Government should cut expenditure - IEA prescribes reduced spending on free SHS, National Cathedral
The Institute of Economic Affairs (IEA) has stated that prudent cutting of public spending can save the public purse about GH¢45 billion, enough to create fiscal space for the economy.
That, the governance and policy think tank said, would convince Ghanaians that all, including the government, were engaged in burden-sharing.
The IEA urged the government to cut its expenditures on some of its flagship projects, including those on infrastructure, the Free Senior High School (SHS) policy, the National Cathedral and on goods and services as the most convincing demonstration of good faith for people and institutions to join the domestic debt exchange programme (DDEP) voluntarily.
The Director of Research at the institute, Dr John Kwakye, and the IEA’s International Scholar and Editor of its Ghana Policy Journal, Professor Alexander Bilson-Darku, made the call in a presentation to the press last Tuesday, detailing the position of the public policy institute on the DDEP and suggesting ways to stem the economic challenges.
Public sector compensation
Dr Kwakye, who addressed how the fiscal space could be created, stated that public sector compensation averagely accounted for 20 per cent of government expenditure and also absorbed over 30 per cent of total revenue for the 2023 to 2026 budget projections, saying there was considerable room to reduce that expenditure item.
However, he said, that was not just a matter of cutting pay, which might not even be enough in living or economic terms.
“There is a need for complete review of the system of public salaries, allowances, retirement benefits and so on, as well as addressing the issue of productivity in the public sector. Doing that will foster fiscal and debt sustainability,” Dr Kwakye posited.
He said the Office of Government Machinery (OGM), comprising an amalgamation of departments and agencies and with a staff of over 1,500, was over-bloated, consuming a sizable budget projected to be GH¢1.4 billion to GH¢1.6 billion for 2023-26.
The IEA proposed that the staff and budget of that office should be halved to save about GH¢500 million annually for the next three years.
Energy sector payment shortfalls
On the energy sector, the IEA also called for the renegotiation of Independent Power Purchase (IPP) contracts and agreements to reduce the annual payments by at least half and extend the repayment period.
That, the IEA noted, would translate to savings of at least GH¢12 billion a year in the context of burden-sharing.
Dr Kwakye said the 2023 budget projected payments to IPPs, including those with "take-or-pay" clauses between GH¢22.9 billion to GH¢26.1 billion during 2023 to 2026, averaging about GH¢24 billion annually.
He said the ESLA Account to settle energy sector debts, which was projected to range between GH¢3.1 billion and GH¢8.1 billion, could also be slashed by half in the spirit of burden-sharing and that could yield between GH¢1 billion and GH¢2.7 billion annually.
Dr Kwakye said infrastructure was an essential item in the budget, given its large deficit in the country.
However, in the current situation where the government was struggling to pay its debt, it could not at the same time afford the expense to deliver the needed infrastructure, which was projected to range from GH¢10.2 billion to GH¢14.7 billion for 2023 to 2026.
“We propose scaling back the infrastructure budget by a third, yielding at least GH¢3.4 billion to GH¢4.9 billion annually. When we get back to good times, the infrastructure budget can be scaled up accordingly,” the IEA researchers stated.
The 2023 medium-term budget projected expenditure for goods and services, including fuel, utilities, travels, medicals, entertainment, conferences, stationery and others of between GH¢8 billion and GH¢18.3 billion for 2023 to 2026.
“We propose cutting the projections by a third, which will yield GH¢2.6 billion to GH¢6.1 billion per year,” Dr Kwakye stated.
Free Senior High School
Dr Kwakye said the FSHS policy was the biggest and most costly social intervention programme which made it an ideal expenditure item where rationalisation (review) would save the largest costs.
He said the budget projected the FSHS budget to be between GH¢3 billion and GH¢4.6 billion during 2023 to 2026.
The IEA, therefore, proposed a slash of that budget item by a third to save between GH¢1 billion and GH¢1.5 billion annually during 2023 to 2026.
Dr Kwakye insisted that reforms, which should include targeting the policy to the poor and lower middle-income people, would be required to make up for the reduced budget allocations.
For critics who think the FSHS policy could not be targeted, the economist said the Ghana Living Standard Survey could be relied on for such an exercise.
“Rich people who can afford to pay for their wards should be allowed to do so. We have called for the education system to be standardised by bringing low-standard schools to the same level as high-standard schools.
“When this is done, it will be easier to phase in a day system whereby students can attend schools in their communities, which will reduce the burden of boarding and feeding students on the national budget,” Dr Kwakye stated.
The IEA said the FSHS was just one of the numerous flagship programmes that accounted for a chunk of government expenditure, taking about GH¢9.2 billion of the budget.
Dr Kwakye reiterated calls for a comprehensive review of the programmes with the view to rationalising them and reducing costs, especially at a time of national austerity, emergency and burden-sharing.
For his part, Prof. Bilson-Darku said for the DDE programme to be successful, there was the need for it to be accompanied by a comprehensive fiscal strategy and structural reform programmes to ensure a fair burden-sharing across the country to achieve a better outcome for all citizens.
A comprehensive fiscal reform strategy, he said, would preserve the country's reputation in the international credit market.
Prof. Bilson-Darku added that there was a need for a proper stress-test exercise at institution-by-institution level to study the impact of different DDE proposals on financial sector viability and stability.
"The IMF and civil society must be involved to ensure that government adheres to the fiscal consolidation and structural reform programme,” he said.
That, Prof. Bilson-Darku added, would help prevent the systematic budget slippages that had become the rule in the country's budget cycles.