The Institute of Fiscal Studies (IFS) has urged government to, among other things, comprehensively review its social intervention programmes, especially the Free SHS, to create some space for fiscal consolidation, as in reality all these programmes are being funded by borrowing.
The IFS premised its call on the back of ballooning pubic debt which was 78.3 percent as of June this year, nearing unsustainable levels, together with low revenue mobilisation which has made government heavily reliant on borrowing to finance all its programmes.
Currently, the country’s domestic revenue and grants are guzzled by only two expenditure items in the budget – employee compensation and debt services – with even a top-up with loan as they both made up more than 111 percent of revenue generated in 2021.
What this simply means is that expenditure outside these two items, including all the social intervention programmes, are essentially financed with borrowing; hence the IFS call for a review of them to provide fiscal space.
“It is important for government to reduce budgetary pressures arising from the various social intervention programmes and policy initiatives (such as Free SHS, Agenda 111, YouStart, Ghana CARES, etc.) by scaling down some of them and eliminating those that can be eliminated through a comprehensive review.
“Such bold policy changes will enhance government’s fiscal consolidation efforts and help to lift Ghana out of its present crushing fiscal situation, which is driving the macroeconomic instability,” IFS stated in its assessment of government’s fiscal consolidation efforts.
Expounding more on the subject, Research Fellow Lesley Dwight-Mensah said though such interventions are generally important, there is no need to pursue them in detail if the economy cannot finance them through generated revenue.
“Our position is that there should be a comprehensive review of all the social intervention programmes – the Free SHS, Agenda 111, YouStart and all those that have come on board. If you take Agenda 111 for example, there is no need to build 111 hospitals in the next two years if it is going to exacerbate the fiscal difficulties we are in.
“We haven’t had these hospitals for 60 years, and so we can have a better, more credible medium-term plan to address the health infrastructure deficit. So the goal of the review of all these expenditure programmes is to generate fiscal savings. How can we save fiscal resources by limiting the scale of these programmes to help us improve our fiscal balance? How can we review these programmes to improve their efficiency? We need to save on your expenditure so that you can narrow your imbalances,” he told journalists in Accra at the statement’s release.
Commenting further, Senior Research Fellow Dr. Saed Boakye also emphasised why government need not make an intervention like the Free SHS a wholesale one when some citizens can afford to pay.
“Every single amount of money spent on Free SHS is borrowed money. The revenue government generates is not able to take care of debt service and employee compensation. So, implicitly, every single amount of money spent on Free SHS is borrowed. Why should government go and borrow and pay interest on it while people who could fund it are enjoying it free. So, the Free SHS should be reviewed.
“The poor and vulnerable can continue to benefit, but those who can afford it should pay. If the fiscals improve and government wants to come to the aid of everybody, that is fine,” he said.
Other recommendations
The IFS further proffered some solutions for government to create fiscal space. Among them is to improve revenue performance by generating more revenue from the extractive sector; reduce compensation of employees as a ratio of total revenue and grants; reduce debt service expenditure as a ratio of total revenue and grants; and review the existing earmarked/statutory funds and close down the non-essential ones.
