To help address the downturn in the economy – which is largely due to a shortfall in internally generated revenue, some top economists are urging government to put the brakes on its social investment activities and adopt cost-cutting measures to improve revenue.
According to the economists who were addressing the topic ‘Is Ghana’s macro-environment an enabler or hammer to attracting investment?’, the structural deficits in policies and laws make it possible for successive governments to spend more than generated revenue, which brings about high budget deficits that jeopardise the macroeconomic environment.
They believe that on the expenditure side, economic managers tend to have moved toward a more socialist governance system wherein more is spent on the social front to address needs of the poor – but countries that are able to do so sustainably are the ones which have very high internal revenue generation to GDP. Ghana, on the other hand, has only been able to finance that expenditure through consistent borrowing from the international market…which is not sustainable.
One of the economists, senior lecturer, Department of Economics University of Ghana, Dr. Priscilla Twumasi Baffour, noted that successive governments usually start on a good note when it comes to managing the economy; but the political will to stay on course has always been the most difficult task as they are tempted to fulfil ambitious campaign promises that often blow all the gains out of proportion.
“If we take a critical look at government spending, there is a clear pattern of a greater percentage moving into social expenditure and investment rather than capital assets which can pay back and generate profits. The times we are in now require that government put the brakes on social investments and raise more revenue internally to service debts.
“We need to diversify investment and make sure that we are able to generate enough revenue. Indeed, we need to put the brakes on social expenditure and amass enough resources to invest in the economy’s infrastructure requirements,” she said.
Dr. Baffour emphasised that the problem is not only about spending more than the country is generating but the expenditure is not toward capital investment and rather consumption – which is not good for the economy.
Renowned Economist and Investment Consultant, Kwame Pianim, on his part indicated that the most important thing to do at the moment is get the economy growing – because it is easier to raise revenue when the economy is robust and growing.
“First of all, government must begin looking at cost-cutting measures to reduce its expenditure; and an area to look at is the state-owned enterprises (SOEs). SOEs that are involved in the production of non-essential goods and services but are not making any profit should be sold-off, so that the public sector becomes small,” he said.
He further debunked claims that tax revenue is too low, arguing that revenue must be projected with expenditure in mind; because one can only say tax revenue is too low when the expenditure is too high. “If you spend what you generate, tax revenue will not be too low,” he indicated.
