View from the Ground: Ghana’s Upcoming 2022 Budget
Ghana’s 2022 budget will be read on 17 November. It will take place in a context of increasing fiscal constraint, concerns over rising debt and three years ahead of general elections. President Nana Addo Dankwa Akufo-Addo and Finance Minister Ken Ofori-Atta, have certain key, sometimes competing, tasks: to address the current structural imbalances, restore confidence in the public financial management strategy and safeguard popular support for their party.
Significance – Medium-term debt sustainability risks
The little that has been released on what may be in the budget points to a need for a substantial increase in revenue collection. Not only is the target for 2022 ambitious (USD 14.1 billion, a 23% increase on 2021), but they coincide with ongoing pressure from consumers to remove levies on fuel products amid a spike in prices and proposals to scrap levies the 3% tax on exports of minerals from small mining operations. In previous pre-pandemic financial plans, there has been an underlying assumption that economic growth will assuage deficit and debt challenges. They have not delivered. Neither have they convinced international or domestic stakeholders of their sustainability. New tax measures are expected on the ground, though they will not be welcomed. Some perspectives from business owners:
Techpreneur, Accra: My main worry is a tax on mobile money services, though I’m not sure it will be announced in this budget, even though we all know it’s coming. That could undo the good work that has been done to make it the primary payment method for so many people.
Mining executive, Western region: The need to raise funds can lead to erratic government action. Not born out of a desire to hurt industry but out of the need for fiscal balance, to raise funds. Mining is a large proportion of GDP, so they look here to if more funds can be extracted.
Fruit Importer & Distributor, Accra & Kumasi: We’re already suffering because of increased shipping charges and now fuel increases so I’d like to see some kind of relief for those things. I don’t know what measures they can take to stabilise the Cedi but that would also be welcomed. I can tell GRA [Ghana Revenue Authority] must be a little desperate as we’ve had two random full audits this year already.
Roads Contractor, Central Region: At this point I’m just fed up. It costs so much to import what I need to, and then to move it around too. Then I don’t even get paid on time. Unfortunately, I’m not expecting any relief in this budget and that too frustrates me because it is so clear to see where there is wastage in the system.
Bar/Restaurant Owner, Accra: Even though I own a bar, I think that taxes on alcohol (especially those produced locally) are not high enough. I’m concerned that this might be something included in the budget as it will obviously hurt our profitability but we’re preparing for that. Realistically though, I’m expecting another random levy in the name of something like healthcare or tourism.
Protests this year were linked to public financial management and cost of living concerns among other issues. The relatively small numbers paying tax are becoming increasingly frustrated with having to carry that burden. New tax measures will bring the government an immediate cost in popular sentiment. So too would an IMF programme or policy support instrument. However, (a) the debt management by growth strategy has not worked, (b) issuing more debt is becoming prohibitively expensive/difficult because of the existing strategy’s lack of credibility, and (c) rising interest rates in the developed world threaten. Finally, three years before elections the political costs of hard decisions may be more effectively managed than they would be in the 2023 budget.
Outlook – Acceleration of reforms needed
To reduce the fiscal deficit from 14% of GDP this year to 5% or less by 2024 as intended there will have to be further rationing of expenditure alongside continued widening of the tax base, efficiency in collection and tighter controls on extra-budgetary spending. The digitisation drive that government has been pursuing over the past five years is beginning to show some results with more taxes being paid online via mobile money and other digital payments platforms. Also, the use of the Ghanaian national identification card as a tax identifier has also helped to identify those who should be paying tax, an important first step. On the policy side, the much-delayed Tax Exemptions Bill (to provide structure and regulation to the granting of waivers) that has been in front of parliament since 2019 could plug a gap that is estimated to cost up to GHS 5 billion (USD 820 million) annually. Ghanaians expect additional measures, if unhappily. And the international finance community requires additional steps to restore trust. Ghana is not at imminent risk of default though its debt sustainability has become a prominent source of concern.
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