The International Monetary Fund after approving a $3 billion bailout package for Ghana has disclosed in a statement that Ghana’s fiscal policy has been marked by recurring periods of overspending.

According to the global lender, despite the existence of a fiscal council, previous budgets of the nation have been marked by overly optimistic forecasts.

The Fund pointed out that Ghana’s 2019 fiscal rules lack a debt target and have an extremely complex double operational rules system – with poorly defined escape provisions and no effective enforcement mechanisms.

“Ghana’s fiscal framework is also weakened by persistent challenges in public financial management. Large revenue earmarking to statutory funds and retention of internally generated funds are creating significant budget rigidities.
“Statutory funds have independent governance structures and are responsible for a large share of capital expenditures (estimated at 70% of their spending). Spending by most statutory funds and IGF-reliant institutions is not integrated with the budget planning system (Hyperion) and the expenditure accounting and control system (GIFMIS), contributing to severe deficiencies in expenditure controls.”
International Monetary Fund

Government Committed To Solving PFM, Revenue Mobilization Weakness

The Fund, on the other hand, stated that the Government of Ghana is committed to addressing these Public Financial Management (PFM) flaws and strengthening the fiscal framework and institutions under the program.

“All central government expenditure will be integrated into the budget planning and accounting systems. To this end, several important statutory funds (GETFund, Road Fund, and District Assemblies Common Fund) have started reporting their spending budgets in Hyperion at a disaggregated level to use all functionalities of GIFMIS (prior action).
“Statutory funds will be reformed and rationalized. The authorities are in the process of hiring an external consultant to undertake a comprehensive review of all the statutory funds. The objective is to; evaluate their spending and assess efficiency, value for money and relevance, as well as alignment of the earmarking formular with spending needs.”
International Monetary Fund

Commenting on revenue mobilization, IMF explained that Ghana’s budgetary problems stem from chronically insufficient domestic income mobilization.

“Ghana’s Tax-to-GDP ratio has been low compared to peers, with non-oil revenues stagnating in recent years. Tax policy design suffers from widespread tax expenditures (estimated around 4% of GDP), especially in VAT, and underexploited taxes (property tax, excises). Weaknesses in revenue administration continue to be reflected in limited compliance and recoveries.”
International Monetary Fund

To address these obstacles and accomplish the program’s income mobilization targets, IMF stated that the government has been advised to create a Medium-Term income Strategy (MTRS).

This plan, it said, will concentrate on tax policy and revenue administration procedures required to meet the authorities’ program revenue targets for 2023-2026, adding that “The reforms would also try to improve revenue administration.”

With technical assistance from the IMF, the government is expected to accelerate the procurement of the Integrated Tax Administration System (ITAS) and completely operationalize the system by end-2023 (structural benchmark).