Institute of Fiscal Studies (IFS) in review of the budget statement and economic policy of the government of Ghana for the 2017 financial year has described it as ‘building a house with a weak or non-existing foundation’.
According to the Executive Director of IFS, Professor Newman Kusi, the economic policies of Nana Addo’s government are good but they are another thing implementing those policies in order to achieve the intended purposes.
“What we are saying here is that all the policy initiatives; nobody can question anything about them. The Free SHS, One Dam One Village in the northern can actually increase agriculture and production; Dams are very essential. One District One Factory can solve unemployment and help to grow the economy but what we are saying here is that you can’t stand up and say you are going to build a factory in Nkawkaw; simple economic principle tells you that there are certain basic things that must be in place for the factory to be located in a particular area,” he emphasized.
“The question we are raising is that these pre-conditions that should attract the establishment of the policies, are they in existence?” he quizzed.
He further stressed that the government cannot grow the economy on a sustainable basis if the macroeconomic fundamentals are not in place; thus the country is battling to achieve fiscal consolidation because aside the wages and salaries and interest cost, the government doesn’t have any money.
“All the revenues collected are bound and debts are increasing . . . what we are saying here is that when you want to build a house, you need to lay the foundation and it has to be strong so that when you put up the super structure in an enrolled form, it will not collapse,” he added.
“You can put up a house, factories and construct dams but if the foundation is weak it will not enable us to achieve the objective for which they were established on a sustainable basis. So what will happen is that in future, they are going to create more problems for ourselves,” he stressed.
In the IFS review of the 2017 budget, it made mention of the fact that the budget has been prepared at a time the economy of Ghana is undergoing a great deal of fiscal and macroeconomic difficulties.
The fiscal deficit which declined to 6.3 percent of GDP in 2015 from 10.2 percent in 2014, increased to 8.7 percent in 2016 despite the Extended Credit Facility-support program Ghana is implementing under the auspices of the IMF; making the total debt to GDP ratio, which had been targeted to decrease, further increased to 73 percent by the end of 2016.
IFS again revealed that in 2016, government borrowed an amount of Ghc 18.82 billion, domestically and internationally; thus, the fiscal consolidation process which seemed to be on course on 2015 following the adoption of the IMF program has derailed.
Giving credit the 2017 budget, IFS stated that, the government has recognized the excessive degree of fiscal rigidity as a major cause of the country’s fiscal difficulties and has thus proposed measures to address it after taking inspiration from IFS’s recommendation at its pre-budget forum by cupping earmarked transfers at 25 percent of tax revenue.
IFS’s View on the Government’s policy choices:
IFS believe that there should be different sequencing of policies, though the institute agrees that accelerated growth of the economy is critically needed, it cannot be achieved in adverse fiscal and macroeconomic environments.
It added that more conducive fiscal and macroeconomic environment should be sought in 2017 before the government rolls out the ambitious growth policies in later years; reiterating that macroeconomic stability largely depends on fiscal outcomes in Ghana, stronger fiscal consolidation strategy should be pursue in 2017.
Thus, while the projected fiscal deficit of 6.5 percent of GDP for 2017 represents 2.2 percentage points reduction over the 2016 outturn, we believe that the government could have targeted lower deficit ratio to minimize borrowing, which has been budgeted to amount to Ghc16.75 billion in 2017 (Ghc12.09 billion in domestic borrowing and Ghc4.66 billion in international borrowing).
Lower fiscal deficit (stronger fiscal consolidation) could be targeted by directing the earmarked funds above the proposed cup to fund some of the existing or traditional expenditure items, instead of directing them to fund new expenditure items brought on board by the new initiatives.
Again, substantially reducing the fiscal deficit in 2017 would significantly reduce the rate of borrowing and thus the rate of debt build-ups and help stabilize the economy to create the enabling environment for ambitious growth policies to succeed later.