Associate Professor of economics at the University of Ghana, Eric Osei-Assibey, has revealed that the country’s fiscal policy is overly expansive as government is sometimes forced to spend more.
According to him, the excessive spending by government compels it to “borrow to supplement the revenues” that it has collected. He indicated that the fact that the country does not generate much and mobilize enough revenue has been the bane of the economy.
Prof Osei-Assibey explained that when this happens, the two tax revenues which are “compensation and interest payment takes more than 100%” of the tax revenue and any excess expenditure will mean that government has to borrow.
“Our fiscal policy is too expansive, there’s so much appetite to spend without looking at the size of the cloth. So, over the years we’ve been doing that and we’ve been having debt accumulation. The issue is not about the debt or the size of the debt because every country borrows. Key issues that we have is about the interest of the payment where you are using about 50% of your tax revenue in paying interest, then how much do you have to do other things because you’re paying salaries which takes close to also about 50% and then the statutory payment.”
Eric Osei-Assibey
Speaking on the theme: ‘Living within our means; an imperative for economic success’, Prof Osei-Assibey stated that for government to live within its means, then it has to first “look at the size of the cake” and what the country’s needs are. He highlighted that it is essentially being able to match the country’s expenditure to its revenue.
“… So, at all times you have to make sure that you will not spend more than the revenue that you have generated. But sometimes it’s difficult for a country like ours, where there’s so much on government to provide certain key amenities… So, when you look at the cake alone, we will not be able to do a lot of things.”
Eric Osei-Assibey
Economy is severely strained
Commenting on the state of the economy, Prof Osei-Assibey revealed that the “economy is currently severely strained” due to its emergence from the COVID pandemic and the impact of the Ukraine-Russian war. With this, he noted that the disposition of the economy currently is that, the “fundamental is shaky”.
“We’ve recorded very large fiscal deficits over the last two [to] three years, debt stock is currently around 78%, we are paying a third of our expenditure to interest payment, and servicing debt [and] amortization hasn’t come. About a third is going into compensation and then about 18% also going into statutory. That alone constitutes about 151% or so of our tax revenue.”
Eric Osei-Assibey
The Associate Professor at UG emphasized that “there’s no fiscal space” at all for government to do anything and at the back of this is the sudden withdrawals which includes the “sell-off of our bonds by non-resident holders of our debt meaning that putting pressure” on the currency.
“So, you see the currency depreciating so fast [and] so steeply, the demand for the currency is high. We’ve also seen crude oil prices going up which is really affecting export prices of crude in Ghana and the implication that it has on supply chain.”
Eric Osei-Assibey
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