IFS cautions govt over excessive spending


The Institute for Fiscal Studies (IFS), a think tank, has cautioned the government over its excessive spending, especially in the run-up to the December 2020 general election.

It said the country’s already “bad fiscal position” at the end of 2019, which had been worsened by the COVID-19 pandemic, was being compounded by “the head-scratching choices” of the government.

In the think tank’s analysis of the mid-year budget review, it listed some of the choices as the 15 per cent salary increase for civil servants in March and free water and electricity for all instead of only vulnerable and the planned reduction of the communication service tax.

Addressing a press conference in Accra on Thursday, Research Fellow of IFS, Dr Said Boakye, suggested that those freebies should be cancelled to safeguard the socio-economic development of the country beyond the upcoming elections.

“Refrain from engaging in fiscal populism despite the looming 2020 elections, in order not to compound the country’s fiscal problem. Indeed,  a critical  analysis  of the economic  history of Ghana reveals  the fiscal populism  has been  one of the  main causes of  the country’s  recurring fiscal and  economic distress since independence,” he said.

He explained that at the end of 2019, the country’s total revenue collected and grants amounted to GH₵53.38 billion, representing 15 per cent of Gross Domestic Product (GDP) and 1.8 percentage points below the initial budget forecast of 17. 1 per cent of GDP.

However, he said, the government spent GH₵31.01 billion to service its debts and GH₵22.22 billion as employee compensation, which meant that the two expenditure items totalling GH₵53.23 billion represented 99.7 per cent of total revenue and grants.

As a result of this, he said, monies for other expenditure items, including goods and services, comprising most of the Free Senior High School- related expenditure, capital expenditure and earmarked /statutory transfers, had to be borrowed.

Dr Boakye said the total debt-serving expenditure and employee compensation in the 2020 budget were projected at GH₵65.5 billion, thereby exceeding the projected GH₵53.7 billion total revenue and grants for 2020 by GH₵11.8 billion.

“Therefore, in 2020, the government has to borrow to the tune of GH₵11.8 billion before it can fully service its debts and pay for employee compensation alone. This is unprecedented in the Fourth Republic and perhaps in the country’s fiscal history,” he said.

To escape the said fiscal predicaments, he suggested that the country should immediately seek debt reliefs, including debt forgiveness, from its major creditors so as to minimise the country’s debt service; and generate more revenue, especially from the extractive sector.

The Executive Director of IFS, Professor Newman Kusi, said the institute was not against borrowing but was concerned about how it was being spent and therefore advised the government to utilise the limited funds judiciously.

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