Some economists have supported government’s decision to introduce new expenditure-cut measures to ensure fiscal discipline, saying the move is in the right direction as it will send a good signal to investors that there is commitment from the Executive arm to address current economic challenges.
Finance Minister Ken Ofori-Atta, on Thursday, announced new expenditure-cut measures that will save the economy some GH¢3.5billion to enable government reduce fiscal deficit to 7.4 percent of GDP at end of the year.
The measures include a 10 percent cut of discretionary spending; a 50 percent cut in fuel coupon allocations for all political appointees and heads of government institutions, including SOEs, effective April 1, 2022; as well as a cut of 30 percent from salaries of ministers and heads of SOEs from April to December 2022 – which deduction will be deposited into the Consolidated Fund.
Other measures in line with expenditure cuts include concluding renegotiation of the energy sector IPPs capacity charges by end of Q3-2022 to further reduce excess capacity payments by 20 percent and generate a total saving of GH¢1.5billion.
Director of the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana, Professor Peter Quartey, in an interview with the B&FT at the inauguration of an office complex and digital centre for the institute, said this is a step in the right direction that will provide some assurance to investors if implemented to the letter.
“I think it is not just about expenditure cuts, as there is also the option of expanding revenue. So if we raise more revenue and we cut our expenditure, I believe the target set for the budget deficit might be achieved. That is if only the policies which have been outlined are implemented. It is one thing setting out the policies and another thing implementing them.
“If we can implement them to the letter, and ensure that whatever’s stated in there is achieved, then we are likely to win investor confidence. Most of the things stated are things that will stimulate investor confidence and help us achieve our goal,” he said.
He further called on government and the main opposition party to find ways of collaborating on national policies which they both have divided opinions over, as prolonged misunderstanding on key policies always sends a negative impression about the economy to investors.
“Investor confidence is very critical. Finance doesn’t like noise; so when there is lack of cooperation between our parliamentarians on policies, it doesn’t help. I think there has to be some compromise with both sides of the House. Those in government and those in opposition should be receptive of one another.
“If it is the E-levy, there should be discussion on what rate people will be willing to pay so that we can move on. The current misunderstanding is not helping. We can do all we can, but if investors see that Parliament is divided and not approving government policies, they won’t come and it will hurt the economy,” he said.
Another economist, senior lecturer at the University of Ghana Business School, Dr. Agyapomaa Gyeke-Darko – also in an interview with the B&FT, said the expenditure cut is a sign of good faith from government to investors.
“In every economy when you need some stabilisation measures to be put in place, you have to look to the monetary side and fiscal side. So we have seen the Bank of Ghana fulfil its mandate by increasing the policy rate, which is aimed at reducing inflation and stabilising our cedi. So now it’s up to the fiscal side to show some good faith, because one of the reasons why we are struggling with the depreciation of our currency is loss of investor confidence; investors were not very sure whether we could consolidate, given the problems we have had with passing some of the policies in the 2022 budget, such as the E-levy.
“So when investors were unsure whether we could maintain a good fiscal position or consolidate a good fiscal position, there was capital flight. Any attempt by government to show investors that we will be able to consolidate our fiscal position is a good starting point. So if government is showing good faith in cutting the salaries of appointees, putting a ban on travel to some extent, reducing discretionary spending etc., it is sending a signal to the investor world that government wants to do something about its expenditure to fortify its fiscal position,” she said.
Dr. Agyapomaa however urged government to extend focus on long-term measures that will correct all challenges in the economy and strengthen the fundamentals to provide permanent solutions to problems the country is facing.
“So yes, I think it’s a good start. But we all know that the problems we have in our economy cannot be resolved with short-term solutions. We need to go long-term if we want to stabilise our economy permanently,” she said.