IMF bailout conundrum

IMF bailout conundrum

The most anticipated press conferences over the recent times have been the March 21, 2022 and the March 23, 2022 held by both the Governor of Bank of Ghana and the Finance Minister respectively. The recent economic downturn which the government has mainly attributed to the Covid-19 and Russia-Ukraine war has left citizens both the elite and the masses to protest in diverse way.

Government has consistently maintained the fundamentals are strong and that if not for these externalities, the economy would have blossom to the admiration of the citizens. Most policy makers think otherwise including Ghana’s Institute of Fiscal Studies and other seasoned economists. In effect, government is bent on its stance and through a series of dialogues with civil societies and international donor partners have decided to developed its own home-grown policies dubbed “The Kwahu Consensus”.

The Bank of Ghana (BoG) has increased the policy rate by 250 basis point i.e. from 14.5% to 17% with effect from 1st April this year.  This is not surprising because over the years, the BoG has used the inflation rate as basis of setting policy rate. Currently the inflation rate is around 15% far above the 2022 budget target of single digit inflation rate. With this current world economic crisis, weakness of the cedi against the major foreign currencies and soaring prices of commodities in the world market, it won’t be far fetched to project end- year inflation rate of 20%.

The hikes in fuel prices mainly due to weakness in the cedi currency against the US dollar and the hoarding of fuel by major producers as a result of the Russia- Ukraine war have brought untoward hardship to Ghanaians. COPEC has consistently advocated for reduction in the government taxes in the price build up. The total taxes on a liter of fuel is around GH₵ 3. The cumulative reduction by 15 pesewas is not enough to drastically reduce the price. As the NPA boss said, they are in negotiation with the OMC to reduce their margin and I believe this a commendable effort. We need to burden share our current plight.

The finance minister also stressed the need to for government to cut expenditure by 20% and reduce wastages in the system. This is to be complimented by increasing revenue to close the deficit gap to single rate in the 2022 fiscal year. In as much as most of the citizens are ready to share the burden of the state, the government is to showed the judicious use of the scarce resources at its disposals. Opulence, arrogance lifestyles are day-in-day-out exhibited by government officials and they do this with pride. Taking measures to cut down on these is applaudable.

In shoring up revenue, the government should take a second look at the Ghana Revenue strategic plan 2020-2022 when developing the next action plan especially in the Domestic Revenue Division. I will therefore recommend these to the minister for consideration.

  1. The centralized audit currently been implemented at the Area level should be decentralized to the Taxpayer Service Centre (TSC) as it was before. The current form is not in consonance with the principle of taxation which states that the cost of revenue administration should be minimal and efficient. The centralized area office is situated in a location far from certain taxpayers. The auditors visit the taxpayer to conduct field audit at a cost and sometimes the liabilities raised during the audit are in comparison less than the maximum 3% expenditure cap. In cases where the taxpayer objects to the assessment, the taxpayer will have to travel at longer distance to the area office to make its case. This makes it inconvenient for the taxpayer. The principle of convenience in taxation is breached in this sense. In addressing this challenge, the various TSC must be a complete office where tax functions are conducted including audit. The Tax Audit and Quality Assurance unit (TAQA) should play the supervisory role and ensure strict adherence to the audit protocols by audit personnels with regular inhouse training.
  2. The DMCE should be decentralized into area offices to properly carried out their function properly in real time. The various TSC Debt Managers must report the Area DMCE who in turn will furnish the Deputy commissioner in charge of DMCE. This will help GRA to properly managed the debt of various TSC and appropriate enforcement actions taken. In addition to debt management functions, the DMCE in the area will enforce compliance.
  3. The Commissioner General must ensure the boundary system of the various TSC are fully complied. Taxpayers in a certain TSC zone must file and pay their taxes that TSC in which it falls other than entities that fall within the LTO scope. Officers must be cautioned not to transferred taxpayers file out of the boundary zone of the TSC. This has made most taxpayers evade tax to the detriment of the state as the assigned tax office is far out of reach of the taxpayer. There is weak compliance on taxpayers as a result of this.

In conclusion, home grown policies are most suitable for any country who wants to develop as the vicious cycle of IMF has never been the solution for any country. In as much as the IMF is very critical in policy formulation and policy credibility for countries in recessions, home grown policies that suits the country tradition are to be encouraged.

>>>the writer holds BSc, MSc (Economic Policy), CITG. He can be reached [email protected]


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