The Institute of Economic Affairs has advised the government to take bold and innovative measures to mobilise resources and allocate them judiciously to support long-term sustainable growth.
According to the IEA, the country’s failure to raise enough domestic revenue has increased debt.
The IEA in its expectations ahead of the 2022 budget presentation, it said “Ghana has a serious challenge with domestic resource mobilization. Year after year, domestic revenue falls short of budget targets. Meanwhile, the revenue targets themselves are also not sufficiently ambitious vis-à-vis the country’s needs.”
“The consequence of failing to raise enough domestic resources is that we have to resort to borrowing, which has caused our debt to continue to mount. Using the 2021 budget as an example, tax revenue and total revenue were projected at ¢56 billion ($9.7 billion) and ¢72 billion ($12.4 billion) respectively. These figures are small when juxtaposed with our huge economic and social needs. Measured as ratios of GDP, which are usually used for international comparisons, tax revenue and total revenue were 12.7% and 16.5% respectively”, it stressed.
On the issue of Covid-19 and its impact on the economy, the IEA said
‘we must admit that Covid-19 has adversely affected revenue generation. However, even before Covid-19, our revenue performance was very much similar to that of 2021. When we compare our revenue performance with that of our middle-income peers (MIPs), we see that we significantly fall short. The average tax revenue/Gross Domestic Product and total revenue/GDP ratios for Ghana compare unfavourably with our MIPs’ average of about 25% and 30% respectively.”
The IEA also proposed some measures that could help the country scale up domestic resource mobilisation to support development.
They include addressing illicit financial flows, review of tax exemptions, eradication of tax fraud, among others.
On expenditure, it said “For Ghana, government expenditure is grossly skewed in favour of recurrent expenditure, popularly referred to as ‘consumption expenditure,’ and at the expense of capital expenditure (CAPEX), which is needed for growth. In the 2021 Budget, recurrent expenditure was projected at 20% of GDP, while CAPEX was projected at 4% of GDP. The ratio of CAPEX-to-GDP is unacceptably low. Indeed, as a developing country, we should be allocating 10-15% of our GDP to CAPEX. That is what will allow the economy to grow and move the country quickly up the development ladder”, the economic and policy think tank noted.
The IEA further called for a strong industrialisation drive to transform the economy away from production of low value-added commodities into high value-added production to accelerate economic growth, growth in living standards and the fight against poverty.
“There is an urgent need to transform the economy into a modern, resilient, self-sufficient and “beyond-aid” economy. While the need for economic transformation has long been recognized by our governments, the issue has largely been paid lip service, without concrete actions being taken to bring it to fruition”, it said.