Ghana’s economic recovery: Tax expert calls for long-term solutions
Tax Expert and Consultant, Dr Abdallah Ali-Nakyea, has advised the government to underpin the International Monetary Fund (IMF) programme with policies that will provide long-term solutions to the country’s economic challenges.
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He said that would help avoid the cyclical approach to the IMF for support.
Ghana has requested assistance from the IMF to achieve fiscal consolidation and debt sustainability 17 times.
Dr Ali-Nakyea said that was because an analysis of the country’s governance structure suggested that the measures often taken led to short and medium-term fiscal consolidation and balance of payment adjustments, without recourse to long-term solutions.
He was speaking at the 60th anniversary of the Institute of Chartered Accountants Ghana (ICAG). He was speaking on the theme “Navigating the Global Economic Recovery: Ghana as a test case”.
The global economic recovery has been a topic of interest to policymakers, investors and the public at large. Economies all over the world have adversely been impacted by the global pandemic in various ways.
In Ghana, the economy has been faced with a myriad of challenges ranging from high inflation, which hit a 22-year high of 54.1 per cent in December 2022, and an unsustainable public debt of GH¢575.7 billion.
This prompted the country to seek help from the IMF in July last year.
Although the government was able to reach a staff-level agreement with the fund in December last year, a board-level approval, which will pave the way for the disbursement of the US$3 billion support, is hinged on the country’s ability to restructure both its domestic and external debt.
Although the domestic debt exchange programme had been concluded and described as a success by the Ministry of Finance, there have been fresh talks, in recent times, of a possible second round of domestic debt restructuring.
However, what is holding the country back from reaching an agreement with the IMF is the restructuring of the country’s external debt. So far, the Paris Club, the United States (US) and other bilateral creditors of the country have expressed their willingness to restructure the country’s debt. Standing in the way now, however, is China, which is still playing hardball.
A March deadline earlier announced by the government to reach an agreement with the fund had already elapsed and at the recent World Bank/IMF Spring Meetings in Washington DC, sources close to the IMF hinted that the country was likely to get a programme by May this year.
Debt restructuring
Dr Ali-Nakyea said the IMF programme presented a perfect opportunity for the country to negotiate some debt restructuring with commercial and multilateral creditors, as the country failed to take advantage of earlier schemes such as the Debt Service Suspension Initiative (DSSI).
He said the debt restructuring would create the space to spend on priority areas.
“However, the country must urgently reinstate the Fiscal Responsibility Act, 2018 - which was suspended during the pandemic - with the five per cent cap on fiscal deficits in any given year,” he stated.
He said the government must also publish an updated medium-term debt management plan that either caps or places a moratorium on the contraction of non-concessional loans for a while.
“Ghana must implement fully an agreed structural reforms to put the economy on a sound footing.
“This includes significant cuts in the largesse and waste in government and public service delivery,” he noted.
Boosting domestic revenue
Dr Ali-Nakyea also reiterated the need for the government to, as a matter of urgency, raise enough revenue domestically to finance its development.
In doing so, he said the government would have to consider other non-tax sources of raising revenue, as well as closing the tax gaps rather than introducing new taxes.
He said the government must also find a way of roping the informal sector in the payment of tax.
“New taxes are not the way to go but rather ensuring efficiency and effectiveness in the administration and collection of the existing taxes, to enhance domestic,” he said.
