- Budget must inspire confidence in economy
- Jobs, high cost of living, revenue, debt, put country in despair
In accordance with Article 179 of the 1992 Constitution and Section 21 (3) of the Public Financial Management Act, 2016, (Act 921), the Minister for Finance, Ken Ofori-Atta, will on behalf of the President lay before Parliament, the 2022 Budget Statement and Economic Policy of Government on Wednesday, November 17, 2021.
The budget will primarily focus on expanding on the economy’s recovery from the COVID-19 pandemic, as well as creating a climate-friendly entrepreneurial state to address unemployment and import substitution. Digitalisation of the economy, skills development and entrepreneurship will also feature prominently in the presentation.
Budget day is here again. Once more, it is time for government to account to the people how the nation’s resources have been spent and also how the national cake has been shared. This time four main issues have become topical, and rightly so. These are: youth unemployment, high cost of living, revenue underperformance and the mounting debt situation.
For youth unemployment, recent happenings regarding the recruitment of people into security forces have confirmed the worst fears of Ghanaians. In the past few weeks, thousands of youths – who may be about 10 times the number cleared to be recruited – thronged various designated centres in long queues, with desperate faces, looking to go through a successful recruitment exercise to earn some income. Some of them are graduates who have sat at home for years, as they have not been able to lay hands on a decent job.
What was even more disheartening was to see some of them cry out loudly on live television after they were disqualified for not meeting the criteria for selection. That should send a clear enough message that youth unemployment is real and getting out of hand.
According to World Bank data, about 110,000 students graduate from the country’s tertiary institutions each year – but the Institute of Social, Statistical and Economic Research (ISSER) estimates that only about 10 percent of these graduates get jobs in their first year. This is no exaggeration, as anecdotal evidence from the security services’ recruitment occasion fully buttresses it.
In fact, Finance Minister Ken Ofori-Atta recently admitted openly during a graduation ceremony at the University of Professional Studies, Accra (UPSA) that government’s hands are tied and cannot provide jobs for the youth; hence, they must start creating their own jobs. Some took offence to that statement – but truth be told, for that statement to come from the keeper of the public purse, it surely indicates government has no solution to the unemployment problem.
When Mr. Ofori-Atta presented the mid-year budget review, he indicated that government was coming up with interventions under what is called the Ghana CARES programme that seeks to create some one million jobs over the next four years. But the funding structure of the programme rings all the alarm bells. The Ghana CARES programme is a GH¢100billion fund intervention aimed at revitalising the COVID-hit economy.
The private sector is to provide 70 percent of that amount, with government supplying the remainder. However, so far, government has not been specific on what strategy it will use to get that colossal amount from the private sector – whether it will be through taxes, donations, appeal for funds or whatever. And what’s more, even government’s own commitment of GH¢30billion has not been honoured; and we dare say can’t be honoured, given the country’s current fiscal situation.
So, what this actually means is that that ambitious promise of one million jobs over the next four years will forever remain a dream, as there is no way government can raise that GH¢100billion in this pandemic-hit economy unless it resorts to the usual way – borrowing. The 2022 budget must therefore be more specific on how the one million jobs will be created, and if possible come up with a solid funding programme to achieve it.
High cost of living
As if the joblessness situation was not enough, citizens are also grappling with high cost of living which can be traced primarily to the hike in fuel prices that has precipitated rising cost of goods and services. All over the country, people are complaining of hardships, with food prices seeing an astronomic rise; thereby hitting hard the people’s pockets.
News reports by various media outlets indicate prices of staple foods have seen a sharp rise this year, with some even as high as 100 percent increments. Inflation data from the Ghana Statistical Service (GSS) confirms this, as the food-basket keeps recording inflation higher than the pre-pandemic level.
For example, in August a surge in food prices at the northern regions of the country drove overall inflation upward, making it record the highest rate in 20 weeks. Currently, inflation has exceeded the central bank’s upper target of 10 percent, as it recorded 11 percent in October. The cause, according to GSS, stems from fuel prices which have risen in the past few weeks; with a litre of petrol now selling for more than US$1. This has fed into the general prices of goods and services; thereby reducing consumer’s purchasing power and increasing their cost of living.
Another issue the economy has constantly faced is revenue underperformance. This year, government’s total revenue and grants for 2021 are projected to rise to GH¢72.4billion – equivalent to 16.5 percent of GDP, up from an outturn of GH¢55.1billion GDP recorded in 2020. Of this, domestic revenue is estimated at GH¢71 billion.
However, as of the second quarter of the year – according to data from the Bank of Ghana, tax revenue had hit GH¢12.8billion and reached GH¢39billion in the third quarter, states the Ghana Revenue Authority. This is against a target of GH¢57billion for the year, which is 12.7 percent of GDP.
A report titled ‘Economic Recovery through Sustainable Fiscal Policy’ published by Fidelity Bank, underscores that the country’s paltry tax to GDP ratio of 12 percent in the past five years gives rise to serious concern – especially in the era of COVID-19 when government’s expenditure has risen astronomically, given the pressure to expand health care infrastructure.
Ghana’s tax to GDP ratio is 13 percentage points lower than the average of 25 percent for middle-income countries, and far below the 20 percent minimum target for ECOWAS countries under the Eco currency system to which Ghana is a signatory.
Meanwhile, total expenditure is projected at GH¢113.7billion (25.9 percent of GDP); meaning there will be a shortfall of GH¢41.2billion, representing a budget deficit of 9.4 percent of GDP. Furthermore, the primary balance (which is the difference between what government is earning and how much it is spending, excluding interest payment) is projected to hit -2 percent of GDP. What this essentially means is that, even without paying interest on debt – which is now the highest expenditure item on the budget, government still does not have enough revenue to cover its expenditure.
Irrespective of the precarious revenue situation, experts advise it is not the right time to introduce new or increase existing taxes. They advise that government must focus on efficiency in tax collection, review of tax exemptions, in addition to prudent spending to increase revenue.
Director of the Institute of Economic, Statistical and Social Research (ISSER) at the University of Ghana, Prof. Peter Quartey, in an earlier interview with the B&FT said: “If you overtax the same people over and over again, they might either avoid or evade tax. We should ensure that we continue to use the existing tax structures we have and make them more efficient to collect more, rather than introducing new taxes which might not even yield the needed returns.
“Sometimes the cost of collecting those taxes might far outweigh the yield. So, we have to constantly be reviewing our tax system and expand the base through digitisation and other means.”
Chief Executive of Stanbic Bank, Kwamina Asomaning, also in an earlier interview with the B&FT said: “I am a bit disappointed, particularly with the extent of tax exemptions. What is the point of increasing taxes on other parts of the economy only to turn round and give exemptions? So, those are some of the tough decisions we need to take. If we give exemptions and the growth isn’t coming through, then we might as well take away the exemptions. So these are some of the tough decisions government has to take.
“There is also the issue around reduction of spending; government spending is high. The three levers that government has are increasing revenue, reducing spending and stimulating growth. So, by putting in place measures which improve their execution across those three levers, the odds of us coming out of this economic doldrums are much higher.”
‘Debt distress’ rating crouching at the door
Closely related to the revenue situation is the mounting debt. As of July 2021, total public debt had hit GH¢335.9billion, representing 76.4 percent of GDP compared to 68.7 percent of GDP in the same period of 2020. The external component of public debt stands at GH¢162.5billion, which represents 37 percent of GDP while the domestic component represents 39.5 percent of GDP.
The International Monetary Fund (IMF) has projected debt to GDP to hit 83.5 percent at end of the year – effectively putting the economy among the list of debt-distressed countries, as currently it is among those said to be at high risk of debt distress.
Giving its comments on the debt situation in its Article IV report, the Fund said: “Slow progress toward fiscal adjustment or tighter global financing conditions could undermine investor confidence and result in portfolio outflows and higher sovereign yields; which would also affect banks’ balance sheets, given their large exposure to the sovereign.
“In this regard, the expected domestic market capacity to absorb new government debt may not fully materialise. Regional security concerns could also create additional spending pressures. In this context, budget financing could become challenging – requiring sharp spending cuts that hurt growth, further BoG support that could feed depreciation and inflation pressures, and new domestic arrears.”
So it is clear that from the four main subjects considered – jobs, high cost of living, revenue underperformance and rising debt – the economy is in a terrible shape; hence, the 2022 budget must inspire confidence of better days ahead and offer hope to the citizenry and investors.