- 10 Marks
Question
Below is an extract of aggregate fiscal data trend for Government of Ghana for the years 2021 and 2022.
| 2022 | 2021 | |
|---|---|---|
| Cash Basis | Actual
(GH¢’million) |
Actual
(GH¢’million) |
| Total Revenue and Grants | 26,824 | 28,865 |
| Taxes | 21,744 | 26,209 |
| Other revenues (Including IGF) | 2,391 | 1,515 |
| Grants | 2,689 | 1,141 |
| Total Expenditure | ||
| Recurrent | 29,276 | 36,795 |
| Wages and Salaries | 12,917 | 14,623 |
| Purchases of goods and services | 1,388 | 3,221 |
| Subsidies and Social transfers | 25 | 0 |
| Grants to other Government units | 4,267 | 5,442 |
| Other non-interest expenses | 1,604 | 1,980 |
| Interest | 9,075 | 11,529 |
| Acquisition of non-financial assets | 7,134 | 7,678 |
| Balance | (9,586) | (15,608) |
Statistical and economic data obtained for the two years are as follows:
| 2022 | 2021 | |
|---|---|---|
| GDP (GH¢’million) | 136,957 | 167,353 |
| Total population (million) | 27.67 | 28.3 |
Required:
i) Compute the following financial ratios for 2022 and 2021:
- Total Revenue to Gross Domestic Product (GDP)
- Wages and Salaries to Tax Revenue
- Fiscal Balance to GDP
- Total Expenditure per capita
- Capital Expenditure to Total Expenditure
(5 marks)
ii) write a brief report interpreting the results of the ratios computed above
Answer
Computation of Ratios
| Ratio | 2022 | 2021 |
|---|---|---|
| Total Revenue to Gross Domestic Product (GDP) (%) | 19.59 | 17.25 |
| Wages and Salaries to Tax Revenue (%) | 59.40 | 55.79 |
| Balance to GDP (%) | -7.00 | -9.33 |
| Total Expenditure per capita (GH¢) | 1,315.87 | 1,571.48 |
| Capital Expenditure to Total Expenditure (%) | 19.59 | 17.26 |
(5 marks)
Interpretations of Ratios
Total Revenue to Gross Domestic Product (GDP) – (%) This ratio measures how well the government controls a country’s economic resources, indicating the share of a country’s output that is collected by the government. The country’s Total Revenue to GDP was unstable over the two years, increasing from 17.25% in 2021 to 19.59% in 2022.
Wages and Salaries to Tax Revenue This ratio indicates how effectively a country manages its payroll in relation to tax revenues. Here, the wages/salaries to Tax revenues have worsened from 55.79% to 59.40%. This implies that the government uses more of its tax revenues to pay compensation for employees in 2022 than in 2021. The government should put in place measures to control the payroll in order to reduce the wage bill.
Balance to GDP (%) This is the difference between government revenue and expenditure expressed as a percentage of GDP to relate it to the size of the economy. That expressing a country’s fiscal balance to its total output. The lower the fiscal balance to GDP, the better for the country in terms of having the fiscal space to develop. The above ratios show an unstable deficit fiscal balance, decreasing from -9.33% in 2021 to -7.00% in 2022.
Total Expenditure per capita (GH¢) This measures the standard of living in an economy. It reveals the average total government expenditure per person in a country. The higher the results, the better the economy is seen to be doing in terms of improving on the standard of living per person. Hence, the two-year trend shows consistent reduction in government spending on each person in the country.
Capital Expenditure to Total Expenditure (%) This measures the quantum of government expenditure that is devoted to capital expenditure in terms of infrastructure and other long-term investments that will have a large multiplier impact on growth and employment. The analysis above depicts that the ratio improved marginally from 17.26% in 2021 to 19.59% in 2022.
(1 mark for each = 5 marks)
- Tags: Financial Ratios, Fiscal Data, Government Performance, Public Sector Analysis
- Level: Level 2
- Topic: Public sector fiscal planning and budgeting
- Series: NOV 2023
- Uploader: Sarah