- Enough measures to check election-year overspending
- Gains made under IMF programme to continue
President Nana Addo Dankwa Akufo-Addo has stated that enough measures have been put in place to ensure government tames its urge to overspend in the 2020 election year.
Delivering the State of the Nation address, the president said temptation to make unplanned spending in election years is real – but his government would rather commit to developing the next generation of Ghanaians rather than the next election.
The 2016 general elections saw government almost doubling its programmed fiscal deficit agreed under the ongoing International Monetary Fund (IMF) programme – resulting in the bailout programme being extended.
“We cannot make the progress we all desire unless we are consistent and disciplined in the management of our economy. The yo-yo nature of the boom and bust has not helped us achieve our goal of sustained prosperity to lift us out of poverty. We have gone through another round of painful impositions to get to where we are today with healthy fundamentals,” the president said.
As the IMF programme comes to an end, the president told parliament that government will continue the fiscal discipline achieved well beyond April 2019 when the IMF’s Extended Credit Facility programme comes to a close.
“We know the temptation to go on a spending binge will always be there; we know election years will come around and there will be pressure on government to splurge, and persuasive arguments will be made that you have to stay in government to be able to implement your programmes. However, I am bent on running a responsible administration, mindful of the next generation and not merely the next election,” Nana Akufo-Addo stated.
According to the president, government has resorted to a legal framework to ensure that gains made under the Washington-based lender’s US$918million funding programme are sustained.
“We have passed the Fiscal Responsibility Law, Act 982, capping the [fiscal] deficit at 5% by law; and some two weeks ago, I inaugurated the Presidential Fiscal Responsibility Advisory Council, chaired by the eminent, respected economist Dr. Paul Acquah – former Governor of the Bank of Ghana and former Deputy Director of the Africa Department of the IMF; and with some of the finest and most reputable economists of our country as members. Its purpose is to advise the president on relevant, additional measures needed to maintain fiscal discipline,” he said.
The president reiterated that the positive performance of macroeconomic indicators like GDP growth, inflation, and lending rates have been recognised – with other watchers of the economy singling out Standard and Poor’s (S&P) last upgrade of the sovereign credit rating move from B minus to B with a stable outlook.
“In December 2018, we also hosted the Managing Director of the International Monetary Fund, Christine Lagarde, a visit that was historical in every sense, as this was the first time that an IMF Managing Director had ever stepped foot on Ghanaian soil,” Nana Akufo-Addo added.
The poor performance of domestic revenue mobilisation was identified as one of the key drawbacks in the otherwise strong macroeconomic fundamentals, with the president describing the existing tax exemption policy as an Achilles Heel and a menace to stability and revenue generation.
According to the president, in the last eight years tax exemptions in respect of import duty, import VAT, import NHIL and domestic VAT have grown from three hundred and ninety-two million Ghana cedis (GH¢392million) – that is, 0.6% of GDP in 2010, to GH¢4.66 billion – that is, 1.6% of GDP in 2018.
These figures, he said, do not include exemptions from the payment of corporate and individual income taxes, concessions on tax rates, petroleum tax reliefs, Customs tax exemptions enjoyed by diplomatic missions, and waivers of processing charges at the ports.
He further warned that if the country continues at this rate, in less than sixteen years half of Ghana’s revenue base will be given away as tax exemptions.
“This is not sustainable, and we intend to do something about it to reverse the trend by introducing suitable measures that may disrupt the easy and comfortable arrangements many have become accustomed to, but which we have to take to ensure that we have the firmest of foundations for the economic take-off that has escaped us for so long,” said Nana Akufo-Addo.