The Institute of Economic Affairs is urging government not to go the International Monetary Fund for financial and economic support if it can adopt some of the key measures that the Bretton Wood is known to prescribe for members seeking its assistance.
In a statement, the IEA said “I suggest below measures that I believe Government and Bank of Ghana can take help build the needed policy credibility, restore the economy to some level of sanity and make going to the IMF unnecessary.”
The Ghanaian economy is presently facing a serious crisis brought on to a large extent by COVID-19 and recent geopolitical developments. A domestic policy credibility deficit, arising in part from the budget stalemate in Parliament over the Electronic Transaction Levy and a rising debt level, has compounded the crisis.
Subsequently, the crisis has led to the downgrading of Ghana by credit rating agencies, which has restricted access to international bond markets, increased borrowing costs and fuelled disinvestments from the money and capital markets, causing a sharp depreciation in the cedi.
Again Rising commodity prices across the world have also fuelled domestic inflation.
But the IEA believes prescriptions such as working to resolve the current budget stalemate in Parliament over the Electronic Transaction Levy (e-levy) should be urgently done.
To that end, the IEA said “we suggest splitting the proposed rate of I.75% between telcos (I .0%) and consumers (0.75%). We believe this is a compromise that both the majority and minority can accept.”
Others are the need for government to take additional measures to scale up revenue, which is below par.
The IEA therefore wants the Tax Exemptions Bill to be passed to reduce the scope and scale of exemptions in addition to enforcing tax compliance, especially by professionals and introduction of segregated corporate tax, ranging from the current level of 25% for indigenous companies to 35% for foreign companies, abolishing the current import benchmark discount of 30% for general goods and 10% for vehicles, amongst others.
Again, it wants government to take urgent measures to reduce expenditure, whose level and composition remain problematic.
The measures, it added, should also include “restructure ministries and reduce the number from 30 to 20, reduce the number of Ministers from 86 to 56 (including 16 Regional Ministers), slash executive pay by 20% and enforce the announced 20% reduction of MDA’s budgets”.
The IEA also wants government to reduce the 2022 fiscal deficit from 7.4% to 6.0% to boost credibility of the budget and reduce concerns regarding both fiscal and debt sustainability.
It concluded saying “it is important that government and Bank of Ghana collectively take these measures to restore investor confidence and gain needed policy credibility. Failure to act accordingly will only worsen the economic crisis, with widening of spreads on Ghana’s bonds, decreasing access to international bond markets, growing disinvestments from local financial markets and growing pressure on the cedi.”
Should the crisis continue, it stated “the government could be forced to seek the needed policy credibility from the IMF, which is expected to recommend the very measures that government might fail to initiate by itself.”