President Nana Addo Dankwa Akufo-Addo will start his final four-year tenure on January 7 with his task on the economy well cut out for him.
He will be expected to lead the revival of an economy that has been pushed into its first recession in almost 40 years, prune down public spending to contain a large fiscal deficit and rein in borrowing to address a debt overhang that has breached various sustainability thresholds.
A tough ride for a President whose legitimacy is being questioned at the Supreme Court and faced with a hung Parliament, the current economic situation is the result of a combination of factors, including a laxed fiscal stance that emerged around 2019, the impact of the COVID-19 pandemic on public finances and the fiscal pressures from the December 2020 general elections.
Already, the challenges have dampened growth prospects (2020 gross domestic product (GDP) growth rate has been cut from 6.3 percent to 0.9 percent and the economy has contracted on two consecutive quarters), pushed the fiscal deficit from an earlier estimate of 4.7 percent of GDP to 11.4 percent of GDP and elevated debt levels to GH¢273.8 billion in September last year, equivalent to 71 percent of GDP.
Experts told the Graphic Business in separate interviews that the 2021 budget, which would be President Akufo-Addo’s first budget in this last term, must pass the tough test of growing the economy and consolidating the fiscal position.
While intimating that the deficit would breach the 11.4 percent of GDP target, a Researcher with fiscal policy think tank, the Institute for Fiscal Studies (IFS), Dr Said Boakye, said the “obvious thing to do is to consolidate”.
“If you do such a thing; if you post such a high deficit figure, then you have to consolidate going forward; if not, the economy will crash and that is what I expect the 2021 budget to do,” he said.
A bridge budget that will lapse in March this year was about 80 percent dependent on borrowing and Dr Boakye, who is the Head of Research at the institute, said such a trend must not be allowed to continue in this year’s budget.
He said the budget must be creatively crafted to depend on more revenues and less on borrowings to help lessen the impact of debts on the deficit, refinancing and other already breached thresholds.
He advised against “rushing to implement election campaign promises”, explaining that only growth enhancing and social protection expenditures must be prioritised in the short to medium term.
“They should properly assess the economic situation devoid of politics and let the citizens know the real situation,” he said, explaining that the populace needed to be carried along on the fiscal consolidation exercise.
A Professor of Economics at the Institute for Statistical, Social and Economic Research (ISSER) of the University of Ghana, Legon, Prof. Peter Quartey, added that the consolidation must be gradual and with due regard to the need to protect the economically vulnerable against the impact of the pandemic.
“There needs to be priority on revitalising the economy while seeking to stabilise it. The consolidation must not be immediate and steep; it must be staggered,” he said.
According to him, a fiscal consolidation exercise that was immediate and steep would expose the less economically empowered to more pains that could create social challenges.
He mentioned the COVID-19 Revitalisation of Enterprises Support (CARES) programme, the Ghana Incentive-based Risk Sharing Agricultural (GIRSAL) and the stimulus packages being administered by the National Board for Small-Scale Industries (NBSSI) as initiatives that should be prioritised to help revitalise businesses.
He also called for targeted support schemes for viable businesses, using them as anchors to revive domestic production and the economy as a whole.
Beyond the need to rein in expenditures and revitalise the economy, Dr Boakye and Prof. Quartey also called for the need to boost domestic revenue collections to help reduce the pressure on borrowing.
They called for compliance, plugging of leakages and proper audits to ensure that the state collected all revenues due it.
They, however, ruled out the introduction of new taxes, explaining that the economy in its current state required subsidies to grow.