Turning economy around: Cut down on expenditure - Speakers urge govt
The government has to do more to cut expenditure in its quest to bring the country’s debt to sustainable levels and revive the economy.
Speakers at the Graphic Business/Stanbic Bank Breakfast Meeting who made the suggestion argued that for the country to survive such turbulent times and come out stronger, the government must prioritise efficient spending.
They hold the belief that while the Domestic Debt Exchange Programme (DDEP) which is part of the International Monetary Fund (IMF) programme had helped to create some space for spending, it was not enough to bring the economy out of its current crisis.
The speakers noted that the IMF programme was hinged very much on revenue mobilisation.
The speakers are a Chartered Economist, Professor John Gatsi; an Economist and Lecturer at the University of Ghana, Professor Agyapomaa Gyeke-Dako, and the Chief Executive Officer (CEO) of petroleum retail business, Petrosol, Michael Bozumbil.
However, in a counter argument, the Chief Director at the Ministry of Finance, Eva Mends, who was also present at the meeting yesterday, said there was little that the government could do about the situation because the nation’s expenditure was dominated by workers’ compensation and payments into statutory funds.
The Breakfast Meeting at the Labadi Beach Hotel in Accra was held on the theme: “Thriving during economic turbulence”.
It brought together private sector players, policymakers and people in academia, among others.
Ghana’s economy has been battling with severe challenges in the last two years, with inflation hitting a 22-year high of 54.1 per cent in December 2022, coupled with unsustainable public debt.
In July 2022, the government formally approached the IMF for a $3-billion bailout programme.
As part of the conditions to get a deal, the government announced a DDEP, which saw it exchange GH¢82 billion of old bonds for 12 new ones at a reduced coupon rate with longer tenors.
On the external side, the government is targeting debt relief of $10.5 billion between 2023 and 2026 as it engages both bilateral and commercial creditors for debt restructuring, while on the commercial side, it is seeking to restructure debts, totalling $14 billion, out of which $13 billion are in bonds.
Following the formation of the Creditor Committee of the Paris Club in May this year, the government is also negotiating with its bilateral creditors to restructure debts, totalling $5.4 billion.
Under the IMF programme, the country is expected to reduce its debt as a ratio of Gross Domestic Product (GDP) from the current 93.5 per cent to 55 per cent.
Also, to increase the revenue base of the country, the government has introduced new taxes and tax measures, all in a bid to boost tax-to-GDP ratio from 13 per cent to 18 per cent.
Prof. Gatsi said the basic principle in crisis time was efficient spending.
He said that was the time for the government to prioritise expenditure and ensure efficiency.
“If we want to maintain the same lifestyle, we will be in trouble.
You cannot bundle up a number of projects when in crisis”.
“You told us you will do 88 hospitals, then having not done that, you are telling us you are going to do 111.
When you look at that, it beats your imagination,” he stated.
Prof. Gatsi added that the call was not to say it could not provide such facilities for people during crisis time, but the number and how that would eat into other important things that were being done was critical.
He said if the government continued to spend and manage the country as though there was no crisis, then the economy would never bounce back.
“DDEP and the revenue measures alone are not enough to take us where we want to go,” Prof. Gatsi said.
Govt must do more
Prof. Gyeke-Dako said while the DDEP and the revenue measures were necessary, the government still had to do more on the expenditure side to revive the economy.
“We have tried to put in some policies that will help revive the economy but we need to do more.
We have put so much emphasis on revenue but we are not doing enough on the expenditure side to be able to get us back to where we expect to be,” the economist stated.
She said although the government announced expenditure cuts of about GH¢20 billion in the mid-year budget, there was still more that could be done.
Prof. Gyeke-Dako suggested that in such critical moments, the government must have a relook at some of its flagship programmes and if possible suspend some of them until the economy was back on its feet.
“There are some flagship programmes that are useful and if we are doing well as an economy, it will be okay to run them, but at this moment, we must prioritise and focus on reviving the economy.
When we bounce back, we can re-introduce them,” Prof. Gyeke-Dako urged.
She stated that the Free SHS programme, for instance, was not sustainable and must, therefore, be reviewed to ensure that those who could pay for it did so.
Prof. Gyeke-Dako also pointed out that the country’s democracy, although very important, was too expensive, with some form of elections being held every two years.
Going forward, she said the district assemblies elections could be merged with the main presidential and parliamentary elections to reduce cost.
The economist also urged the government to focus its spending on infrastructure and projects that would increase productivity in the economy.
Mr Bozumbil also added that crisis periods were not moments for lavish living and, therefore, urged the government to prioritise its expenditure.
He said as businesses, they were cutting on non-essential expenditure and the government must also do same.
“We must focus on the basics and support the most vulnerable.
We need to target them and make sure they are supported,” the CEO of Petrosol said.
Responding to the Speakers, the Chief Director of the Ministry of Finance said government expenditure was dominated by workers’ compensation which could not be reduced.
Ms Mends noted that in other countries, workers were laid off in times of crisis but that had not been the case in Ghana, noting that there was even pressure on the government to take on more nurses and teachers.
She said if the country could reduce its compensation budget, which was about GH¢51 billion, by even 10 per cent, that GH¢5 billion could fix a number of roads and pay about 50 contractors.
“That GH¢51 billion is half of what the Ghana Revenue Authority is collecting,” Ms Mends noted.
On the expenditure on goods and services, she said most of it was in the health and education sectors, which made it difficult to cut.
“So, in these difficult times, the areas that you can cut are minimal.
You cannot cut statutory funds which take about 25 per cent of our revenues because this is not even money that comes to the ministry,” she stated.
On why the IMF programme was hinged so much on revenue, the MoF Chief Director said it was because the country did not collect enough revenues.
“There is a disconnect between what we produce as a nation and what comes to the state to deliver services and that is why the programme is hinged on revenues,” Ms Mends said.