Prof Newman Kusi
The Institute for Fiscal Studies (IFS) has called on the government to mobilize more domestic revenue to support the country’s economic growth and stability.
Prof Newman Kusi, Executive Director of IFS, who gave the advice yesterday in Accra at a pre-2018 budget forum, said domestic revenue had always fallen short of the budget targets in the last couple of years, with the revenue gap increasing significantly since 2011.
“Ghana’s domestic revenue/GDP ratio has also remained far below the levels of its regional competitors. The country’s domestic revenue/GDP ratio averaged 20.4 percent between 2012 and 2015, compared to the sub-Saharan African countries’ average of 27.1 percent of GDP for the same period. This gives a revenue performance gap of 6.7 percentage points of GDP. Over the same period, government expenditure averaged 27.6 percent of GDP, compared to the average of 32.3 percent for its African peers.
“This development made the IMF to once describe Ghana as taxing like a low-income country but spending like a middle-income country. The low revenue/GDP ratio suggests that Ghana’s actual domestic revenue is far short of what its economic potential and institutional development should generate.
“If Ghana had performed like its regional competitors, with an average domestic revenue/GDP ratio of 27.1 percent, the country could have generated a total of GH¢26.6 billion extra domestic revenue between 2012 and 2015, which could have paid off the total fiscal deficit (expenditure overruns) of GH¢22.3 billion for the period, with an extra GH¢4.3 billion to pay off some of its debts,” he said.
“Ghana would not have recorded any fiscal deficit. Quite clearly, the low domestic revenue mobilization is the cause of Ghana’s fiscal imbalances and the rising public debt.”
Prof Kusi said fiscal performance during the first half of this year was worrisome.
“Domestic revenue mobilized was short of what the budget targeted, forcing the government to cut expenditure in order to achieve the set fiscal deficit, with the promise that expenditure in the second half of the year will be cut, should revenue continue to fall behind the target. Weak domestic revenue mobilization has become the key fiscal challenge and risk, the root cause of fiscal imbalances in the country, and the biggest single threat to the achievement of the government’s development objectives,” he underscored.
Dr John Kwakye, Director of Research at IFS, also in a speech, called for the revamping of the non-oil sector to accelerate medium to long-term growth and job creation.
According to him, non-oil growth had been lagging behind recently, indicating that that was as a result of depressed commodity prices, energy shortages, effects of macroeconomic instability and also this year, additionally low imports and fiscal retrenchment.
He said that Ghana should be able to do better than this if the right policies are pursued to revamp the agricultural and manufacturing sectors.
Dr Kwakye also said the IFS expected that such policies would be informed by the country’s historical experience, as well as best international practices to ensure that they deliver maximum returns.
Furthermore, Dr Kwakye called for the adoption of a multi-faceted approach to fighting inflation, adding that even though inflation declined recently, it was still above the central bank’s medium-term target and desired single digit level.
Dr Kwabena Duffuor, President and Founder of IFS, described the country’s tax to GDP ratio as very low.
He said other countries in the sub-region are doing better than Ghana, and that must be improved.
By Samuel Boadi