An Assistant Professor of Economics at the Niagara University, Dennis Nsafoah, has demonstrated in a recent analysis that it would be difficult to achieve debt sustainability (70% of GDP) by 2025 without the implementation of the E-Levy in its current form.
The Member of the Research Committee of Tesah Capital showed that the government is likely to reduce its debt to GDP ratio below the 2021 level but has only 47.5% chance of reducing the ratio below 70% by 2025. The Economist argued that government’s plan to achieve debt sustainability by 2025 is therefore, “unrealistic, and the government of Ghana is likely to request for an IMF intervention in a couple of years”.
The Economist discussed the impact of the new 1.75% levy on all electronic transactions including mobile money (Momo) payments on the objective of slowing down debt accumulation in Ghana.
“The E-levy is the most contentious aspect of the 2022 budget. It was the reason why the budget was first rejected by lawmakers in the first attempt to get the budget passed. You may recall from the first part of this essay that the government’s plan to achieve debt to GDP ratio of less than 70% in 2025 is to realize an oil discovery-like change in revenue. Part of that realization comes from the new 1.75% levy on electronic transactions”.
Prof. Nsafoah
From Budget 2022, the government expects to receive a cumulative e-levy of GHS33.8 billion from 2022 to 2025, Prof. Nsafoah stated. Whereas majority of Ghanaians are in support of the minority in parliament’s proposal for the E-levy to be scrapped, some civil society organizations and economists have suggested to the government to reconsider a 1% levy instead of the proposed 1.75%.
Proposed rates of the E-Levy
The Economist analyzed the effects of various E-levy proposals on the debt to GDP ratio with the assumption that every other target of the government remains constant except the changes in the E-levy. He contended that scrapping the E-levy from the budget 2022, as proposed by the minority in parliament without a significant change in other parts of the budget, will lead to dire consequences in achieving sustainable debt levels by 2025.
“The debt to GDP ratio with no e-levy is estimated to be 79.3% by 2025. Similarly, 1% e-levy as proposed by some civil society organizations and some economists will also be insufficient to achieve a less than 70% of debt-to-GDP by 2025”.
Prof. Nsafoah
In addition, Prof. Nsafoah analyzed a 1.5% E-levy proposal instead of the 1.75%. From the analyses, a 1.5% E-levy will result in a significant reduction in Ghana’s debt to GDP ratio by 2025. However, it still falls short of achieving a debt to GDP ratio of less than 70% by 2025.
“The above analysis suggests that the government’s plan, as laid out in budget 2022 to achieve a sustainable debt level by the end of 2025, is unachievable without the controversial 1.75% levy on electronic transactions. In as much as I think the plan in its current form (including the 1.75% e-levy) is unrealistic, without the e-levy, the government will need to come up with a different plan”.
Prof. Nsafoah
Prof. Nsafoah explained that his analyses were based on the assumption that if government could accrue about GHS33.8 billion over the medium term from the E-levy with 1.75%, then using simple proportions, how much can government get from 1% and 1.5% on the basis that there is linearity in revenue projection.
Meanwhile, Tesah Capital, in a different analysis, illustrated that there will still be a revenue gap in the short-term even if the government decides to implements a fixed amount for the E-Levy.
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