The Ghana Statistical Service will soon announce outcomes of its economy rebasing exercise using 2013 as base year. Rebasing can be described as a statistical exercise undertaken to reflect the contributions of all economic sectors in more current prices.
The caveat remains that rebasing outcomes are not on account of current productivity trends and direct government policy decisions within an economy.
Though rebasing creates an artificial expansion of the monetary size of an economy (i.e. higher GDP leading to higher per capita income and reduced Debt-GDP ratio), this non-productive expansion is not an impetus for rash and increased borrowing.
Exploiting this mere statistical effect (fiscal space) must be prudently measured against tax revenue to GDP ratio to ensure debt sustainability.
Notably, Ghana’s tax to GDP ratio dipped further from 12.4% in October 2017 to 7.1% by June 2018 coupled with a significantly low capital expenditure to GDP ratio of 1.1% (June 2018), a drop from 2.2% in 2017.
The reality of these economic fundamentals is that Ghana’s ability to repay its debts remains gloomy and any further borrowing on account of the artificial expansion will create debt overhang.
The recent Nigerian post-rebasing recession experience also signals why Ghana must avoid borrowing on account of artificial expansion.
1. Short-term revenue performance measures by government could mean upward review of taxes in the 2019 budget.
2. Grants in aid of vulnerable sectors of the economy could dip further as has been the case post middle income status, coupled with exit signals from the donor community premised on government’s undocumented policy of “Ghana Beyond Aid”.
3. The tendency to interpret higher per capita income as a true reflection of improved livelihoods could provoke public anger.
The Centre for Socioeconomic Studies (CSS), guided by these facts, believes that the post-rebasing focus of government should be on fiscal prudence through improved tax and non tax revenue performance to spur productive expansion of the Ghanaian economy and accommodate the high expenditures building from numerous manifesto promises.
Research Associate, CSS