In 2017, despite inheriting an economy under an International Monetary Fund (IMF) bailout programme, Ken Ofori-Atta could still afford the luxury of abolishing some taxes when he presented Akufo-Addo’s maiden budget.
Four years down the line, Mr. Ofori-Atta’s generosity seems unthinkable. The Covid-19 pandemic has been overwhelming. Restrictions on human movement and border closures conspired to slow down economic activity last year. Revenues consequently slowed, with government incurring more expenditure than it had planned as it sought to contain the spread of the virus.
The sheer scale of work to be done by the Akufo-Addo-led administration, as the nation waits to receive the President’s first budget statement in his second term today, is depicted by the widening fiscal deficit and the ballooning public debt.
The public debt, according to the central bank, stood at GH¢273bn as at October 2020, translating into about 71 percent of GDP. The 2020 fiscal deficit will most likely be reported in double digits, with the World Bank projecting 14.5 percent of GDP.
After winning a second-term mandate and then shrugging off a judicial challenge to his legitimacy by ex-President John Mahama, next on the President’s tough to-do list is getting the economy back to the pre-pandemic level. In one of his weekend Covid-19 national broadcasts, Mr. Akufo-Addo famously said, “We know how to bring the economy back to life…”
As Osei Kyei Mensah Bonsu, Minister of Parliamentary Affairs, takes to the floor of Parliament today—in place of an indisposed Ken Ofori-Atta—to deliver government’s first full-year budget since the pandemic, his job is no mean one.
Exactly a year after the first cases of the coronavirus were detected in Ghana, Mr. Mensah Bonsu’s task will be to outline measures to contain the monstrous public debt which has become extremely costly to service.
The GH¢7bn budgeted for interest payment in the first quarter of this year makes it the second-biggest government expenditure item – only GH¢700m shy of the amount budgeted for salary and wages within the period.
Government’s immediate task is to rein in the public debt, a task Information Minister Kojo Oppong Nkrumah confirmed when he spoke to journalists earlier this week.
“Between 2017 and 2019, we made great gains in our economy, as the President outlined in his address to the nation. Unfortunately, COVID-19 has dealt a very big blow to the economy. One of its devastating effects is that it has gravely hampered growth. The consequence is that growth has suffered and our debt situation has gotten worse and COVID-19 is a significant reason. The implication is that, over the next four years, we have to gradually start what the economists call fiscal consolidation by trying to reduce the debt burden,” he said.
In order to achieve fiscal consolidation, government simply has to find ways of cutting down non-essential expenditure while increasing substantially its revenues.
Given that government struggled to meet its revenue targets last year, it would take some extra measures to generate more resources. These measures are likely to come in the form of new taxes.
Mr. Oppong-Nkrumah, in his interaction with the media, conceded that government has to find new revenue streams – only falling short of stating which new tax policies would be introduced.
“We have to work to raise some more revenues to fund some of our debts, fund the already existing expenditure, and then to ensure that the ever-growing needs of the people are attended to…What can we do to be more efficient in raising revenue from some of the old revenue measures? Are there new revenue measures that we can consider?”
The pandemic’s impact has not only been unkind to government but to businesses as well, and with his government losing its stranglehold on Parliament, Mr. Akufo-Addo knows measures to restore the economy must not inflict more pain on Ghanaians if his party is to retain power at the next elections.
He is thus likely to announce measures that achieve fiscal consolidation without sacrificing economic growth.