…Country likely to return to IMF
Ghana’s gross public debt has reached GH¢173,068.7 billion compared to GH¢142,616.6 billion in 2017, with an interest rate of over GH¢18 billion to be paid on the debts.
These figures were presented at a public lecture by the Think Tank, IMANI in Accra on Thursday June 20, 2019, on the theme, “Is Ghana’s debt sustainability under serious threat after the IMF programme?”
Prof. Godfred Bokpin, Professor of Finance, University of Ghana Business School and Fellow at IMANI who delivered the lecture said in his presentation that the country’s external debt for 2018 was GH¢86,169.0 billion and domestic debt amounted to GH¢86, 899.7 respectively.
Even though Ghana has exited from the International Monetary Fund (IMF) programme, Prof. Bokpin projected that the country will soon go for another bailout because of the country’s current financial situation. The IMF on April 3, 2015, approved a $918 million three-year ECF for Ghana, but classified the country as “high risk of debt distress” under a new debt sustainability analyses (DSA).
He explained that debt sustainability, looking at Ghana’s history is what leads the country back to the IMF anytime it exits. He said the structural rigidities do not change because of change of government, but the economy is not expanding inclusively and not collecting sufficient tax revenue.
He said if this happens, the country is more likely to head back to the IMF. “We have data to demonstrate how we tend to overspend in every election, and when it comes to promises we have never been short of it, politicians will tell us this year, they will never overspend, and what happens, they do exactly the opposite.”
Ghana has since been tagged by the IMF as a high debt risk distress country after assessing its external and overall debts.
According to him, expenditure tends to rise during election year and little revenue is generated because the government in power does not want to offend people when it comes to tax compliance which leads the country into a deficit.
He said, as long as the country runs into deficit and it is not able to finance itself, the debts will be difficult to contain, adding that Ghana is only able to guarantee fiscal discipline and prudent monetary policy in-between elections, and it will use same election to destroy the fundamentals of the economy.
Also, some government’s initiatives such as the Planting for Food and Jobs, National Builders Corps, Free Teacher Trainee and Allowances, Special Prosecutor’s office, Free Senior High School among others, contribute to the country’s high expenditure.
Prof. Bokpin also added that the country loses $2 billion through trade misinvoicing.
He said, government spends a lot of money, but generates very little revenue to make up for what it spends. The budget outturn expenditure (provisional) for 2017 for instance was GH¢51,985.95 billion, while its total revenue was GH¢41,497.89 billion.
He also expressed worry over the fact that, Ghana has a high incentive of breaching its own laws and the punishment for non compliance is very low, indicating that Ghana’s theoretical tax frontier is about GH¢89 billion. For instance, the external debt service to exports, external debt service to revenue, debt service to revenue ratio, among others were breached.
IMANI said, for government to ensure a sizable and front-loaded fiscal adjustment to restore debt sustainability, it needs to rebuild external buffers, and eliminate fiscal dominance of monetary policy, restore economic macroeconomic stability, restore the effectiveness of the inflation targeting framework, implement prudent borrowing strategy, expand social safety net programmes to restore real income of the poor, and strengthen public financial management and revenue administration.
Prof. Bokpin called on the Ghana Revenue Authority to do more in mobilizing domestic revenue.
“We are told we have about six million Ghanaians in tax paying position, just about 5.5 million of them are paying taxes. Those countries we go to borrow from, check their tax compliance level, if they were inefficient in collecting taxes, they wouldn’t have been able to develop. it is very basic.
“One basic function of every state is to collect taxes, so any country that is inefficient in collecting taxes and yet wants to grow and expand infrastructure will end up in a debt trap, don’t forget, part of our problem is that, the level of inefficiency in our public investment process is so huge, so we take these loans and we invest, but we don’t have enough to show, if we do, the economy will respond,” he said.
By Asabea Akonor & Gifty Danso
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