Interest payment on debt, together with compensation of government employees has overtaken money generated in the domestic economy by 24.4 percent in the first quarter of the year, the Central Bank’s first quarter statistical bulletin data has revealed.
According to the data, the country generated GH¢12.5 billion from the domestic economy as of first quarter of 2021 but spent GH¢8.2 billion on interest payment and GH¢7.3 billion on compensation of employees, taking the total figure to GH¢15.6 billion.
This simply means government had to borrow in excess of GH¢3 billion to cover these two basic obligatory expenditures. Besides these two, other expenditures of government amounted to GH¢23.4 billion in the period under discussion, pushing government to borrow more than GH¢11 billion to cover all its expenditure incurred in the first quarter.
The issue of high interest payment debt has recently gained public attention given the rising public debt. The total public debt has hit GH¢304.6 billion as of March 2021, rising by GH¢67.9 billion same period in 2020.
Several analysts, multilateral organisations, among others, have persistently urged government to expand the tax base of the economy in order to increase domestic revenue for government expenditure, rather than resort to expensive borrowing. Tax revenue generated in the first quarter of 2021 recorded just GH¢10.4 billion.
The International Monetary Fund (IMF) has told government to prioritise controlling spending and generating more revenue in order to reduce the country’s debt burden which has been exacerbated by the onslaught of the pandemic.
“The 2021 budget’s recent policy pivot towards fiscal consolidation is an important step in the right direction and a difficult one in a pandemic. Fiscal consolidation should be deepened and anchored around debt and debt service reduction to create space for social, health, and development spending.
Given the social and equity implications, fiscal consolidation should rely more on progressive revenue and spending measures, while guaranteeing fiscal support to the most vulnerable and social safety nets,” leader of the IMF mission, Carlo Sdralevich, said after concluding Article IV discussions with government.
Former finance minister, Seth Terkper, has also advised that broadening the tax base should not only be about targeting the informal sector or taxing the old economy, i.e., sectors that have always been the main pillars of the economy, but also focus on new but thriving sectors which are not adequately captured in the tax system.
“Taking from the angle of GDP, when you rebase, it means that you are changing the indices and giving more weight to sectors that were not in their prime when GDP was being measured. So the tax authorities should also realise that the structure of the economy is changing. Is GRA equipped to tackle that sector? Probably they are focused on the industries that are no longer viable.
For example, the timber industry was formerly huge, but it is no longer the case. The services sector is the one dominating. Do the officers of GRA understand the new structure of the economy? And even in terms imports, the structure is changing. Is Customs data up to date? So, expansion of the tax base should not be in the traditional sense of going after street people only. It should be in the sense of looking at the new economy and covering it.
What I mean is equity. Equity is a very important principle in taxation. So, what I am saying is that, if you are taxing the old economy, equity requires that you tax the new economy. But you apply it in a more meaningful way based on the knowledge you have about the sector and the performance of the sector as well. We must make the tax system fairer and more equitable by taxing new sectors that have not been covered,” he told the B&FT in an earlier interview.