Ghana: Government is counting on a home-grown economic recovery plan

By Jonas Nyabor
Posted on Wednesday, 6 April 2022 16:28

Ghanaian President Nana Akufo-Addo arrives in Downing Street ahead of a meeting with British Prime Minister Boris Johnson in London
Ghanaian President Nana Akufo-Addo arrives in Downing Street ahead of a meeting with British Prime Minister Boris Johnson in London, Britain, April 5, 2022. REUTERS/Tom Nicholson

With an International Monetary Fund (IMF) bailout strictly off the agenda, Ghana is banking on a domestic solution to revive the economy, which continues to grapple with the fallout of the Covid-19 pandemic and the Russia-Ukraine war.

Nana Akufo-Addo’s government has come under serious pressure from rising inflation, the high cost of fuel, the depreciating cedi and limited access to international financial markets.

And having criticised his predecessor John Mahama for agreeing to an IMF programme in 2015, Akufo-Addo wants to avoid the political consequences of seeking a bailout now.

The previous $925.9m IMF bailout package brought a net freeze on employment in the public sector, except in critical areas, a 10% cap on the nominal increase in the total wage bill, a tighter monetary policy stance and the removal of subsidies on utilities and petroleum products. The programme was aimed at restoring the country’s debt sustainability and macroeconomic stability.

Akufo-Addo has chosen domestic revenue mobilisation and spending cuts to keep the economy afloat. He says he is confident that home-grown solutions will set the economy back on a path to recovery and yield positive economic results by 2023.

“The recovery programme we have is very credible, and that is what is going to give us the opportunity to come out of this period a stronger economy, and it is that future we are looking at,” he said in a recent BBC interview.

Money measures

Following a three-day cabinet meeting in March, the government announced 19 fiscal measures intended to cushion the economy from the impact of the global pandemic that led to the unbudgeted spending of ¢17.7bn ($2.4bn) and the Russia-Ukraine war that has disrupted international trade.

The spending cut measures include:

  • A 30% cut in discretionary spending by ministries, state departments and agencies;
  • A 50% cut in fuel coupon allocations to political appointees and heads of institutions;
  • The suspension of purchasing imported vehicles for the rest of 2022;
  • The suspension of all foreign travel except what is deemed critical;
  • And 30% salary donations from ministers and heads of state institutions from April to December 2022.

To raise revenue, the government intends to:

  • Review upwards and collect property taxes from April 2022;
  • Collect taxes from e-commerce and e-gaming companies;
  • Get revenue from the controversial E-levy and pass a bill on tax exemptions.

To tame inflation, the Bank of Ghana has already hiked its policy rate by a record 2.5% to 17.0%

“The Bank of Ghana expects inflation to remain at these high levels in the near term and fall back into the target band within a year. We disagree,” Yvonne Mango, head of research at Renaissance Capital, wrote in a note published on 30 March.

“We forecast inflation of 17.6% at year end 2022 and expect it to remain in the double-digits for the next 12 months, in part because we expect further cedi depreciation and global supply constraints to persist in the short term,” she wrote.

A better balanced budget

Finance minister Ken Ofori-Atta said the government is hopeful that it will achieve a fiscal deficit of 7.4% of GDP, down from the current 12.1%, with the new measures.

The passage of the controversial 1.5% electronic money-transfer levy (E-levy) is a boost to the government’s economic recovery plan. The government is projecting annual revenue of ¢6.9bn from the new tax, but some analysts do not believe this is feasible.

The director of the Institute of Statistical, Social and Economic Research at the University of Ghana, professor Peter Quartey, says the revenue target may be missed. “I am not convinced the rate will help government in bringing in all the targeted revenue. I believe that a lower rate would have ensured that almost everybody will continue using the service. A higher rate might make people want to substitute. Some would rather use cash and other forms of payment,” he tells The Africa Report.

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