Be pragmatic with expenditure cuts

BY: Graphic Business
Ken Ofori-Atta — Minister of Finance

ON July 25, the Finance Minister, Mr Ken Ofori-Atta, presented the 2022 mid-year budget review to Parliament in which he pledged the government’s commitment to fiscal consolidation to help engender market confidence and quicken the repair of key macroeconomic indicators.

The pledge followed marked challenges to the government’s fiscal programme, as witnessed in the strong debt build-up, weak revenue inflows, a widening deficit and spiraling inflation.

The cedi has also suffered extreme deterioration due to the lack of adequate cover at a time when market sentiments have heightened portfolio reversals and disinvestments from developing economies, including ours. To help contain these challenges, the government announced in March that it was cutting its spending by up to 30 per cent to help align expenditures with revenue.

In his presentation, the Finance Minister said the implementation of the 2022 Budget from January to June indicated that the government’s expenditure control measures had largely been successful, in spite of significant fiscal constraints and mounting fiscal pressures. He said those challenges had been exacerbated by the less robust revenue performance for the period.

Provisional data on government fiscal operations for January to June 2022 show shortfalls in revenue performance and a faster execution of expenditures.

The Graphic Business noticed from the budget review, for instance, that this resulted in an overall budget deficit of GH¢28.15 billion (5.6 per cent of GDP), against a programmed deficit target of GH¢19.73 billion (3.9 per cent of GDP). The corresponding primary balance for the period was a deficit of GH¢7.68 billion (1.5 per cent of GDP), against a deficit target of GH¢672 million (0.1 per cent of GDP).

It is evident, in our view, that beyond the bulging debt, the biggest challenges facing the economy are spending pressures and weak revenues.

While rigid expenditures, such as wages and salaries, interest costs and statutory funds, continue to rise, revenues have been disappointingly low.

This, to us, is among the factors that have created a cyclical problem where more money is needed to plug holes but at the same time more borrowing risks keeping the economy in a dangerous debt web forever.

This calls for credible measures to boost revenue for the pressure on borrowing to reduce.

We, therefore, find it exciting that revenue boosting measures, such as the introduction of the Electronic Invoicing System (e-VAT) to enhance revenue assurance and mobilisation, the upfront payment of VAT by importers not registered with VAT and the implementation of the common platform for property rate collection and accountability, among others have been lined up to be executed from this month into October.

These measures, together with improvement in existing ones and compliance, are needed to ensure that the state collects all the revenue due it for the pressure on borrowing to ease.

While we support these measures, the Graphic Business is of the considered view that efforts to prune expenditures should be prioritised.

The time has come for spending to be properly aligned to necessity to help ease the burden on the public purse.

In that regard, plans to cut spending must not end with announcing same; they must be followed through and the results publicised to help engender confidence and prepare the way to the International Monetary Fund (IMF).

This will signal to the fund that the country is ready to take the tough decisions to help correct the fiscal situation for the economy to rebound.

The earlier we do that, the better.