IMF Spring meetings: Here are the five key measures outlined by Ken Ofori-Atta to securing an IMF support programme
Ghana’s Finance Minister, Ken Ofori-Atta, has indicated five key measures necessary for his country to secure an International Monetary Fund (IMF) support programme.
These were revealed in the Investor’s Presentation by the Finance Minister and supported by the Governor of the Bank of Ghana, Dr. Ernest Addison on April 13.
With regard to fiscal and debt sustainability, the Finance Minister said the government has undertaken fiscal adjustment with revenue and expenditure measures to improve debt sustainability and restore macroeconomic stability.
Here are the five measures
1. Electricity tariff hikes which have brought the cumulative increase to 60% since August 2022.
The Public Utilities Regulatory Commission (PURC) announced an increase in electricity and water tariffs effective February 1, 2023. Utility tariffs went up in the first quarter of 2023 effective February 1, 2023. This was announced by PURC on Monday, January 16, 2023, despite admitting the present economic challenges.
2. Comprehensive set of revenue-enhancing measures, including an increase in the Value Added Tax rate and the review of the Electronic Transaction Levy (E-levy) in the 2023 budget.
The Ghana Revenue Authority announced the amendment of different tax laws with effect from 1 January 2023, including measures announced as part of the 2023 Budget. The two main measures included a reduction in the Electronic Transfer Levy headline rate to 1% and an increase in the VAT rate from 12.5% to 15.0%
3. The enactment of a 2023 Budget, with a frontloading of the fiscal consolidation programme.
The fiscal policies presented in the 2023 Budget Statement seek to restore macroeconomic stability and boost investors’ confidence by increasing the domestic revenue base, reducing government expenditure, and reviewing the tax laws to block leakages of tax revenue. On the ongoing IMF\World Bank spring meetings in Washington DC, IMF has projected GDP growth for Ghana to slow in 2023 as rising consumer prices and monetary tightening weigh on private consumption and investment in the wake of the decline in government spending.
4. Continued monetary policy tightening to bring inflation under control.
The Monitory Policy Committee (MPC) Meeting by the Bank of Ghana raised the Policy Rate to 29.50 % in March 2023, from 28.00 % in the previous February 2023. GUTA and other trade associations have vehemently opposed the surge in the rate saying it is limiting the strong ability to do business in the country. However, the increment has also been attributed to the significant decline in inflation.
5. Comprehensive set of structural reforms, notably public expenditure review.
In the 2023 budget statement, the Finance Minister outlined key expenditure measures to be pursued to support the fiscal consolidation process. In this regard, the following expenditure measures were proposed:
a. Reduce the threshold on earmarked funds from the current 25 per cent of
Tax Revenue to 17.5 per cent of Tax Revenues;
b. Migrate all earmarked funds onto the GIFMIS platforms and ensure they use
the GIFMIS platform to process all their revenue and expenditures transactions. This reform ends in 2023.
c. Double the LEAP payment per beneficiary household from the current Ghs45 per month to GHs90 and increase the number of beneficiary households from the current 344,185 households. These measures will increase the current budget for LEAP from GHs197.5 million in 2022 to GHs395 million.
d. Increase the budget on school feeding caterer payment by an additional GHs138 million in 2023
e. Continue with a 30 per cent cut in the salaries of the President, Vice President, Ministers, Deputy Ministers, MMDCEs, and political office holders including those in State-Owned Enterprises.
f. Relevant recommendations from the ongoing review of government flagship programmes under the Public Expenditure Review (PER).
g. Place a cap on salary adjustment of SOEs to be lower than negotiated base pay increase on Single Spine Salary Structure for each year.
h. Negotiate public sector wage adjustments within the context of burden sharing, productivity, and ability to pay;
i. Manage public sector hiring within budgetary constraints.