done to increase revenues. ‘While recognising the strong revenue performance in 2012, the country needs to sustain revenue mobilisation efforts in view of the huge funding requirements needed to close the country’s infrastructure gap and domestic payment of arrears,’ he explained.

‘The focus on revenue generation in the 2013 fiscal year therefore, is to expand the tax base and improve the efficiency of tax administration.’

He also outlined plans to mitigate the public sector wage bill, which stood at 72.3% of all tax revenues by the end of 2012. This crowded out the potential to spend on ‘critical’ social intervention and other infrastructure programmes, Terkper noted.

He added that the government would ensure that the new public sector pay plan, known as the Single Spine Salary Structure, would continue to be introduced gradually and that higher pay would be matched by increased productivity.

The government would also push ahead with the implementation of the Ghana Integrated Financial Management Information System to improve its public financial management. The project, which is supported by the UK’s Department for International Development, is expected to reduce the number of outstanding payments and help with implementing the budget, Terkper said.

Over the next year, the government would also draw up and implement a Fiscal Risk Management Plan to address the ‘huge challenge’ of bringing unplanned and unanticipated expenditures under control.

‘These expenditures include contingent liabilities from state enterprises, sub-national governments and unexpected legal claims,’ Terkper explained. ‘In the absence of an institutional framework and effective management system, government’s ability for effective fiscal management is reduced thereby, undermining the credibility of the budget.’

Under the strategy, all forms of fiscal risk will be identified and categorised before a plan is put in place to manage them. Systems will also be put in place to manage all contingent liabilities.

‘It is expected that over the medium term, this initiative will lead to improved and sustained government fiscal outcomes,’ Terkper added.