IMF calls for broad fiscal reforms post-COVID-19
The Resident Representative of the International Monetary Fund (IMF), Albert Touna Mama, has called on the government to pursue a wide range of fiscal reforms to deal with the stress placed on the economy by the COVID-19 pandemic.
In an exclusive interview with Business24, Mr. Touna Mama, in justifying the need for the reforms, said Ghana, like most countries, has seen a sharp accumulation of public debt in a bid to battle a crisis unprecedented in modern economic history.
With Ghana on course to record its first double-digit fiscal deficit since 2014, the IMF country chief argued that government should, as much as possible, prioritise its spending in battling the impact of the virus.
“The most vulnerable groups in the economy should come first, also because supporting everybody could be very expensive and not without risks. In addition, and especially in the coming years, some level of burden-sharing should be targeted, especially among the groups that have not suffered as much a loss of income during the crisis,” he said.
The fund chief’s suggestion comes after government’s initial announcement of free electricity and water for Ghanaians for a three-month period in the wake of the virus – an initiative which has been extended for all consumers in the case of water and for lifeline consumers in the case of electricity.
Mr. Touna Mama also believes that rationalising expenditure must go hand-in-hand with other reforms, especially in the post-pandemic period.
“We think that all these efforts should be supported by a strong impetus to advance fiscal reforms that have stalled in the past, particularly expanding the tax base and improving the efficiency of public spending, including by means-testing wherever feasible.
“Elements for this strategy include reviewing property taxes, streamlining tax exemptions, improving tax administration, digitalising the economy, etc. Some of these reforms [were] also highlighted by the mid-year budget review,” Mr. Touna Mama stated.
Curtailing the deficit
At the beginning of August, Parliament, in response to a request by Finance Minister Ken Ofori-Atta, suspended the fiscal rules contained in the Fiscal Responsibility Act, which stipulates that the fiscal deficit should not exceed 5 percent of GDP in any year.
Per the projections of the Minister, the deficit should come within the stipulated five percent ceiling by 2024. But the Fund is urging government to be cautious with its projections as the pandemic remains largely unpredictable.
“The Ministry of Finance has published the broad lines of a medium-term fiscal path. But considering the extreme uncertainty, it may be too early to formulate any solid and reliable medium-term fiscal trajectory,” he said.
“We should recognise that the situation remains fluid and the uncertainty surrounding the evolution of the crisis complicates any assessment of the medium-term outlook and policymaking. For example, economists still don’t have a good understanding of whether the economic problems created by the COVID-19 pandemic will be self-reversing or mostly permanent. Looking ahead, the challenge will be to strike a balance between economic recovery and restoring healthy fiscal metrics.
“As the situation stabilises, the government will need to come up with well-articulated plans for a return to some sort of fiscal normality. The next big milestone for this, hopefully on the background of a more stable environment, will be the next budget in [the] first quarter of 2021 and to correct course if warranted,” Mr. Touna Mama added.