Tax base drives uncertainty in financing devt needs – First Deputy BoG Governor
The First Deputy Governor of the Bank of Ghana (BoG), Dr Maxwell Opoku-Afari, is concerned that the current tax base cannot support the development that Ghana needs, as official development assistance continues ( ODA) to dwindle.
He pointed out challenges likely to arise due to over-reliance on external support.
Referring to the support that comes to Ghana from other countries and development finance institutions as the “love from the donor community,” he expressed worry over the ability of the country to meet the huge gaps that would be created when these support fizzle out.
He asked, “To what extent can Ghana finance its development when external aids that we depended on so much for infrastructure development are no longer available?”
Dr Opoku-Afari opined that the continuous dependent on this external support, has created the kind of macroeconomic management challenge the country finds itself in currently, and wondered if “this really show we (Ghana) have the capacity to deliver?”
The country’s population of over 30 million, and more than 16 million active mobile money (MoMo) users, he said, was an indication of economically active persons.
Nonetheless, only 2.4 million individuals are taxpayers.
This, he said, would not make it “possible to meet our developmental needs with such a tax base, especially when the love is gone and donor assistance has dried up.”
For this situation to be reversed, the first deputy BoG governor said there was a need for enhanced compliance to paying tax, and a clarion call for domestic resource mobilisation.
“Business support incentives for tax compliance should be introduced to instil the discipline in all taxpayers to honour their tax obligations. To broaden the tax base will call for getting more people to honour their tax obligations and minimization of tax exemptions,” he stated.
In addition to this, he said, there is the need for resource mobilisation to always be balanced with effective utilisation of those resources.
“As we encourage more people to pay taxes, I see the need for us to enter into a kind of social contract, or a collective responsibility programme on the part of the citizens to pay their taxes.
On the part of government to effectively use the tax resources to develop the country and to provide services that create the enabling environment for private sector to drive the transformation agenda,” Dr Opoku-Afari.
He explained that mobilising domestic revenue is the right way to ensure that the country is able to develop the requisite infrastructure for our socio-economic development.
According to the first deputy governor, the establishment of the Ghana Infrastructure Investment Fund (GIIF) was a unique strategy to catalyse various sources of finance, in addition to increasing fiscal and non-fiscal domestic resource, which he believes, would enable the country to close the infrastructure gap.
The Role of Foreign Direct Investment (FDI)
The first deputy governor opined that in re-thinking development financing, the country must attract more Foreign Direct Investments (FDIs) in supporting infrastructure development.
He stated that, “the importance of FDIs is that it is a non-debt creating way of financing infrastructure, and so there is the need to create the right investment climate that will help attract more FDIs.
“Indeed, there is a lot of liquidity out there, and we need to provide a safe, secured, transparent, and enabling environment to attract such liquidity,” he encouraged.
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Application of external borrowed resources to finance tangible infrastructure projects
Ghana has been to the Eurobond market in 2007, 2013-2016 and 2017-2021, having mobilised about US$15.5 billion over the period.
The long–term nature of these borrowings and its attendant debt implications, he said, require their strategic investment in infrastructural projects, which will yield returns in the end to support repayment of such loans when they fall due.
“Following the decline in ODA, Ghana has, in recent times, relied on the international capital markets to borrow to support its debt management strategy and to close the financing gap from various budgets.
It is important that such external borrowings from the international capital markets are tied to or targeted at specific infrastructure projects,” he emphasised.