Ghana is likely to escape from defaulting on its foreign-currency debt this year, according to Fitch Ratings.
Fitch also anticipate same for Zambia due to gradual fiscal consolidation in these nations, attributing it to financing constraints and ongoing fiscal reform efforts, often linked to International Monetary Fund (IMF) programs.
This consolidation is projected to contribute to the stabilisation of government debt/GDP ratios. But, Fitch underscores the reliance on IMF programmes, noting that, the debt restructuring processes under the Common Framework for both Ghana and Zambia are susceptible to potential delays.
“Challenges may persist in securing affordable access to international capital markets without credit enhancements for most Sub-Saharan African sovereigns”, Fitch indicated in its 2024 Regional Sub-Saharan African Sovereigns Outlook.
Multilateral funding is identified as a crucial support for the region, with Fitch acknowledging that risks continue to lean towards the downside.
Looking at the broader macroeconomic landscape in Sub-Saharan Africa for 2024, Fitch envisions stable median real GDP growth and a decrease in average inflation, albeit noting that inflation remains elevated in several sovereigns.
The agency emphasised the persistent financing challenges faced by the region, reinforcing the significance of multilateral funding while acknowledging the existence of potential risks in the economic outlook.
“We forecast gradual fiscal consolidation due to financing constraints and fiscal reform efforts, which, in many cases, are linked to IMF [International Monetary Fund] programmes. This consolidation will help government debt/GDP to broadly stabilise”.
“We expect Ghana and Zambia to emerge from default on their foreign-currency debt in 2024, although, in both cases, the debt restructuring process under the Common Framework is vulnerable to further delays”, it added.
The World Bank has said debt levels and vulnerabilities which remain high could worsen, especially for countries that have lost access to the credit market and are in or at risk of debt distress.
If not addressed, it stressed that debt dynamics could escalate into a full-blown crisis, setting countries even further back.
“The international community needs to find more adequate ways to speed up debt treatments. The current resolution mechanisms need to be strengthened so that they can effectively address a potential debt crisis, and additional instruments may need to be set in motion”, the World Bank’s April 2023 Africa Pulse Report has noted.
However, the Bank has urged African economies including Ghana to increasingly rely on their own policy reforms and domestic space for action in three areas.
“First, restoring macroeconomic stability is essential for growth. Raising interest rates and avoiding policy conflicts that reduce the effectiveness of monetary transmission (say, fiscal dominance, and foreign exchange distortions) are crucial to reduce inflation to target levels.”
“Second, structural reforms that foster private investment should be at the top of the pro-growth policy agenda of countries in the region. A premium should be put on policy measures that boost long-term competitiveness—including actions to improve market contestability and promote a sound regulatory framework”, it explained.
“Third, African policy makers need to seize the opportunities that are available to them during the low carbon transition”, it concluded.
As the debate on the proposed new tax bills rages on, continuing from part one of this article, the opposition to the new tax bills is by day getting stiffer.
The Ghana Upstream Petroleum Chamber has also warned that, the proposed Growth and Sustainability Levy by government could trigger litigation through the international court as it breaches provisions in the petroleum agreements.
According to the Chamber, it is worried that the government is bent on going ahead to breach these provisions to raise money from what it describes as “creeping taxation”.
In a statement issued by the Ghana Upstream Petroleum Chamber, last week, asked government to reconsider the introduction of the growth and sustainability levy, especially at a time the country is struggling to attract new investments in oil and gas exploration.
The Chamber added that “the industry considers this levy as the latest in a series of crippling taxation that is affecting the economic balance of petroleum agreements.”
Some of these taxes include, “ the COVID-19 Recovery Levy, Ghana Education Trust Fund Levy, National Insurance Levy, the 1% Local Content Fund Levy and several others,” the Chamber disclosed.
It added that “this new tax disregards the importance of the preservation of contract sanctity to the promotion of new investment.”
The Chamber was also worried that “unpredictability of the fiscal terms of our petroleum agreements will discourage new oil and gas investment at a time when financial institutions are curtailing investment in fossil fuels.”
The better way out
In considering some alternative decisions and policies that government should be focusing on instead of the cheap way of introducing and reviewing tax policies frequently, hurting the already overburdened tax-compliant individuals and companies, the experts provided a better way out.
Doubling effort on digitisation of the economy
Professor Ebo Turkson urged government to ramp up its digitalization drive to put all the tax and invoice requirement on a single government platform to ease business at the ports.
He emphasised that, “For instance, the number of government agencies for instance at the ports that are collecting revenue for government, can we reduce the number of them and still getting more of these revenue. Because you see, the more you put in place some of these institutions and these taxes, the easier it is for people to evade those taxes for convenience. So let the process be so straightforward so that tax payers will comply easily so that it doesn’t waste their time,” he said.
Reversing tax incentives and tackling IFFs
In his suggestion, Dr Ali Nakyea wants government to reverse some tax incentives and block illicit flows of cash from the public purse.
“You are granting incentives to certain sectors that they shouldn’t pay tax, is it time to ask them to come and help you contribute? If it is the 25 they cannot pay, can you bring in 5%, 10%? That is one area.
“The second one is trying to look at what we refer to as illicit financial flows that is complete non-disclosure. If you take the Ghana Integrity Initiative and CHRAJ reports, it will tell you that Ghana is losing US$3 billion dollars annually from corruption. Is that not exactly the amount we’re looking from IMF.
“If you take ACEP report, it tells you we’re losing US$2 billion from illegal mining. If you add the two, we’re at US$5 billion. We’ve not come to under invoicing and other things at the port. So do you need IMF/ we’re talking about $5 billion a year now, and you’re going to get US$1 billion a year from IMF,” he said.
Dr. Ali Nakyea called on the government to close the tax gap and rope in much of the informal sector and suggested that, the second schedule to the Income Tax Act 2015 (Act 896) be implemented.
“Because it brings up the idea that why can’t we allow the informal sector to give say the 2% 3% of their turnover like the growth and stablization levy is saying and that is your total tax for VAT and income tax at least you are also contributing something then we could have opened the net, we would have widened the net,” he said.
Cutting government expenditure
Additionally, Dr. Ali Nakyea suggested that, instead of increasing taxes, the government should have instead explored avenues for drastically reducing their expenditure.
He said the government could have started with postponing some non-urgent projects to provide the much needed fiscal space for government maneuvering.
“If your income is to meet expenditure, are there no expenditures that may be postponed or suspended to give you enough room to maneuver when things are [hard] – you can’t continue. Indeed, most of the calls that are being made are not on cancellation entirely of some of the projects, people are even asking, can you suspend some of them that are not so immediate and pressing and when things normalise we come back to it. I don’t think that is asking too much,” he said.
He added that the government could have also explored ways to close the country’s widening tax gap instead of increasing taxes.
“For me it’s that are we efficient and effective in the collection of the existing taxes? Because we studies by Opoku and Tanaka in 2020 showing us what we call the tax gap, the difference between the actual taxes we collect and the potential we can collect. How have we closed that gap?
“Because the more taxes we introduce, the wider the gap will be if compliance is that low or non-existent. So I believe if we’re able to mop up excessively what exists and we’re not able to achieve then we can start thinking about is it that we don’t have enough? We have more than enough taxes. The …tax we have are competitive in the sub-region, and so why are you increasing it?” he said.
Tax education
Prof Turkson Ebo proposed enough public tax education to promote a tax compliant attitude in Ghanaians.
According to him, promoting a tax compliant attitude would support the government’s tax revenue mobilisation agenda rather than the introduction of new tax measures. He explained that increasing taxes without increasing tax compliance amongst Ghanaians would be counterproductive and potentially injurious to the growth of the private sector.
“One way the government could encourage Ghanaians to be tax-compliant was to show the citizenry that the government was making good use of their taxes.
“We need to ensure that there is enough public tax education and also we should show the public sector, the government machinery must show the average Ghanaian that we’re making good use of your money to support the public sector to create jobs for your kids or the young men and women of this country to get into jobs.
“When you do that and people see that the revenue that you get from the taxes are plowed back into the economy to help them, people will be willing to pay taxes. Businesses will be willing to pay more taxes, if for instance you discuss with them and increase their after profit tax by a little bit,” he said.
The Ghana Revenue Authority (GRA) says, in a special exercise to seal revenue losses, recovered in excess of GHS85 million revenue within a five month period between October 2022 and February 2023.
This comes at the time the managers of the economy are in ‘mad-rush’ to increase domestic revenue mobilisation as one of the conditions for the pending International Monetary Fund’s Board Approval for a US$3.0 billion Balance of Payment Support.
An economist has estimated that, Ghana loses more than GH¢5.6 billion annually in tax revenue. Blockage or reducing excessive bleeding of domestic revenue collection have been a discussion by many; including financial and economic experts, international development partners, civil society groups and the government actors. However, the discussion becomes as usual, a ‘talk-show’ without any significant achievement in revenue leakages blockage. This forces the government to resort to the cheap way of increasing domestic revenue by introducing new taxes or reviewing upwards existing taxes and levies almost every year. Just last week, the government proposed new taxes which have received strong opposition. But, the economist has passed judgment that, until government blocks revenue leakages that have bedeviled the country’s revenue mobilisation system for ages and creates an environment that encourages tax payers to be tax-compliant, the country will continue to lose large volumes of revenue yearly.
Credit: OMG
“We need to build systems in place to ensure that we keep to the barest minimum the leakages that leave the revenue stream. And it’s very very important that we do this”, Professor Ebo Turkson indicated in an interview following the attempt by government’s move to introduce new tax measures.
Citing the situation at Ghana’s ports and habours, he stated that the use of various government agencies to collect taxes and invoices has created space for people to evade taxes rather than comply due to how complicated the system is.
In anticipation to bring in more revenue, the Ministry of Finance, last week, laid three revenue papers; the Income Tax Amendment Bill, Growth and Sustainable Bill and the Excise Amendment Bill to parliament for consideration to be passed into law after approval from the Finance Committee of Parliament for it to be considered by the house. The ministry is optimistic that these revenue bills will bring in almost GH¢5 billion to support the economy. But, unfortunately the general House approval of the bills may suffer setbacks as key actors in the economy are against the proposals.
The 80:20 paradox
Apparently, a tax Consultant believes that government’s move to introduce new taxes will deepen the tax net instead of widening it. According to him, the government’s new tax measures are merely entrenching Ghana’s 80:20 tax paradox where 80% of tax payers contribute 20% of tax revenue while 20% of tax payers contribute 80% of tax revenue.
“The existing tax payers we know who are complying, if you increase taxes or you introduce taxes, the same segment of people continue to carry that burden because we have a paradox in the revenue mobilisation sector in Ghana where we say 80:20 paradox. 80% of tax payers bring in only 20% of revenue and 20% of tax payers bring in 80% of tax revenue”, Dr. Abdallah Ali Nakyea said in an interview.
The lecturer at the University of Ghana Law School explained; “Who are these 20%? The multinationals, the banks, financial sector, these are the same people we’ve saddled with national reconstruction levy, we’ve saddled them with financial sector recovery levy and now we’re talking about growth and sustainability levy. The 80% we all keep saying, the informal sector is between 70 and 80%, what is their contribution to revenue?. So if we’re even able to nurture the 80% non-compliant to come up to 60% you can imagine the revenue we can make.”
The tax expert further refuted that, the IMF had not made the introduction of new taxes a requirement for board approval; rather, it had urged the government to develop its fiscal space.
“I don’t think that anybody will tell you bring in taxes before I give you a loan. If he tells you I want to see how you’re developing your fiscal space, has he told you to increase taxes?” he said.
Anti-Business taxes
In his contraction, the Chief Executive Officer of the Ghana National Chamber of Commerce and Industry, Mark Aboagye, has noted that adding more taxes to an already tax-burdened economy will be counter-productive to revenue generation. Indicating that, the introduction of new tax measures to ramp up revenue generation is anti-business and should it be passed would collapse many businesses.
Reacting to the impasse between the Majority and Minority side of parliament concerning the course of proceedings on the new tax bills, the industries leader expressed extreme happiness that the tax measures were not passed and has called for them to be withdrawn from the house for wider consultation.
“Extremely happy, extremely excited because those taxes are anti-business, and I have no doubt in my mind that if it’s passed it’s going to cause the collapse of a lot of businesses, and businesses are going to produce under capacity. If you look at the environment and already the taxes that we have, adding up was going to be harsh for businesses so we’re happy that it’s not been passed.
He explained that in the government’s quest to generate revenue, it was crushing the very industries that would provide the revenue.
He said, should the tax measures be passed, “it’s going to cause unemployment.”
“We’re killing the micro, the basics for us to get to all these macro policies to work, we’re weakening it. So for me, we’re happy it’s not being passed, they should withdraw it, consult the business community, the Chamber is ready to work with them, get them convinced that these taxes what extent are they going to impact on your businesses, [also] get their input into the taxes,” he said.
Consequently, Prof Turkson in the interview described the government’s yet-to-be-passed tax measures as nuisance taxes, warning that, should they be maintained businesses would suffer in an already harsh climate.
“When you begin to introduce some of the taxes that become input taxes before you go and tax their profit you’re hurting them. You’re trying to tell them that you’re increasing their cost of production when you should rather be reducing their cost of production for them to produce more, make more profit and then you go and tax after they declare their profit. And that is what the businesses are complaining about, that is what we’ve called nuisance taxes in the past. And why they’re coming back I do not understand,” he said.
Tax Incentives to attract investments
Prof Ebo Turkson further explained that, most investors are least enthused by the government’s tax incentives as they are more concerned about the economic environment the government creates for them to run their business smoothly, thereby urging government to move beyond using tax incentives to attract foreign investment.
“Ghana should move beyond using tax incentives to attract investment. When you ask those who bring in investments they’ll tell you that the least of the incentives is the tax incentives that we give them. They need a business environment that is conducive, so don’t give them any tax exemptions. Give them a business environment that is conducive for them to come and produce here and tax them, they’ll pay,” he said.
The debt-stressed economy
Meanwhile, the Government of Ghana is currently facing serious liquidity challenges and is unable to service its debts.
The debt-stressed Ghanaian economy is in dire need of revenue to be able to survive pushing the government to resort to debt restructuring. The government concluded a domestic debt exchange programme in February this year and looking forward to an external debt relief. In early part of this year, Ghana asked official creditors for a debt restructuring under the G20 Common Framework Treatment. The IMF has said a comprehensive debt restructuring is a condition of its support.
The country has been struggling to refinance its debt since the start of 2022 after downgrades by multiple credit rating agencies on concerns it would not be able to issue new Eurobonds.
The Bank of Ghana’s January 2023 economic and financial data summary revealed that total public debt stock has shot up to GH¢575.7 billion at the end of November 2022, according to new data released by the Bank of Ghana.
The new debt figure brings Ghana’s debt to Gross Domestic Product (GDP) ratio to 93.5% from 75.9% in September 2022.
The external component of the country’s public debt shot up to GH¢382.7 billion in November 2022, equivalent to 62.1% of GDP. This was from GH¢271.7 billion in September 2022.
However, according to the Bank of Ghana, the total public debt is defined as Central Government debt excluding State Owned Enterprises/Special Purpose Vehicles Debt.
Also, according to Trading Economics’s global macro models and analysts expectations, government Debt to GDP in Ghana is expected to reach 86 percent of GDP by the end of 2023. In the long-term, the Debt to GDP is projected to trend around 88% of GDP in 2024 and 90% of GDP in 2025.
Generally, Government debt as a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.
Part two of this article details the better way out of the annual ritual of introducing new or reviewing existing tax policies to overburden the already tax compliant individuals and institutions.
As government of Ghana looks for sustainable way to manage its debt, it has been urged to strengthen its industrialization policies.
An economist believes that, as Ghana moves to negotiate with China for debt forgiveness, the debt stressed country needs proactively to industrialize the economy in order to withstand external economic shocks.
Ghana’s economy suffered the shocks of COVID-19 and the Russian-Ukranian war as well as the skyrocketed petroleum price on the world market coupled with over-borrowing and mismanagement of public funds. These had a toll on the local currency, which depreciated more than 50 percent last year to the major international trading currencies with inflation breaking all time records in more than two decades to peak around 54 percent. These have led the country to restructure its debt which has crossed 100 percent of Gross Domestic Product (GDP). However, the economist diffused perceptions that China may seize the opportunity to take over the local industries if the negotiations are successful.
“Do we as a local economy immediately have capacity to produce the things that we ordinarily import from China?”, An economist and currency analyst at GCB Capital Limited Courage Boti said. “Our industrialization policies are not up and running. So I don’t see what China will demand from us differently from what we have in place”, he added.
The Finance Minister, Ken Ofori-Atta, last week disclosed that, as part of government’s effort for external debt relief, its planned high-level meeting with Chinese creditors over Ghana’s debt restructuring which has been postponed to late March 2023.
Meanwhile, Economist Courage Boti argued that the perception of importation of inferior goods from China is subjected to the purchasing power of the importers.
“In a bargain, concessions must be made .I think at this point in time the most pressing issue is that our debt is not sustainable and we must find a way to return it to sustainable path. Negotiating with them will mean that we’re trying to get them on our side so that they could cooperate with debt restructuring,” he said.
“The question is, it will come at what cost? Will it mean dampening of Chinese goods?,” He quizzed.
Again the Chinese goods on our markets: the quality argument and associated perceptions, our traders decide what they bring in and so the quality we talk about are determined by what we are willing to buy,” he stated.
A finance analyst has said, from the way the finance minister is going about with the Domestic Debt Exchange program, is making the whole structure and procedure confusing.
The analyst explains that, Ken Ofori-Atta has done two turnarounds in less than a week on the structure and procedure for the debt exchange.
After a crunch meeting between government and organised labour, forthnight ago, after the later had threatened a nationwide industrial action if pension funds are not exempted from the exchange program, the finance minister announced that pensioners’ money are individuals’ funds that are managed by Trustees and as such should also be exempt same as an Individual funds invested in government bonds which were already exempted.
A day later after exempting the pension funds, the Mr Ofori-Atta announced new modalities for the exchange program but now including individual funds invested in government bonds.
“So now, on what basis are pensioners’ funds invested in government bonds exempt?”, Alex Mould quizzed.
“I am confused even more than I was yesterday. It is like studying Thermodynamics. The more you learn the less you know!!”
According to a senior fellow at IMANI Africa, Bright Simmons, the debt program represents, undoubtedly, the largest single transfer of wealth from the Ghanaian private sector to the government in a single fiscal measure, in living memory.
It is equivalent to doubling taxes on the entire corporate sector and giving the bill to only banks, insurance companies, pension funds and a few other investor categories to pay.
Due to the Ghana-IMF programme, the government has announced measures to deal with the economic crisis including the debt exchange programme, freezing of public sector employment, and a haircut on all government bonds among others.
A Memorandum of Understanding has been signed by the Ministry of Employment and Labour Relations and organised labour last week to exempt pension funds under government’s Domestic Debt Exchange (DDE) Programme.
The exemption was announced after a meeting between the Government of Ghana (GoG) represented by the Ministry of Finance, Ministry of National Security and the Ministry of Employment and Labour Relations, on one hand and Organised Labour/Associations, on the other hand.
The meeting was premised on threats of nationwide industrial actions by organised labour on demand for exempting their pension funds from the government’s unpopular DDE. Subsequent to this, the National House of Chiefs called on the government to engage the labour unions on the “difficult measures” being put in place to “revive the ailing economy” to enable them to appreciate the rationale behind it.
“Government and Organised Labour shall “however work together to explore mutually beneficial options within the debt sustainablility limits and to also promote macroeconmic stability and economic recovery in the spirit of social partnership,” a statement issued at the end of the government-organised labour meeting posited.
Organised Labour had earlier served notice of a nationwide strike from next week, Tuesday, December 27, 2022, due to government’s refusal to exempt pension funds from the Debt Exchange Programme.
The Secretary-General of Organised Labour, Dr Anthony Yaw Baah, made this known at a press briefing on Monday, 19 December 2022.
He said the strike has been occasioned by the government’s decision to introduce a debt exchange programme.
According to him, the strike will be in force until the government exempts pension funds from the planned debt exchange programme. “We are asking the government to exempt us from the debt exchange programme.”
Due to the IMF programme, the government has announced measures to deal with the economic crisis including the debt exchange programme, freezing of public sector employment, and a haircut on all government bonds among others.
Meanwhile, speaking at the National House of Chiefs meeting, last week, in Kumasi, the President of the House Ogyeahoho Yaw Gyebi II noted that these measures have caused an uproar on the labour front and there is a need for the government to engage them.
He also called on the leadership of the labour front to dialogue with the government to enable it to go through the International Monetary Fund (IMF) programme successfully.
Ogyeahoho Gyebi II, who doubles as the Paramount Chief of the Sefwi Anhwiaso Traditional Area also appealed to Ghanaians to support the government to roll out the IMF programme successfully.
Individual bondholders, Treasury Bills investors are exempted from the government’s debt restructuring programme, Finance Minister Ken Ofori-Atta has announced.
Last week, government invited holders of domestic debt to voluntarily exchange approximately GHC137 billion of the domestic notes and bonds of the Republic, including E.S.L.A. and Daakye bonds, for a package of New Bonds to be issued by the Republic.
To this effect, bondholders like pension funds, banks and insurance firms will have to exchange their bonds for one that will earn zero interest next year. The government is currently negotiating a programme with the International Monetary Fund for a $3-billion credit facility programme, thus, necessitating the debt restructuring exercise. However, individual bondholders are excluded from the arrangement.
“Under the programme, domestic bondholders will be asked to exchange their instruments for new ones”, Mr Ofori-Atta announced Sunday evening (4 December 2022), adding: “Existing domestic bonds as of 1st December 2022 will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037”.
Also, “the annual coupon on all of these new bonds will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. Coupon payments will be semi-annual”.
However, Director of Business Operations of Dalex Finance and Leasing Company has called upon bondholders to tell the government to reduce its expenditure before they sign on to the debt exchange programme.
According to Joe Jackson, institutional bondholders can sign a deal with the government that requires the latter to also reduce its size.
“…as much as I think they can’t do much about it and they have to accept it, this is also a unique opportunity to bring the government to the table and say, if I’m going to accept it, then you need to reduce your expenditure. You need to reduce the size of government, reduce the number of ministers, hangers on and appointees who sit all over the place.” he said.
He stated that the programme is a golden opportunity to get the government to listen to some of the things citizens have been asking for.
As a result, Mr Jackson called on the unions who are considering the offer to make something out of the opportunity presented by ensuring government cuts down on its expenditure.
“If we are going to take this amount of pain, I want to see you sharing in the pain and I don’t care that it may not necessarily change the bottom line that much, but the optics matter, the sharing matters,” he said.
It would be recalled that government on December 5, 2022, announced a debt restructuring measure.
According to the Finance Minister, the objective is “to invite holders of domestic debt voluntarily exchange approximately GHC137 billion of the domestic notes and bonds of the Republic, including E.S.L.A. and Daakye bonds, for a package of New Bonds to be issued by the Republic.”
Bondholders like pension funds, banks and insurance firms will have to exchange their bonds for one that will earn zero interest next year.
However, some of the institutions such as the Trade Union Congress, Ghana Medical Association, the Chamber of Corporate Trustees of Ghana among others have already rejected the offer.
Meanwhile, the Deputy Finance Minister, Dr John Kumah has stated that institutional bondholders who reject the programme will have themselves to blame since they will not enjoy the benefits that comes with it.
According to him, interested bondholders have a 10-day period starting from Monday, December 5, 2022, to sign on to the programme.
The government has anchored the 2023 budget on a seven-point agenda aimed at restoring macroeconomic stability and accelerating economic transformation as articulated in the Post-COVID-19 Programme for Economic Growth (PC-PEG).
According to the Finance Minister Ken Ofori Atta, these comprise an agenda to: aggressively mobilize domestic revenue; streamline and rationalise expenditures; boost local productive capacity; promote and diversify exports; protect the poor and vulnerable; expand digital and climate-responsive physical infrastructure; and implement structural and public sector reforms.
“To achieve these, there are three critical imperatives: successfully negotiating a strong IMF programme; coordinating an equitable debt operation programme; and attracting significant green investments”, he said.
This, according to he Minister will enable the government to generate substantial revenue, create needed fiscal space for the provision of essential public services and facilitate the implementation of the PC-PEG programme to revitalise and transform the economy.
The government plans to undertake the following actions, initiatives, and interventions under the seven-point agenda; increase the VAT rate by 2.5 percent to directly support our roads and digitalization agenda; ast-track the implementation of the Unified Property Rate Platform programme in 2023; and review the E-Levy Act and more specifically, reduce the headline rate from 1.5% to one percent (1%) of the transaction value as well as the removal of the daily threshold.
Other are, cut the imports of public sector institutions that rely on imports either for inputs or consumption by 50% and will work with the Ghana Audit Service and the Internal Audit Agency to ensure compliance; support the aggressive production of strategic substitutes, including the list disclosed at the President’s last address to the nation; support large-scale agriculture and agribusinesses interventions through the Development Bank Ghana and ADB Bank; introduce policies for the protection and incubation newly formed domestic industries to allow them to make the goods produced here competitive for local consumption and also for exports.
The government will expand the productive capacity in the real sector of the economy and actively encourage the consumption of locally produced rice, poultry, vegetable oil and fruit juices, ceramic tiles among others; to pursue efficiency in Government expenditures, we will among others: implement the Government directives on expenditure measures; integrate public procurement approval processes with GIFMIS to ensure that projects approved are aligned with budget allocation; review key government programmes to reflect relevance, promote efficiency, and ensure value for money; and review the efficiency of Statutory Funds
It will also undertake major structural reforms in the Public Sector by reviewing the operations of 36 State-owned Enterprises, 8 Special Purpose Vehicles, 90 Joint Venture Companies, 38 Regulatory institutions, 68 Statutory Bodies and 6 Subvented Agencies; enforce compliance with a legal and regulatory framework on foreign exchange; initiate measures to overhaul the tax structures in the extractive industry; expand the gold purchase programme by the Bank of Ghana to support FX Reserve accumulation, and promote an LBMA-certified gold refinery in Ghana and promote local currency stability.
The government’s revenue underperformance has complicated fiscal policy implementation in the country, according to the Bank of Ghana’s Monetary Report.
The report said persistent uncovered auctions and portfolio reversals by non-resident investors continue to pose risks to financing of the budget, resulting in monetization of the budget deficit by the central bank.
So far, financing of the budget has predominantly been from the banking sector with the central bank absorbing a larger share.
The budget implementation, for the first nine months of 2022, recorded an elevated overall cash deficit of 6.4 percent of GDP, against the revised programmed target of 5.0 percent of GDP.
Total receipts of GH¢51.49 billion representing 8.7 percent of GDP fell short of projected target of GH¢60.08 billion which was 10.2 percent of GDP, and represented 85.7 percent of the budgeted estimate. Total payments of GH¢89.04 billion representing 15.0 percent of GDP was almost on target, representing 99.5 percent of GH¢89.46 billion or 15.1 percent of GDP.
The deficit of GH¢37.56 billion, together with net foreign loan repayments of GH¢3.54 billion, created a resource gap of GH¢41.1 billion, which was financed from domestic sources and use of resources from the stabilization fund.
The stock of public debt at the end of July 2022 stood at GH¢402.4 billion, showing an increase of GH¢50.6 billion over the end December 2021 stock of GH¢351.8 billion. In terms of GDP, the total public debt as at end-July 2022 was 68.0 percent, compared with 76.6 percent recorded in December 2021.
The domestic component was GH¢190.2 billion (32.1 percent of GDP), representing a year-to-date increase of 4.7 percent and accounting for 47.3 percent of the total public debt, lower than the 51.7 percent recorded in December 2021.
The increase was driven mainly by increases of GH¢7.5 billion and GH¢752.5 million in the medium and long-term instruments respectively, which was offset by a decrease of GH¢0.4 million in the short-term instruments.
In terms of the holding structure, the non-bank and banking sectors recorded year-to-date increases of GH¢11.7 billion and GH¢2.4 billion respectively. However, the non-resident investors holdings decreased by GH¢5.6 billion over the period.
On year-to-date basis, total external debt, in US dollar terms, decreased by US$303.4 million to US$28.0 billion. However, due to exchange rate effect, total external debt increased by GH¢42.1 billion to GH¢212.1 billion (35.8 percent of GDP) at the end of July 2022. External debt also constituted 52.7 percent of total public debt at the end of July 2022, compared to 48.3 percent in December 2021.
