Build back better: IMF support, strategies to build a sustainable economy and dynamic business environment
Outcomes and key recommendations [Part I]
1.0 Introduction
The Ghana Economic Forum (GEF) is a corporate multi-stakeholder interactive platform that was initiated by the Business and Financial Times (B&FT) in 2012 for corporate Ghana, including policy-makers, private sector, technocrats, experts, academia, civil society groups, think tanks, the research community, etc. to debate, dialogue and agree on viable and sustainable solutions to Ghana’s social and economic challenges.
The GEF offers a congenial interactive environment for in-depth analysis of the key issues affecting the Ghanaian economy and suggests sustainable solution packages that will help to inject efficiency into the Ghanaian economy and create an environment for private sector growth and development.
The forum provides an unparalleled platform for creating, shaping and delivering collaborative solutions for the nation’s future. The GEF 2023, which is the twelfth (12th) in a series of the annual Ghana Economic Forum, was held under the theme ‘Building Back Better: IMF Support, Strategies to Build a Sustainable Economy and Dynamic Business Environment’.
2.0 Key summary of discussions
- The central government’s inability to finance its projects and policies through tax revenue has been a challenge since independence. The deficit created as a result is often financed through borrowing from domestic sources, external sources or the central bank. This incessant dependence on loans to finance Ghana’s fiscal deficit has seen the debts rise over the years.
- The over-indebtedness has adversely affected economic development through many channels; namely: debt overhang fiscal space, crowding-out and increased crisis risk, making the country vulnerable and exposing it to abrupt changes in market sentiment, jeopardising both stability and growth.
- Large external shocks in recent years have exacerbated Ghana’s pre-existing fiscal and debt vulnerabilities, resulting in a loss of international market access, increasingly constrained domestic financing, and reliance on the monetary financing of the government.
- In recent years, Ghana’s fiscal and debt sustainability has been eroded by rising government spending in the context of continuous low domestic resource mobilis Ghana’s debt as a proportion of its GDP has increased drastically over the last two decades.
- Ghana is faced with a high risk of debt sustainability as there has been an increase in the overall debt stocks, which is largely driven by loose fiscal policy, weak financing terms, and external pressures due to high-interest payments on external debt. Figures from the International Monetary Fund (IMF) show more than a 100 percent increment between 2010 and 2022.
- The country’s debt levels have surpassed the dreaded 70 percent debt to gross domestic product (GDP) mark, a situation which has compelled the International Monetary Fund and the World Bank to classify Ghana as a highly debt-distressed country.
- The period between 1992 and 2023 witnessed the implementation of several IMF programmes in Ghana. The IMF programmes, during this period, aimed to address macroeconomic imbalances, improve governance, enhance fiscal discipline, promote private sector development and foster economic growth and stability.
- The successful utilisation of debt relief and external financing is contingent on prudent financial management and effective project implementation. Ghana’s ability to effectively manage its debt and utilise external financing to promote sustainable development requires strong governance, transparent procurement processes, and efficient project management systems.
3.0 Options for policy consideration
- The government must continue with its debt reprofiling policy such that most short-term payments can be converted to long-term debt which will reduce and spread the interest payments to its long-term benefit. Fiscal policies must be legislated so that successive governments can see to their full implementation.
- The Bank of Ghana should enhance exchange rate flexibility and limit foreign exchange interventions to facilitate the build-up of external buffers.
- The government should work toward enhancing domestic revenue mobilisation to reduce reliance on external financing and improve fiscal sustainability. This can be achieved through comprehensive tax reforms, tax incentives reduction, tax administration strengthening, tax evasion and illicit financial flows, and diversifying the revenue base to reduce dependency on commodity exports.
- There is a need to amend certain aspects of Ghana’s 1992 Constitution, especially in the area of a debt cap or debt limit. For instance, the Debt to GDP ratio of 50 percent to future debt crisis as the current domestic debt exchange has destroyed both entire financial sector as well as Bank of Ghana.
- Prioritise business environment reform initiatives to encourage private investment and growth, including by improving governance, transparency and public sector efficiency.
- Reduce the fragmentation in the domestic debt market by consolidating existing bonds tendered for the DDEP to build benchmark bonds. This is to facilitate trading on the secondary market.
- There is a need for a national medium-term debt management strategy to be implemented over a 3-5-year period to achieve the desired composition of the government debt portfolio, which captures the national preference about the cost-risk trade-off. The debt management strategy should be a publicly available stand-alone document and reviewed and updated on an annual basis. This helps promote accountability and transparency and enhances the effectiveness of debt management.
- There will be the need for a robust fiscal consolidation that builds on the ambitious deficit target in the Fiscal Responsibility Law of 3-5 percent of GDP and the adjusted 2023 budget by providing a clear consolidation plan. This will help to build investor confidence in Ghana’s economy and enhance access to external financial markets.
- Governments need to find innovative ways to capture internal revenues, including digitalisation and tapping into the large informal sector. Local authorities/MMDAs should continue to enhance capacities to mobilise internally generated revenue and the over-dependence of Ghana’s 261 MMDAs on central government transfers. These resources can be channelled to local economic development.
- Identify and support social sectors that are deprived of critical social interventions, such as education, health, etc. as a result of Ghana’s unhealthy fiscal condition.
- There is a need for a revenue mobilisation strategy that seeks to strengthen revenue administration, improve tax compliance, help combat abuses and corruption, and increase the fiscal space for public investment and social spending.
- The collection, use and accountability of internally generated funds by public institutions and agencies should be given serious attention. The assessment, collection, use and accounting for oil revenues must also be subjected to regular public accountability.
- Granting a debt agency a separate structure and autonomous status enables the government to charge it with clearly defined objectives and to organise it accordingly without being constrained by either the management or the public sector. This type of arrangement will send signals to the financial markets and the general public about the country’s commitment to a transparent and accountable management policy.
- The government should undertake a public debt audit by establishing on Debt Audit Commission, which will be independent and made up of domestic and international experts; and give it access to all the information needed to undertake the audit as well as analyse all the terms of loans and their costs and benefits.
4.0 Conclusion
It is the expectation of the Business and Financial Times that if the afore-mentioned recommendations are implemented by the managers of the economy, we should be about to have stable macroeconomic stability and possibly propel growth into the medium term, eventually creating a prosperous, sound and resilient economy within the sub-region.
