Investment Consultant and Member of Parliament for Nyhieso Constituency in the Ashanti Region, Dr Stephen Amoah, is imploring Ghanaians to be measured in our expectation of the government, as the Finance Minister, Ken Ofori Atta presents the 2022 Budget to Parliament today.
“The present fiscal situation, the unemployment challenge, global challenges, underperforming industry and market activities require extraordinary tactical and strategic technic to enable the 2022 budget to mitigate the high cost of living in the world including Ghana. We cannot do the usual business and the general expectation by stakeholders should be placed in the right context,” the former MASLOC boss stated in a release prior to the budget reading.
Read Dr. Stephen Amoah’s full unedited statement below:
THE 2022 BUDGET
Most countries are going to be confronted with extraordinary challenges in setting up their 2022 budgets due to the eighteen to twenty four year old Health Pandemic. Dozens of months of low productivity and sluggish global supply chains. Besides, global labor force has been dented. These parameters are all primary functions of economic growth and stability.
Ghana is no exception. The setting up of the 2022 budget requires not only critical but also unusual thinking due to Ghana’s present peculiar fiscal space. There is soaring debt levels, low revenue generation and huge interest rates payment obligation. A tailor made mechanization of the fiscal space will be highly expected by relevant stakeholders. Fiscal policy involves basically decisions about state authority’s spending and taxation. These two form the whole ethos of state budget all over the world. The eruption of the COVID-19 for about two years now has impeded Ghana’s industrial and market activities. Our supply chain and labor force are adversely affected leading to poor revenue generation. Ghana’s average tax collected is approximately 14% of our GDP which makes it difficult to attain and maintain the required deficit. Government has two main financing options, generated revenue and debt financing. Uncontrollably, revenue side has been challenging partly due to the health pandemic and so government has been compelled to rely relatively on the latter. Our debt portfolio has been accordingly expanded. One fact other experts and commentators seem not to consider is that low productivity and reduced labor force as a result of the prolonged pandemic has inevitably impaired real GDP growth. The reason our debt to GDP ratio has declined remarkably and uncontrollably. The cost of living and the standard of living are all negatively affected not only in Ghana. The cost of an item shipped to Ghana has been increased by about 200% by the vessels’ owners. Government has the responsibility to mitigate the impact of all these by efficiently managing our fiscal space thereby optimizing our debt space and calibrating our effective tax rate. Effective tax rate is the difference between total taxes collected minus transfers over total income. This has been generally negative particularly for those at the bottom and middle class of our socioeconomic stratification. The country’s economy are likely to experience high deficits and debts even under non pandemic eras. Adjusting our tax rates up in this situation will not mitigate the already hardship induced by the COVID-19. How much tax does the average household pay and how much does the Ghana government spend on average household? Less than 7% collected from about 2m Ghanaians who are members of the PAYE tax set. Increasing our debt by certain proportion will definitely place our country’s debt level in a complex position. Ghana has statutory, social and discretionary tasks to perform. Attempt to solve any financial crisis by producing more cedis will put inflation on savings and woefully affect purchasing power and its resultant effect of poor living standard. The option probably left is cutting government expenditure as a short and medium term structured approach. That will of course make also our GDP growth sluggish. The question is have we as a country over a couple of decades categorized which area of our outlay is strongly correlated with our economic growth or otherwise.
The Chorus of Widening the Tax Net
Every stakeholder is talking about widening the tax net. Yes, it is important. My concerns are many. How much is the unutilized tax net? How much does our deficit needs as our country? Is the chorused unutilized tax net adequate for our aggregate needs as a country? What scientific, statistical and social work done so far to ascertain the required pieces of information for us to think the unutilized tax net is the most needed factor in our situation. Why are we not emphasizing the leakages? This is where the giant companies in Ghana are perpetuating a great deal of harm to our economy. That might even be more than the untouched tax space. The big importers and the so termed transit goods or goods for re-export and many others. Probably, the emerging digitized economy, national data exercised and addressed system if complete will begin the solution to the raised issues. Under invoicing and lack of commitment to performing tax obligations by even the market players are all issues we cannot continue heaping scorn on.
The 2022 Budget and the SMEs in Ghana
All our budgets as a developing economy should highly consider SMEs in our immediate and long term planning. Adequate to funds and high cost of borrowing are systemic challenge well acknowledged and needs to be addressed. However, those factors cannot be strategically addressed without the unsystematic risk factors. Culturally, our SMEs are also having specific challenges in setting up and managing their individual firms effectively. We need to help scale up their competitive edge within the sub region and even on the globe. I still agree with those suggesting that SMEs should be the focus of the 2022 budget. However, we have to do so with the relevant precautionary measures in terms of policies and processes.
The budget politics in Ghana have over the years, not under one regime, has been very dysfunctional to the performance of economy. At present, the COVID-19 economy has eroded the resilience of our fiscal space leading to high debt to GDP ratio, over 70%. The opposition raising concerns about our debt situation. Markets and industries are very indolent leading to low productivity and poor revenue generation. Low productivity due to the COVID-19 affects GDP growth all over the world. Cumulative debts and maturity dates by successive governments have placed statutory interest payments on Ghana and other inevitable spending obligations. Political actors are ironically piling up pressure on state purse mangers to borrow and not to tax, the two majors financing options of any country, at least in the short and medium terms. No effective alternative policies within the short and medium term space have so far been provided with well scientifically calculated with supporting statistical data.
In the Short and Medium Term
We should review the fiscal space activities and avoid further congestion. With backing data, we must cut spending on areas with remarkably less impact on our real GDP and employment within the discretionary spending space of our budget. Tailor made policies and fiscal space calibration oriented towards the growth and stability of our SMEs which forms greater part of the economy should carefully drive the 2022 budget. These are all proposed short and medium term policies. We can also appraise our state assets and analyze their possible integral roles in the current fiscal space situation and consolidation.
For the long term, we need to redefine and redesign a comprehensive framework to rectify our import driven economy, double digit interest rate economy, ritually weak currency economy, high unemployment, poorly industrialized economy. These are all affecting productivity and labor force which are the main functions of long term economic growth and sustainability of any country. The underutilization of our ‘penta-zoned’ land and sea graph nature of Ghana’s geography should be revised with appropriately designed value chains. I mean our forest, semi-forest, savanna, semi-savanna and the coastal belt which are endowed with commercially viable raw materials and natural resources. The management of the configuration of Ghana’s key resources and core competences must be reviewed. We need to introduce new paradigm shift in in the policies and entire process.
It is so evident that the current socioeconomic challenges posed by the COVID-19 and other domestic factors will make specific decision making processes in setting up the 2022 budget very difficult. The present fiscal situation, the unemployment challenge, global challenges, underperforming industry and market activities require extraordinary tactical and strategic technic to enable the 2022 budget to mitigate the high cost of living in the world including Ghana. We cannot do the usual business and the general expectation by stakeholders should be placed in the right context.