Research group, Institute of Fiscal Studies (IFS) has warned that the country’s economy is in a fiscal mess but the Akufo Addo administration is hiding the fact by playing populism and blaming the mess on COVID-19.
Addressing the media on the fiscal position of the country, the Director at IFS, Dr Said Boakye, said the country’s fiscal position was already in a very precarious state in 2019 even before COVID 19 struck.
In a rather gloomy prescription, Dr Boakye said the Akufo Addo administration has already driven Ghana into a debt trap by the end of 2019, since borrowing was no more a choice but an imposition by the fiscal state of the country.
According to him, there were clear signs that showed a country that was poised to struggle fiscally if even no disaster occurred.
“Simply put, by the end of 2019, the government’s financial position was such that the ability of the government to enhance economic growth and development through infrastructural development or even maintain the existing ones was enormously curtailed,” Dr. Boakye explained.
“This is because in 2019, the government was able to collect GH¢53.38 billion in total revenue and grants, representing only 15.3 per cent of GDP and thus 1.8 percentage points below the initial budget forecast of 17.1 per cent of GDP.”
“On the other hand, the government spent as much as GH¢31.01 billion to service its debt alone (GH¢19.77 billion in interest payment and GH¢11.24 billion in principal repayment — amortisation). The government also spent GH¢22.22 billion as employee compensation in 2019. Therefore, the sum of these two expenditure items alone stood as high as GH¢53.23 billion, representing 99.7 per cent of total revenue and grants, which is virtually the entire total revenue and grants,” he said.
Since the pandemic hit the country, the government has taken certain fiscal policy actions which include the announcement of a 15 per cent salary increase for civil servants in March 2020, provision of free water and electricity, and the reduction of the Communication Service Tax from nine per cent to five per cent, effective September 2020.
Dr Boakye described these policy actions as head scratching decisions.
“What is actually driving these head-scratching fiscal decisions and choices in the face of COVID -19, whose end is still not yet known?
“Is the government not aware that the country’s fiscal position was already in a precarious state before the pandemic hit? Is the government again not aware that it was too much borrowing that landed the country in the state in which it found itself in the 1970s and 1990s, which caused the country to call on the IMF and the World Bank for an economic bailout in the 1980s and debt forgiveness in the 2000s?” he asked.
He said the 2020 revised budget clearly demonstrated that the country’s fiscal position had dramatically worsened.