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Fiscal consolidation strangling economy – Isaac Adongo

BY: Emmanuel Bruce
Mr Isaac Adongo
Mr Isaac Adongo

The Member of Parliament (MP) for Bolgatanga Central, Mr Isaac Adongo, has observed that Ghana’s economy is suffering from a “crude and repulsive fiscal consolidation” that is delaying the forward march of the country and pushing the economy to the brink of a fiscal crisis.

He cited the consistent cutting of public spending to match low revenue outturns, reduction in capital expenditure in favour of consumption spending and strong appetite for debt as evidence of an economy being strangled in the name of fiscal consolidation.

He, therefore, called for urgent and credible measures to help boost spending in productive sectors, increase revenue generation and halt excessive spending in goods and services to help stimulate growth and slow down spending on non-productive sectors.

At a lecture on the economy organised by the Coalition For Restoration (CFR), the MP, who is also a member of Parliament’s Finance Committee, said the government’s current fiscal consolidation was artificial and unsustainable.

The event, which was graced by a former President and Flag bearer of the National Democratic Congress (NDC), Mr John Dramani Mahama, and other bigwigs of the NDC, sought to give the party’s version of the state of affairs on the economy.

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Mr Adongo and the NDC also used the event, which was on the theme: ‘The State of the Ghanaian Economy: Myths and Truths’, to respond to the Economic Management Team’s Town Hall Meeting that was addressed by the Vice-President, Dr Mahamudu Bawumia, on April 3.

Worrying trends

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“This is worrying because by continuously cutting spending to match the historic lag in revenues, the government is delaying the forward march of our dear country through artificial and unsustainable fiscal outcomes,” Mr Adongo stated.

According to him, a good fiscal strategy must centre on mobilising adequate tax and non-tax revenue to finance critical expenditures.

This should be accompanied by investments in critical growth enhancing expenditures such as infrastructure, he said at the conference room of the Mensvic Hotel in Accra, which was filled to capacity.

“We are not just living from hand to mouth but also borrowing excessively to pay for consumption expenditure,” he said.

Prioritising consumption expenditure

The MP also pointed out that the focus of the government had been to prioritise consumption expenditure over spending on critically needed infrastructure.

“This is why we are borrowing not to build schools, hospitals, provide potable water and build our roads but rather to pay salaries and goods and services.

This is the new prioritisation and efficient public spending,” he noted.

Mr Adongo indicated that between 2017 and 2018, about 94 per cent of tax revenue went into servicing just two budget items: compensation of public sector workers and payment of interests on public debts.

He said, compensation to public sector workers had ballooned from GH¢14 billion in 2016 to a projected GH¢22.8 billion in 2019.

In nominal terms, he said, a whopping GH¢8.8 billion had been added to the Public Wage Bill.

“What the government does not know is that this reckless addition to the public service is crowding out about US$1.83 billion of fiscal space that could go into funding infrastructure,” he added.

Borrowing for goods and services

Mr Adongo said the government had between 2017 and 2018 borrowed an amount of GH¢7.63 billion to pay for goods and services, with a projection to borrow a total of GH¢13.93 billion to pay for same by the end of 2019.

Within the same period, he said a staggering GH¢16.43 billion had been borrowed to pay for consumption expenditure made up of workers’ salaries, interest payment and goods and services.

“By the end of 2019, the government would have borrowed an unholy amount of GH¢23.43 billion to pay for consumption expenditure. That is, we would have borrowed about US$5 billion to pay workers, interest on loans and goods and services,” he explained.

Reduction of capital expenditure

Mr Adongo noted that the government had consistently reduced capital expenditure from 2017 to 2018, thereby reversing the gains made by the previous government to significantly address the huge infrastructural deficit of the country.

“In 2016, capital expenditure stood at GH¢7.5 billion, representing 4.5 per cent of GDP. By 2018, this figure had been reduced significantly to a nominal of GH¢4.7 billion, representing 1.8 per cent of GDP. In actual fact, we are experiencing negative investment in infrastructure in real terms from the 2016 levels,” he pointed out.

“This is the fiscal situation of our dear country presently.

Sadly, the government is not just stifling the potential of the economy through their wrong policy choices, they are saddling future governments with unsustainable debts that will create no opportunities for repayment streams of income,” he added.