Budget Day: Options other than borrowing?

The Finance Minister, Ken Ofori-Atta, will present the 2019 budget to Parliament tomorrow, which significantly will be outside the IMF’s direction as the three-year bailout programme comes to a close this year.

Mr. Ofori-Atta is expected to outline measures which should ring-fence the gains made under the over-US$900million Extended Credit Facility (ECF) programme, while announcing measures that should be enough to boost growth in the non-oil sector.

Non-oil GDP averaged 4.1 percent between 2013-2016, but saw an increase to 4.6 percent in 2017 amid a raft of policy initiatives by the Akufo-Addo-led government to shore-up industry as well as the agricultural sector.

A major reason growth in the non-oil sector is being targetted is the need for jobs, as unemployment remains one of the key challenges confronting government.

Mr. Ofori-Atta’s announced Nation Builders Corps (NABCo), which is to grant temporary employment to about 100,000 graduates, kicked-off last month.

With analysts suggesting NABCo is not a sustainable solution to the unemployment problem, the Finance Minister will be expected to announce further measures that will allow industry to employ more hands.

While providing industry or other sectors the conducive environment needed to grow and expand – the reason government advanced in abolishing the so-called nuisance taxes, government will be mindful that it also needs to raise enough revenues to execute its own programmes.

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Revenues have in recent years failed to reach budgetary projections, prompting government to cut down its expenditure midway through the financial year.

Following introduction of the luxury vehicle tax as well as conversion into straight levies the NHIL and GETFund components of the VAT, Mr. Ofori-Atta will hesitate to announce new taxes.

But one of the avenues government could seek to exploit could be reduction in the amount of tax exemptions granted. For a government that is always cash-strapped, it is only prudent monies due the state be collected rather than offered to corporates and other agencies.

The inability of government to generate enough revenue has prompted fiscal policy think-tank Institute for Fiscal Studies to call on it to abolish some of its grandiose policies.

According to Dr. Said Boakye, a Senior Research Fellow at the fiscal policy think-tank, three items on government’s budget – public sector wages, interest payments and earmarked revenue – account for more than 100 percent of government’s revenue, leaving virtually no room for any other initiative except through borrowing.

The Senior Research Fellow who was commenting on the 2019 budget ahead of its presentation said: “Government should consider pruning down the numerous programmes and initiatives it is pursuing. This is because of the weak fiscal state in which the country finds itself, which is caused by the weak revenue generating capacity of the state and excessive fiscal rigidity in the budget”.

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According to Dr. Boakye, while the IFS is in full support of government’s three-pronged economic development programme – which focuses on agriculture, infrastructure and industrialization – it is of the view that the economy cannot take on more debt to finance the numerous initiatives.

These initiatives include Infrastructure for the Poverty Eradication Programme (IPEP), One District, One Factory (1D1F), Planting for Food and Jobs, Free SHS, and the Akufo-Addo Programme for Economic Transformation (AAPET), among others.

“Indeed, these programmes and initiatives can only be accommodated if government resorts to large amounts of borrowing. But should history repeat itself, borrowing huge sums of money to fund the numerous programmes and initiatives of government will have the potential to reverse the fiscal gains made and throw the country deeper into fiscal and debt distress, since the real GDP growth rate may not increase as expected due to possible macroeconomic instability that may arise,” he added.

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