The brouhaha in Parliament over the approval of the 2022 Budget Statement and Economic Policy of government has divided Ghanaians over whether the attitude of the opposition NDC is out of national interest or pure politics.
I intend to put the issues in perspective to allow Ghanaians to make their own judgement.
Why Government is in Fiscal difficulty?
It is important to recall that by end December 2016, Ghana was under suffocating IMF programme. In addition, there was no fiscal space to manoeuvre with about 99.6% of government revenue consumed by three main budgetary lines-wages and salaries, interest payments and amortization and statutory payments.
Public debt had risen from GHS9.5 billion by end of 2008 to about GH¢122 billion. An increase of about 1,184.2% in just 8yeears bringing in its wake serious interest payments obligation expected to hit GH¢37.5 billion cedis in 2022 up from GH¢680 million in 2008 and GH¢10.3 billion in 2016. The current public debt is about GH¢335 billion mainly due to cedi depreciation and continues borrowing to meet developmental needs and maturing debt obligations.
In addition, the government in 2022 is expected to spend about GH¢135.6 billion to continue to clean up the banking and energy sectors as well as other sectors. However, the expected revenue and grant is about GH¢100.5 billion, which is far less than the commitment government must meet.
This is the crossroad the country is facing currently. Trying to take political advantage of it is not only unwise but unpatriotic as well.
Issues in the Financial Services Sector
The clean-up of the financial services sector was one of the conditionalities of the IMF in 2014. But it had to take the current administration to commit about GH¢21 billion and still counting to clean up the sector to save over 4million Ghanaians their live savings. These monies are still outstanding to be paid. So does government settle that?
Apart from the undeserving license issued out to some banks, the worst part of the crises was also that the Central Bank gave out liquidity support to two institutions totaling GH¢1.47 billion at a time the minimum paid-up capital requirement for universal banks was GH¢120 million cedis. Yet, the same people do not want government to raise revenue to clean up the mess they left.
The Energy Sector Crisis
Another unfortunate burden foisted on this government was the energy sector crisis. During the 4years of Dumsor. The then government signed all sorts of Power Purchase Agreements (PPAs) with the Independent Power Producers (IPPs) on ‘Take or Pay’ basis. That meant that whatever contractual MW of power signed, government was obliged to pay for them whether we consumed them or not.
The government at the time signed 5,083MW of energy at the time Ghana’s peak demand for energy was less than 2700MW. By end 2016, Ameri and few others had come on stream and many others were under construction while others were yet to start.
The result was that Ghana became saddled with excess capacity of 2,300 MW that will require payment of about $500 million USD annually for the next 4-5years when increased demand would have neutralised the excess capacity. These are for only power plants that are in operation. But there are still several others that the current government is still negotiating to either push back or cancel. Ghana was recently slapped with $170 million USD for cancelling the PPA with Ghana Power Generation Company (GPGC). More judgement debts may likely come up if the current negotiations with some of the IPPs breakdown.
My checks with the Energy Sector Recovery Programme (ESRP) revealed that despite the enormous stabilization policies implemented (as contained in the ESRP document for 2020), government still spend over a 1billion USD (Over GH¢1billion cedis) in subsidizing the sector. For instance, the Ministry of Finance (MOF) made payments of GH¢6.6billion, GH¢6.8billion and a provision of GH¢6.6 billion for 2019, 2020 and 2021 respectively in supporting the sector. Therefore, the government support to the energy sector is twice that of what it spends on the Free SHS and about same what the controversial e-levy is likely to generate for government.
Taxation Issues – Why do we need the E-Levy?
It is said that out of over 30.8 million Ghanaians, only 2.4 million are said to be paying taxes. To put it in another perspective, we are told that, the informal sector controls about 80% of the Ghanaian economy. Yet, it contributes very little to government revenues. For instance, in 2019, while the formal sector contributed about GH¢7.2 billion in revenue, the informal sector contributed about GH¢418,000.00. In 2021, it is expected that the formal sector will contribute about GH¢9.9 billion while the informal sector is expected to contribute about GH¢593,000.00. This has averaged about 17times the contribution of the formal sector as against the informal sector in the last 3years from 2019-2021. This is not something we should be happy about. Ghana’s revenue to GDP of 14% is trailing behind the West Africa average of 18%. This cannot continue if we really want to develop our country beyond aid.
The reason why the E-levy is the most convenient way to tax the informal sector is that in recent times especially after the emergence of Covid-19, most transactions and payments are done through MoMo and other electronic platforms. The artisans, some of whom earn more than most people in the formal sector are paid through Momo and other electronic platforms. People who receive MoMo for no work done should be made to pay the charges as a way of learning to pay taxes. Hence, the E-levy should be on those receiving.
In addition, most of our compatriots abroad have lots of investments in Ghana but they do not pay any taxes. Most of them own properties here in areas that require roads and other infrastructure. Most of them complain of poor roads and poor infrastructure and some are part of those promoting ‘Fix the Country’ campaigns. By charging the inward remittances through which they send billions of cedis for investments in Ghana, they will also be contributing to the development of the country and be justified in their calls for government to fix the country.
Conclusion
Government has committed itself to austerity measures by cutting down on several expenditures. First is that the general goods and services budget has been cut from GH¢7.4 billion in 2020 to an estimated GH¢7.2 billion in 2022. The number of ministers has been reduced from 125/6 to about around 86.
The vigilance and pre-corruption measures implemented by the Internal Audit Agency (IAA) have also resulted in savings of GH¢387,003,609.53 in 2020. In addition, audit infractions as reported by the Auditor-General in the 2020 report indicated reductions in the following: 32% for MDAs, 34% for MMDAs, 92% for Technical Universities and 38% for District Assembly Common Fund and other Statutory Funds. But Rome was not built in a day.
In the good times before Covid-19, the government reviewed and abolished about 15 taxes. The current tax impositions only mean we are not in normal times. When the economy is out the woods, the taxes may be reviewed again to bring relief to people.
Ghanaians can take a cue from South Korea whose citizens donated their personal gold and other assets to bail out the country from Bretton Woods institutions as recently as 1997/8 during the Asian Financial crises.
Ghanaians should therefore be patient and contribute in whatever small to help our country. We must trust the judgement of the President to deliver as usual.
Assallamu Allaikum!
By Habibu Adam
Senior Economist
Office of Senior Presidential Advisor
