Experts bemoan Ghana’s steep growth in debt servicing to domestic-tax revenue growth
Adnan Adams Mohammed
A finance expert has expressed serious reservations about the relatively high rate of the country’s interest payment on debts accrued (debt-servicing), currently galloping at about four (4) times more than domestic-tax revenue mobilization growth over the past four years.
Alex Mould, former Executive Director at Standard Chartered Bank; and past CEO of GNPC and NPA, shared some insight on the mid-year review budget and overall economic outlook. He commented that, the country’s domestic-tax revenue mobilization has grown by only 39% in four (4) years but interest debt-service payment has grown by 144%.
Data made available by the expert as sourced from the Ministry of Finance indicates:
In 2016, domestic-tax revenue was GHC25.729 billion as against interest payment on Ghana’s public debt of GHC10.770 billion giving an interest payment on public debt to domestic-tax revenue ratio of 42%. Analysis of the data from MoF shows an upward trend of Interest debt-service payments to domestic-tax revenue collections with 2019 at 47% and 2020 at 62%.
In 2019, domestic-tax revenue was GHC42.775 billion as against interest payment on Ghana’s public debt of GHC19.769 billion giving a ratio of 47%. However, using projected 2020 full-year figures, domestic-tax revenue is expected to be GHC42.331 billion as against projected interest payment of GHC26.268 billion Ghana’s public debt, resulting in a staggering ratio of interest payment to domestic-tax revenue of 62%.
“We should be very concerned about Government’s ability to meet its interest payments from tax revenue which forms about 80% of our Total Domestic Revenue, which also forms about 97.5% of Total Government Revenue,” Mr. Mould emphasized.
Adding that, “Our domestic tax revenue has only grown 39% in 4 years but our interest debt service has grown by 144%.”
According to him, this confirms the many criticisms that, the government is only borrowing to meet its consumption expenditure and some manifesto promises.
“This attests to the fact that we are borrowing to meet our expenditure, which is mainly a combination of consumption and expenditure on some of the ill thought-out manifesto promises made by Nana Akuffo-Addo’s government. It would rather be more prudent to spend on the critically needed infrastructural investments which will have a multiplier effect and will produce dividends in the near future.
Already, the Institute of Economic Affairs Ghana (IEA Ghana) has called on the government needed to strengthen its tax mobilization, especially in the informal sector, in the wake of the COVID-19 pandemic. According to the institute, the informal sector contributed about 30 percent of the country’s Gross Domestic Product (GDP), adding that, stretching out the tax net to the sector had the potential of increasing revenue to fund government’s expenditure.
Dr John Kwabena Kwakye, the Director of Research of IEA Ghana has expressed worry about tax exemptions to certain persons and institutions constituted over GH¢5 billion and called on Parliament to expedite the passage of a tax exemption bill which would curtail the menace.
Dr Kwakye when speaking at the institute’s review of the government’s Mid-Year Budget policy statement presented to Parliament on July 23 said, “One key area of revenue mobilization which could facilitate government’s expenditure which is mostly overlooked is taxes from properties we term property tax.
“This could be assigned to the assemblies, which would, in turn, generate funds for development at the local level”.
He reiterated that Ghana’s tax efforts were low and called on the government to track revenue leakages to increase the tax to GDP ratio.
Also, in her comment, Dr Dede Amanor-Wilks, the Executive Director of IEA said, it was important for the government to be concerned about meeting revenue shortfalls to grow the economy.
She said strengthening revenue mobilization was critical to building a resilient economy and called on the government to increase its industrialization drive, adding that “industrialization is a pre-requisite for development.