Professor of economics and finance, Godfred Bokpin has stated that tax revenue can be increased from the GH₵37.8 billion collected in 2018 to a whopping GH₵89 billion annually if government rationalises the many tax exemptions that are granted multinational companies operating in the country.
He said the GH¢89 billion in taxes would mitigate the debt-to-Gross Domestic Product (GDP) ratio, but the 2019 projection of GH¢45 billion is woefully inadequate.
Tax-to-GDP ratio in Ghana low
He noted that the tax-to-GDP ratio in Ghana is 17%, compared to a 19.1% average in Africa and 22.8% in Latin America.
Speaking at a lecture organised by IMANI Centre for Policy and Education, Prof Bokpin said the country was losing more revenue in tax exemptions to multinational businesses that were in tax payment positions.
He spoke on the topic ‘Is Ghana’s Debt Sustainability under Serious Threat after the International Monetary Fund Programme?’
6.5% of GDP fiscal deficit over the last 30 years
Professor Bokpin disclosed that Ghana’s average fiscal deficit over the last 30 years has been 6.5% of GDP.
Debt sustainability and debt affordability issues
He explained that the size, persistence, source, and financing of the deficit creates problems for the economy and has implications for debt sustainability and debt affordability.
He explained that fiscal deficit and fiscal unsustainability are intertwined.
He said over the years, the country had struggled to manage its debts because of the inability to generate the desired direct taxes, which had become a bane to development.
GH¢198 billion debt at end of 2018
The country’s total debt at the end of 2018 was GH¢198 billion as of March 2019, which is 57.5% of Gross Domestic Product.
Hiding behind rebasing to borrow not prudent
Professor Bokpin urged government to act prudently by not hiding behind the shadow of rebasing of the economy to borrow more, which did not necessarily increase cash flow to the country’s growth.
He said that the rebasing of the economy, which usually gives our leaders the licence to go borrowing more, creates a wrong impression of Ghana’s debt sustainability position.
He said, “Rebasing the economy dwarfs debt to GDP, but other areas [of the economy] betray us hugely”. He stressed that rebasing of the economy does not necessarily increase cash flow to the country.
He went on to say that the need to service existing debts has meant that priority spending has suffered.
How best to use borrowed money
He said it was good for a country to borrow, but the money must be used for its intended purpose and not on consumption of goods and services, and employees’ compensation.
Evenly distributed cost of fiscal consolidation
He called on government to ensure that the cost of fiscal consolidation was evenly distributed to all and sundry by expanding social safety net programmes towards restoring the real income of the poor.
Constraints to sustainable fiscal consolidation
According to him, achieving sustainable fiscal consolidation has been constrained by revenue challenges and expenditure rigidities.
$2bn lost to trade mis-invoicing
Professor Bokpin also said that Ghana loses over $2bn annually through trade mis-invoicing.
This, he said, was equivalent to 67% of the recent Eurobond issue and 70% of the budget deficit for 2019.
“To remedy this situation,” he said, “all we need to do is rationalise the exemptions we give to foreign companies. The companies are actually in tax-paying positions.”
He sounded a note of caution, saying, “Any country that does not make provisions toward capital expenditure either does not have a future or has given up on that future.”
Unsustainability of debt pushes Ghana into IMF programmes
He said that, historically, the main reason why Ghana has gone to the IMF has been the unsustainability of her debt, which today stands at $21.1bn, representing 55% of tax revenue.
The professor said the country’s tax collection ability did not work well in election periods, given the interest to satisfy all sectors of the economy for fear of losing votes.
He said, “In the past, it took two years for a government to clear the country’s total debt upon assumption into power, but now, it takes an average of four years, attributing the situation to indiscipline fiscal spending during elections.”
He noted that in election years, besides governments’ overspending, they also fail to generate the projected revenues which are needed for development. The effects of this, he said, result in economic imbalances three years after the elections have been carried out.
He, therefore, advised government to ignore next year’s elections and focus on collecting more taxes.
He called on Ghanaians to adopt a monitoring mechanism to ensure that governments did not spend beyond their limit.
He also said that government’s special initiatives like ‘Planting for Food and Jobs’, Nation Builders’ Corps, teaching and nursing training allowances, the Zongo Development Fund, and the Special Prosecutor’s Office have led to an increase in expenditure rigidities.
Ghana is 4th highest frequenter of IMF in Africa
Professor Bokpin explained that with 16 IMF programmes on its portfolio, Ghana was the fourth highest frequenter of the IMF’s corridors. She was only behind Liberia, Sierra Leone and Mali. He disclosed that since its first bailout programme in 1965, Ghana goes to the IMF every 3.8 years or once every four years on average.
He related the history of Ghana’s visits to the IMF, which first happened in 1965 under the first President of Ghana, Kwame Nkrumah. He, however, rejected the terms of the IMF, as they were contrary to his expansionist drive.
The 2015 IMF programme expired in December 2018.
He explained that in 1965, deteriorating economic conditions occasioned by unfavourable developments in the commodity prices saw the public debt ballooning from a negligible amount to over $500 million by 1965.
Inflation also spiked from 0.95% in 1964 to 26.4$ in 1965. This forced the Nkrumah government to approach the IMF. Nkrumah, however, rejected the IMF’s terms.
Once the public debt started climbing, the IMF was called upon to intervene in 1966. This was after Nkrumah’s overthrow.
At the turn of the century, Ghana’s debt levels had reached dangerous levels, with debt approaching 130% of GDP from 32% in 1990.
This forced the Government of Ghana to go for the Highly Indebted and Poor Country (HIPC) programme in 2004 and the Multilateral Debt Relief Initiative (MDRI) in 2004.
Following these two programmes, Ghana’s debt-to-GDP ratio fell to 26% in 2006.
History of IMF visits
May 17, 1966
May 25, 1967
May 28, 1968
May 29, 1969
January 10, 1979
August 3, 1983
August 27, 1984
October 15, 1986
November 6, 1987
November 6, 1988
June 30, 1995
May 03, 1999
May 9, 2003
July 15, 2009
April 3, 2015
Source: The Finder