Ghana will not return to the IMF again, if… – Economists

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Some renowned economists are positive that Ghana will not return to the International Monetary Fund (IMF) if only it manages its expenditure and revenue better in 2020 and afterwards as the country exit the sixteenth IMF program in next month.

This points out to governments avoiding the phenomenon of election-year overspending cycle, creating economic difficulties that compel Ghana to go back to the IMF for a bailout after every election year.

An Economist at the University of Ghana, Dr. Ebo Tuckson has said, Ghana needs to move beyond government being the main supplier of jobs.

“We shouldn’t, once we leave, defreeze public sector employment because when we do that, then we inflate the wage bill. That is one of the main reasons for expenditures that normally cause us to run huge fiscal deficits.”

“We should rather provide the environment for the private sector to thrive; for the private sector to generate employment and jobs that the economy needs,” the lecturer said.

In 2017, when tax revenue totaled GH¢32.2 billion, wages and salaries for public sector workers rose to GH¢14.4 billion, equivalent to 44.7 percent of the year’s total taxes. This meant that of every one cedi collected in taxes last year, 44.7 pesewas was used to pay public workers, leaving behind some 55 pesewas for debt servicing, statutory payments, capital expenditure, and social intervention expenses, among others.

The 2017 wage bill was expended on some 650,000 people working in the public sector. Analysis from fiscal data obtained from the Ministry of Finance further revealed strong double-digit growth in the wage bill on an annual basis compared to total economic output, measured by Gross Domestic Product (GDP), which has experienced single-digit over the past six years.

Unlike annual GDP growth, which averaged 6.1 percent between 2012 and 2017, the data revealed that annual growth in the wage bill averaged 16.7 percent within the six-year period – more than twice the rate of GDP growth.

From GH¢6.7 billion in 2012, the amount used to pay workers rose to GH¢14.4 billion in 2017 and is now estimated to end 2018 at GH¢16.8 billion. The growth in the wage bill is often pronounced in election years compared to any other year.

A professor of economics and Head of the Economics Department at the University of Ghana, Legon, Professor Peter Quartey recounted on the situation in an interview, saying that, the huge disparity between the annual growth in the wage bill and GDP showed that “we are paying wages but not increasing productivity.”

“The normal thing in basic economics is that in setting wages, your wage rate should be equal to marginal productivity so that anytime your productivity goes up, your wages will go up and the same way when your wages go up, then it means there has been an increase in productivity,” he stated.

Contrary to this, the analyses above showed that, the country was not matching increment in the wage bill to productivity, which is not a good sign for a growing economy and for an economy that wants to achieve greater heights.

This is a major flaw in the economic system. A chunk of the wage bill could be trimmed if the government could undertake a proper audit to clean the public sector of “disguised employees” who are paid for virtually no work done.

In 2017, the government said it saved some GH¢433 million after detecting and removing some 26,000 ‘ghost’ workers from the public sector payroll.

Also, as the IMF leave off the management of the economy into the free hands of the politicians who are the causes of this economic challenges, Professor Peter Quartey, of the University of Ghana has expressed that, government must ensure it manages its revenue and spending well to prevent fiscal slippages that will take it back to the IMF.

“The first thing is how we manage our resources, our revenue especially. We need to grow the revenue base. At the moment we are always recording revenue shortfalls so what innovative thing can government use to raise revenue, be it from the informal sector or broadening the tax base”, he said.

Prof. Quartey stated that it’s time for Ghana to improve its tax collection to help spend in critical sectors of the economy.

“I believe tax efficiency is very key so that we stay focused so we don’t go back to the IMF or we don’t borrow and reach debt sustainable level,” he stressed and positive that these actions, if keenly followed will not return Ghana to the IMF any time soon.

“And then also our expenditure, I believe we spend but then we have to spend prudently. Where it is not necessary we need to cut on expenditure especially on the wage bill. We need to rationalize how much we are paying”, he stated.

In 2015, the three-year loan agreement concluded between the Government and the International Monetary Fund (IMF) contained agreements to freeze employment in government departments except for those under education and health.

This was part of measures to stabilize the economy and effectively manage the public wage bill.

The agreement was also expected the government to limit the nominal increase in the total wage bill to no more than 10 percent.

Ahead of the election in 2020, Dr. Ebo Tuckson also urged the government to be measured in its spending so it does not overrun the estimated budget for the year.

“If you look back over the fourth republic, with the exception of President Kufuor in his second election, where he was able to maintain the budget and not overrun it, all other government’s we have had have overrun their budget… The politicians, you know, when things heat up and things have to be done, that is when we sacrifice all these things and overrun the budget.”

The Executive Board of the IMF just approved the final disbursement of about US$185.2 million to Ghana.

The IMF Executive Board completed the seventh and eight reviews on March 20, 2019, under the Extended Credit Facility (ECF) supported arrangement.

The fund pointed out that, considering Ghana’s resolve to tackle difficult reforms, the Executive Board also approved the authorities’ request for a waiver of the nonobservance of a few program targets.

Ghana’s three-year arrangement was approved on April 3, 2015, for about US$925.9 million or 180 percent of quota at the time of approval of the arrangement.

It was extended for an additional year on August 30, 2017, and is to end on April 2, 2019.

The arrangement aimed to restore debt sustainability and macroeconomic stability in the country to foster a return to high growth and job creation while protecting social spending.

Source: Adnan Adams Mohammed || NewsGuide Africa

 

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