Ghana, in the next three years, must tackle the root causes of its macroeconomic imbalances and build the foundations of a robust fiscal system in order to support the country’s long-term growth and development, the World Bank latest report, has stated.
It said the country’s recent debt crises and macroeconomic challenges weighing on the country’s growth and development was fuelled by weak expenditure controls, inefficient public spending, and underperforming revenue collection and costly borrowing.
The report titled: ‘Ghana Public Financial Review Building the Foundations for a Resilient and Equitable Policy,’ provides an in-depth analysis of the efficiency, equity and impact of public revenue and expenditure aimed at informing Ghana’s fiscal consolidation efforts as the country seeks to recover from successive and overlapping crisis.
The World Bank indicated that a lack of budget discipline since 2010 had resulted in booming public spending marked by volatility, high interest payments and mounting rigidities.
“Overall spending has risen sharply while non-discretionary spending has severely limited the fiscal space. Government expenditure in Ghana doubled between 2010 and 2022, surpassing the pace of economic growth and reaching unprecedented levels,” the report explained.
Additionally, it noted that Ghana’s borrowing became more expensive, and a growing interest burden started crowding out capital expenditure.
“Between 2020 and 2021, Ghana spent two to four times more on interest payments than key comparators, highlighting a growing debt service burden to bilateral and commercial creditors,” the report revealed.
Again, the World Bank disclosed that Ghana’s domestic revenue mobilisation had declined in recent years and remained below structural peers.
“Collected revenues as a share of Gross Domestic Product declined from 15.7 per cent in 2017 to 13 per cent in 2021. Except for turnover and excise taxes, collection from all major taxes declined. In particular, the persistent fall in revenue from income taxes and VAT stood in direct contrast with the trends over in peer countries,” the report revealed.
Among other suggestions, the World Bank called on the government to put measures in place to entrench fiscal discipline through a fiscal rule to limit the repetitions of such challenges, more effective spending controls, and better oversight of contingent liabilities.
Furthermore, it disclosed that Ghana’s ability to contain contingent liabilities and reduce rigid expenditure would be crucial to sustaining the consolidation efforts, adding that, “It was key to consolidate and deepen sector reforms to limit contingent liabilities, notable in the energy and cocoa sectors.”
“Ghana needs to sustainability and equitably improve domestic revenue mobilisation. This will require the steadfast operationalisation of the country’s Medium-Term Revenue Strategy and the implementation of key reforms including removing Value Added Tax Exemption, reforming the CIT by phasing out tax holidays and exemptions, and strengthening safeguards against profit-shifting, reducing customs exemptions, and enhancing the progressivity if Personal Income Tax,” the report elaborated.
Commenting on the report, the World Bank, Country Director for Ghana, Sierra Leone, and Liberia, Robert Taliercio, said the country’s macroeconomic outlook had improved, but remains fragile.
He warned of a “Premature return to international capital markets that could send the wrong signal to markets and a reversal to unsustainable borrowing cost.”
“Not fully completing the adjustment programme – reducing debt to Gross Domestic Product ratio to 55 per cent by 2028 – could jeorpadise the credibility of policy reforms and the fundamentals for long-term growth,” Mr Taliercio stated
BY KINGSLEY ASARE
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