Economic future in peril


Calls grow louder for fiscal and structural adjustments

In recent years, Ghana has found itself in a state of economic crisis – brought on by excessive borrowing – and a resulting need for debt restructuring. As government seeks to navigate this difficult situation, it is important that they do not ignore the critical framework known as the ‘triangle of restructuring’.

The triangle of restructuring is a framework that outlines the three key components typically involved in the process of restructuring a country’s sovereign debt: fiscal adjustment; structural and governance adjustment; and debt restructuring. Each of these components is essential to successfully addressing a country’s debt issues, and ignoring any one of them can have dire consequences.

Fiscal adjustment is a crucial element of any sovereign debt restructuring process. It refers to the implementation of policies and measures that aim to address a country’s fiscal imbalances, reduce its fiscal deficit and improve its fiscal sustainability. The goal is to create a sustainable fiscal position that is able to support long-term economic growth while also addressing debt sustainability concerns.

In Ghana’s case, the need for fiscal adjustment is urgent. The country’s fiscal deficit has been growing in recent years, driven by rising expenditures and declining revenues. Government has resorted to borrowing to finance its budget deficits, leading to a sharp increase in public debt levels. The debt restructuring announcement in December 2022 is a clear indication that Ghana needs to address its fiscal imbalances and improve its fiscal sustainability.

One way to achieve fiscal adjustment is through the implementation of policies and measures that reduce government spending. This could involve a combination of measures such as rationalising government programmes, reducing subsidies and cutting non-essential expenditures. The goal is to create a leaner, more efficient government that is better able to manage its finances.

In addition to reducing spending, Ghana can also improve its revenue base through taxation. This could involve broadening the tax base, simplifying the tax system, and increasing tax compliance. By increasing tax revenues, Ghana can reduce its reliance on borrowing to finance its budget deficits and improve its fiscal sustainability.

Improving the management of public finances is also a crucial component of fiscal adjustment. This could involve strengthening budgetary controls, improving public financial management systems, and enhancing the transparency and accountability of government finances. By doing so, Ghana can ensure that public funds are used efficiently and effectively – and that the country’s fiscal position is sustainable over the long-term.

In order to achieve fiscal adjustment, the Ghanaian government needs to implement a range of policies and measures aimed at reducing the country’s fiscal deficit and improving its fiscal sustainability. One potential solution could involve enforcing the filing of interest and coupon income on corporate instruments, such as ESLA, Daakye and Cocoa bills, as part of Personal Income Tax (PIT) and effecting the 25% tax related to the income. Alternatively, government could revise the 1% withholding of the related securities to 20% and make it final and deductible at the source. This would create an additional revenue of approximately GH¢104million for the current fiscal year.

Another key policy measure to consider is expediting reforms to enforce property taxes. With approximately 2,200,000 landed properties in Ghana, achieving an average annual rate of GH¢1,000 per property at a collection efficiency of 50% will yield government over GH¢1.1bn in revenue.

Privatising selected State-Owned Enterprises (SOEs) and transferring ownership to Tier-2 pension funds could also drive efficiency and productivity. Government could realise funds from the divestiture while retaining ownership for the workers of Ghana. Potential SOEs to consider for privatisation could include the Electricity Company of Ghana (ECG) and Ghana RE.

In addition, government should review and right-size MDAs and SOEs to maintain compensation expenses equivalent to 2022. This should include drastically reducing the number of MDAs, Ministers and staff at the Office of Government Machinery, such as Presidential Staffers.

Furthermore, the budget provision for the energy sector shortfall of GH¢23bn should be revised downward by GH¢3bn through the reduction of transmission losses, technical losses and administrative inefficiencies. It is also crucial to effectively implement the Energy Sector Recovery Programme (ESRP) recommendations.

Overall, government cannot ignore the importance of fiscal adjustment – including other policies proffered by GoG-IBF technical committee in restructuring sovereign debt. Implementing policies and measures that focus on reducing government spending, increasing tax revenues, and improving public financial management will help to improve the country’s fiscal sustainability and address the underlying issues which have contributed to Ghana’s debt crisis.

Structural and governance adjustment is an essential component of the triangle of sovereign debt restructuring. It involves addressing the underlying structural and governance issues that have contributed to a country’s debt crisis. These issues can include poor governance, corruption, weak institutions and ineffective public services.

In the case of Ghana, structural and governance adjustment would require significant improvements in several areas. Corruption, for example, has been a significant problem in the country for many years – with Ghana ranking 75th out of 180 countries in the 2021 Corruption Perceptions Index. Addressing corruption would involve taking measures such as strengthening anti-corruption laws and regulations, improving the independence and capacity of law enforcement agencies, and promoting transparency in government operations.

Another critical area that requires structural and governance adjustment in Ghana is the oversized government ministries and agencies. The country has a large public sector that includes more than 1,000 government agencies and departments, which has contributed to high levels of government spending. Government would need to take measures to reduce the public sector size, streamline government operations, and improve the efficiency of public services.

Additionally, improving the quality of governance in Ghana would require government to address issues such as weak institutions, lack of accountability and ineffective public services. This would involve measures such as increasing transparency in government operations, strengthening institutions such as the judiciary, and improving public service delivery.

Overall, structural and governance adjustment is a critical component of sovereign debt restructuring that can help address the underlying issues which have contributed to a country’s debt crisis. In the case of Ghana, addressing corruption, reducing the public sector’s size, and improving public service delivery are essential steps government must take to improve the country’s economic situation.

In conclusion, Ghana’s debt crisis is a complex issue that requires a multifaceted approach to address. The ‘triangle of sovereign debt restructuring’ provides a useful framework for tackling the crisis with its three key components of fiscal adjustment, structural and governance adjustment, and debt restructuring.

Government cannot afford to ignore any of these components if it hopes to effectively manage the debt crisis and set the country on a sustainable path to economic growth. It is imperative that government enforces policies and measures to reduce the fiscal deficit, improve public financial management, address structural and governance issues such as corruption, privatise selected SOEs, and right-size MDAs and SOEs to maintain compensation expenses equivalent to 2022.

Additionally, government must implement the Energy Sector Recovery Programme recommendations and revise the budget provision for energy sector shortfalls to reduce transmission losses, technical losses and administrative inefficiencies. By taking these steps, government can begin to tackle the debt crisis and move Ghana toward a more sustainable economic future

The writer is an Economic Policy & Financial Analyst

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