Informal sector added GH¢10bn to economy in Q2

Data from the Ghana Statistical Service (GSS) has shown that the informal sector contributed about a fourth of the overall economy in the second quarter of 2019.

Out of the GH¢39.9billion worth of goods and services produced in the country between April and June this year, GH¢9.9billion, representing about 25 percent, came from the informal sector. This represents a year-on-year growth of 5 percent compared with the 4.4 percent recorded in the previous quarter.

In the GSS explanation, the informal sector mentioned comprises activities that took place in all three main sectors of the economy – agriculture, industry and services – but happened outside formal businesses settings.

The same source, in its 2016 Regional Spatial Business Report, also indicates that more than 62 percent of commercial establishments are in the informal sector. The Ghana Revenue Authority also reports that about 70 percent of the country’s workforce are found in the informal sector. However, only 2 percent of them pay tax.

The effect of this is the persistent shortfall in government revenue which has resulted in excessive borrowing to finance capital projects. In fact, the tax revenue – according to a recent Bank of Ghana report – recorded just 6.1 percent of GDP in July, compared with 6.5 percent recorded same period last year.

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The report further reveals that domestic revenue was less than 8 percent of the country’s GDP as of July this year, whereas debt to GDP had ballooned to a whopping GH¢205billion, representing 59.4 percent of GDP – with the external debt component alone taking more than half of it.

The country’s external debt in the period under consideration is now 31 percent of GDP compared to same period last year when it was 28.7 percent of GDP. What this essentially means is that government is resorting to borrowing more from outside the local economy to fill the revenue gap in order to have money to undertake its commitments.

This, Director at the Institute of Statistics, Social and Economic Research (ISSER) of the University of Ghana, Professor Peter Quartey said, calls for worry; and efforts must be made to boost domestic revenue mobilsation, or else government will find itself in a very precarious situation.

“Our debt-GDP is a cause for worry, and I would have thought we we’d rather work it downward and grow revenue. Our expectation is that we will mobilise more domestic revenue, and by so doing be less dependent on debt.

“But if we continue to borrow it won’t be so good, because as you borrow more your interest payments increase – and that means you need to allocate more resources to finance debt at the expense of other developmental expenditures,” he said in an interview with the B&FT last week.

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