The 2022 budget is themed ‘Building a Sustainable Entrepreneurial Nation: Fiscal Consolidation and Job Creation’. It is expected to consolidate the macroeconomic gains achieved in the COVID-19 era and address the economy’s short- to medium-term risks.
Fiscals
On revenue, government has projected raising GH¢100.5billion in total revenue and grants for 2022 compared to GH¢72.4billion projected in 2021. As at the end of September 2021, provisional total revenue estimates stood at GH¢47.2billion compared to the programmed amount of GH¢51.3billion. The revenue target for 2021 is likely to be missed should tax compliance derail. Government envisages increasing total revenue as a percentage of GDP from 16% in 2021 to 20% in 2022.
Key revenue measures include the imposition of an Electronic Transaction Levy (e-transaction levy) of 1.75% on the value of digital transactions and exempting daily transactions to a cumulative value of GH¢100. Fees and charges are also expected to see an upward adjustment by 15%. Government’s revenue mobilisation drive is not ambitious enough to grow the direct tax-paying population from the current 2.3 million out of a labour force population of 12.9 million.
On expenditure, government expects to spend GH¢137.5billion, including arrears, in 2022 compared to GH¢113.7billion in 2021. As at the end of September 2021, the provisional estimate stood at GH¢81billion compared to the GH¢83.9billion programmed. Total financing at the end of September 2021 stood at GH¢33.9billion compared to a programmed GH¢32.6billion. In 2022, the budget deficit is expected to reduce to GH¢37billion from GH¢41.3billion in 2021. This is in line with the medium-term aim of achieving the fiscal deficit target of less than 5% of GDP by 2024.
Domestic financing estimate for the end of September 2021 reached a provisional figure of GH¢20.39billion compared to a projected estimate of GH¢14.06billion. This trend is worrying as government is actively in the market crowding out the private sector for credit.
Public debt hit GH¢341.76billion (US$58.24billion) as at end-September 2021. Ghana’s public debt is rising steadily. From a nominal public debt stock of GH¢122.2 billion in 2016, it rose to GH¢291.6 billion by the close of December 2020. With the fiscal challenges posed by the COVID-19 pandemic, financial sector clean-up and energy sector debt, Ghana’s debt and its accompanying high interest rate could trigger macroeconomic instability in the medium-term.
Interest payment for the second year in a row leads expenditure allocations. Interest Payment is projected at GH¢37.45billion (7.5% of GDP) followed by Compensation of Employees projected at GH¢35.84billion (7.1% of GDP) and Grants to other government units at GH¢26.83billion. Capital Expenditure (CAPEX) is projected at GH¢16.396billion (3.3% of GDP). With the country’s infrastructure financing needs, CAPEX allocation should double in the medium-term to enhance productivity and make Ghana competitive in attracting investment.
Sectorial Developments
The Services sector continues to be the main driver of Ghana’s GDP, followed by Industry and Agriculture. The Services sector recorded a growth rate of 7.2% in the first half of 2021 compared to 2.3% last year. Industry, however, contracted by 1.3% – mainly resulting from significant derailment of growth in the mining and quarrying subsectors, which fell by 11.2% and 18.9% respectively. A main contributor to the contraction was the -13.4% growth in the oil sub-sector due to low production. To spur growth in the oil and gas sector, government must structure policies to ensure maximum economic recovery from petroleum resources – especially given the global energy transition agenda. In addition, corporate tussles within the sector – like the ENI/Springfield case – must be resolved quickly to make the sector attractive.
E-levy
The e-levy of 1.75% is expected to generate GH¢6.96billion in 2022. According to government, Ghanaians who transact below GH¢100 a day average 35%; hence it will not negatively affect the poor. Government should further engage with stakeholders to review the levy and explore other revenue generation measures such as curbing illicit financial flows and corruption.
There is also evidence from studies conducted in Kenya and Tanzania that suggests a likely reversal to cash transactions by citizens in a bid to avoid taxes that are deemed extortive. The new levy will likely erode the gains made from creating a formal banking system to foster inclusion for persons within the informal sector. We expect that retail transactions that require e-payment methods will experience sharp declines in the coming year. This will be in contravention of government’s promise to create a cashless economy.
Benchmark Valuation
In April 2019, government slashed Benchmark Values by 50% on selected general goods and 30% on vehicles. This policy has been reversed, and it is likely to reduce the competitiveness of Ghana’s ports. The 2021 budget is projected to raise import duty of GH¢6.6billion.
This is expected to increase to roughly GH¢9.03billion in 2022. The high import duty is not the only component making Ghana’s ports uncompetitive. Government should review all other cost components at the port to make Ghana’s port competitive among the ports in the sub-region. On the other hand, government should be committed to import-substitution industrialization – which is the surest way to grow the domestic economy.
The reduction of withholding tax on sales of unprocessed gold by small-scale miners from 3% to 1.5% will positively impact the industry, and to a large extent help curtail the smuggling of gold.
Road Tolls
In an effort to reduce travel time and vehicular traffic on roads, government has removed road tolls. However, it will compensate for the loss in revenue through imposition of an e-levy at 1.75% on electronic transitions. The impact of this levy has been discussed above.
‘YouStart’ Initiative
Government’s quest to support youth entrepreneurs with up to GH¢10billion together with its partners in the medium-term is commendable. As trading under the African Continental Free Trade Area (AfCFTA) progresses steadily, youth entrepreneurs can take advantage of the 1.2 billion people market size – with a combined GDP of US$3.4trillion.
Conclusion
The 2022 budget attempts to resolve the structural problem of widening the tax net, but a lot of work remains to be done in this area. Expenditure rationalisation is a prudent option to reduce the budget deficit and high public debt. Going forward, broader stakeholder consultations are needed before arriving at policy options.
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