The Institute of Economic Affairs (IEA) has stated that the 2023 budget and economic policy is a “make or break” for the economy, hence its design and implementation cannot be “business as usual”.
Speaking at a Pre-Budget conference in Accra, Dr John K. Kwakye, Director of Research at the IEA, said the much-anticipated budget must create a new direction to bring stability to the economy.
“It must break from the past and chart a new course to restore economic stability, while laying the foundation for long term sustainable growth and poverty alleviation.
“The 2023 budget must break from this unacceptable past. We believe that we should be able to increase tax revenue/Gross Domestic Product to at least 15-16% in 2023 and further to 18-20% in 2024. At the same time, total revenue/GDP could be increased to 18-20% in 2023 and 22-25% in 2024.”Dr John K. Kwakye
Dr Kwakye however, underscored that achieving the new targets would entail addressing revenue loopholes and inefficiencies that took the form of tax exemptions to privileged individuals, poor property rate regime, tax evasion, administrative corruption, and trade mis-invoicing among others.
The country, he observed, was in a “self-inflicted” resource constraint situation amid an economic crisis due to increased borrowing and the setting of “less ambitious” tax and revenue targets far lower than peers in the sub region.
The situation, he said, was compounded by the wrong prioritization of recurrent expenditure over capital expenditure, which was inimical to economic growth.
The IEA Director of Research further indicated that there must also be a “curtailing” of recurrent expenditure in the 2023 budget to free resources for capital expenditure to boost long-term growth prospects.
“The curtailment should target, especially compensation through considerable downsizing of the public sector, including the overall Government machinery”.Dr John K. Kwakye
Monetary policy interventions
Commenting on the Monetary Policy side, Dr Kwakye, a former member of the Monetary Policy Committee of the Bank of Ghana (BoG), called for monetary policy interventions that directly targeted supply and cost influencers of inflation to supplement the Inflation Targeting (IT) framework which has some weaknesses.
“As we have repeatedly argued, the Inflation Targeting (IT) framework used by BoG, essentially a demand-management tool, is less capable of dealing with Ghana’s type of inflation that has strong supply and cost undercurrents”.Dr John K. Kwakye
The IEA Boss iterated that structural solution to the cedi depreciation must be geared towards closing the foreign exchange demand-supply gap through a fundamental restructuring of the economy.
Dr Kwakye explained that the restructuring must be directed to expanding, diversifying and processing export commodities to increase forex receipts.
Other measures outlined by the IEA Boss include: reviewing all extractives tax regimes to ensure that Ghana derived adequate benefits; ensure fiscal and debt sustainability; shoring up financial buffers such as stabilization fund, sinking fund as well as the infrastructure Investment Fund.