The International Monetary Fund (IMF) has called for a national dialogue to discuss the best ways to equitably share the burden of restoring the country to economic stability.
It said the dialogue was also important to secure “ownership” for the government’s ‘home-grown programme’ meant to mitigate the impact of the COVID-19 pandemic on livelihoods, necessary for ushering the economy back on the path of growth.
The Ghana Resident Representative of the IMF, Dr Albert Touna Mama, who responded to the questions of the Daily Graphic, commended the programme for consolidating the fiscal position amid an economic recovery.
He noted, however, that the success of the programme was now dependent on how social and economic partners such as labour, the business community and the entire population shared in it.
“My sense is that the dialogue on fiscal consolidation should be broadened to include all major stakeholders of this economy. At the end of the day, the success of the home-grown programme depends on these stakeholders’ ownership,” Dr Touna Mama said in the responses last Friday.
The IMF’s Resident Representative cited the public responses to the new taxes announced in the 2021 Budget Statement, the discussions on a freeze on pay increments for workers and the need for restrained spending by the Executive arm of government as bases for a dialogue.
He also said the revenue measures and planned expenditure cut were not exhaustive and a national dialogue around the need for fiscal consolidation would help to provide ownership and flesh out additional measures necessary to reduce the fiscal deficit and contain the growing debt.
The fiscal deficit rose to 11.7 per cent of gross domestic product (GDP) last year, with the debt stock expanding to GH¢291.6 billion, equivalent to 76.1 per cent of GDP.
The Daily Graphic had sought the views of the fund on a wide range of issues, including the policy prescriptions in the 2021 Budget, the government’s response plan to the COVID-19 pandemic, the way forward for the debt and deficit management and the role of the fund in the economic recovery agenda.
It comes on the back of the 2021 Budget presented to Parliament on March 12 in which the government aimed to return to the Fiscal Responsibility Act by 2024.
It also announced plans to generate fiscal space through gradual consolidation based on revenue measures in 2021 and large spending cuts from 2022 onwards.
“There are a lot of questions that have been raised by various stakeholders affected by this budget. The Ghana Association of Bankers (GAB) is asking why just its members and not the other industries that also made profits in 2020, including the telecom companies.
“Some are asking why the government is raising tax indiscriminately only to bail out investors in risky products from asset management companies.
“Others are asking to tax the wealthy people, including through property tax and income tax. Finally, people are also calling for a belt-tightening effort from the government itself.
“These are all fair questions and they cannot be addressed separately,” Dr Touna Mama said.
He said it was progressive people had accepted that the situation called for sacrifice and “they seem willing to play their part. The next step is to agree on how best to share the burden.”
“One could envision a national dialogue around the country’s fiscal and debt vulnerabilities because they should be a shared concern,” the IMF Resident Representative stated.
Position on taxes
On the six new taxes introduced by the budget, Dr Touna Mama said the impact of the COVID-19 pandemic on public finances made them necessary, although painful to bear.
He said the issue with taxation was not whether the government should raise taxes but ‘when’ and ‘how’ it should do that.
“At the end of the day, there is no such thing as a ‘free lunch’ in economics. A fiscal stimulus today would eventually require a tax increase tomorrow. Economists call this concept the ‘Ricardian equivalence,” he clarified.
The new taxes include increased tax on betting/gaming; a COVID-19 Health Levy of one per cent; Energy Sector Recovery Levy of 20Gp per litre on fuel; upward review of road tolls; sanitation and pollution levy and financial sector clean-up levy.
The IMF Resident Representative added that “the bottom line is as painful as it is, the government is doing the right thing in starting to raise tax revenue, which is currently below 13 per cent of gross domestic product (GDP).”
“But there is room to make the tax revenue mobilisation efforts in this programme more progressive and to share the burden of fiscal consolidation more fairly,” Dr Touna Mama added.
National economic dialogues are not new in the country. They have featured prominently in the fourth republic for the purposes of soliciting ideas on national development and canvassing the support of the citizenry for government programmes.
In June 2001, the government hosted a two-day national economic dialogue to solicit ideas on how to accelerate growth and ensure prosperity for all.
Held on the theme: “Consensus building for a solid foundation to accelerate national economic growth and development,” the forum was attended by representatives of political parties, civil society, the private sector, the Trades Union Congress (TUC) and other identifiable groups.
Its recommendations later formed the bases for most of the programmes that the government executed between 2001 and January 2005.
In 2014, a similar dialogue was held in Senchi in the Eastern Region where key actors of the economy converged to flesh out ideas on how to move the country out of challenges it was submerged in at the time.
The forum culminated in what was christened the “Senchi Consensus,” an array of policy recommendations and suggestions that were later used as the foundation for securing a programme with the IMF to stabilise the economy and revert to the path of growth.