The Minister of Finance, Ken Ofori-Atta, will today – November 15, 2023 – present the penultimate full-year budget of the Nana Addo Dankwa Akufo-Addo administration before parliament.
The statement is coming within the context of the worst economic slump in over a decade, the Post-COVID-19 Programme for Economic Growth (PC-PEG) and against the backdrop of an ongoing Extended Credit Facility (ECF) programme with the International Monetary Fund (IMF). This represents the 17th time Africa’s largest gold producer and the world’s second-largest cocoa producer has visited the Bretton Woods institution for support since independence.
The 2024 budget, analysts say, presents a dilemma for managers of the economy as they have to maintain the delicate balance of constraints imposed by the ECF programme over the medium-term, navigating an election year, growth aspirations – primarily driven by revenue generation – and the clamour by businesses and households for the removal of some taxes.
Conducive business environment high on the agenda
Finance minister Ken Ofori-Atta, at the recent Ghana Mutual Prosperity Dialogues (GMPD) in Accra, reiterated government’s commitment to collaborating with the private sector to drive economic growth and transformation.
At the event, he emphasised government’s willingness to engage in partnership and its determination to address economic challenges for the nation’s collective benefit. “We are all looking for that space to work toward achievement of a common goal. This is coming on the back of challenging economic circumstances, which have started easing within the space of 10 months. We have managed to reduce inflation by 16 percent, our growth is still at 3 percent – double what is expected, and the currency has been stabilising between February and now.
“So, the Ghanaian’s deep resilience is evident; and the question now becomes how government can be more deliberate about supporting the private sector to catalyse economic growth.”
He acknowledged the challenges faced by businesses, particularly in their nascent stages, and hinted that the 2024 budget will contain practical steps to address these challenges, along with other inputs put forward by the private sector.
While it remains to be seen exactly which policies government will introduce to ease the difficulties businesses face, there are also indications that there will be no new taxes in the 2024 budget. Rather, there are expectations of tax beliefs to promote investments and growth in key specific sectors, and streamlining revenue.
2023 review: we have turned the corner
During the 2023 budget, which was presented during negotiations with the Fund, Mr. Ofori-Atta announced a revenue projection of GH¢144 billion constituting 18 percent of gross domestic product (GDP).
Simultaneously, the anticipated expenditure – including the clearance of arrears – was expected to be GH¢205billion, equivalent to 25.6 percent of GDP; with a fiscal deficit of GH¢61billion constituting 7.7 percent of GDP.
This was in addition to real GDP growth of 2.8 percent and non-oil real GDP growth of 3 percent. At the time, an overly ambitious end-December 2023 inflation rate of 18.9 percent was touted, with 2022 closing at 54.1 percent.
Unsurprisingly, significant revisions were made at the midway point of the year as the finance minister suggested that the economy had turned the corner for good.
This included a reduction in the overall real GDP growth rate for 2023 from 2.8 percent to 1.5 percent, and a halving of the non-oil real GDP growth rate to 1.5 percent. The Bank of Ghana has however expressed optimism that this figure will be surpassed, as official data showed that real GDP growth in the second quarter of the year stood at 3.2 percent.
Furthermore, the anticipated end-period headline inflation has been revised to 31.3 percent; this reached 35.2 percent in October 2023.
The earlier statement also saw revenue measures such as an increase in the Value Added Tax (VAT) standard rate by two and a half percentage points from 12.5 percent to 15 percent; phasing out the benchmark discount policy; and conversion of the National Fiscal Stabilisation Levy into the Growth and Sustainability Levy. These were projected to add more than 1 percent to GDP.
While the Domestic Debt Exchange Programme witnessed relative success – as GH¢113billion of local currency bonds were swapped for new bonds and the cedi depreciated by a modest 1.84 percent against the US dollar between February and July 17, 2023 – the public debt stock reached GH¢575.5billion at the close of June 2023.
2024: Doing the basics
The Institute of Economic Affairs (IEA), reiterating statements previously made and consistent with calls by other bodies, in its commentary ahead of the 2024 budget called for a marked shift in the nation’s revenue mobilisation strategy – in addition to streamlining expenditures, protecting citizens from economic hardships and targetted investments in key sectors.
The public policy think-tank pointed out that the current revenue-to-GDP ratio of 15-16 percent falls short of middle-income countries’ average – urging innovative tax policies targetting trade mis-invoicing, property taxes, transfer pricing and money laundering. It further advocated leveraging technology for tax compliance and combatting fraud. Others are streamlining import duties and ensuring extractive contracts maximise returns.
The Institute proposed cost-cutting measures – downsizing government and increasing capital expenditure for economic growth. Emphasis was also placed on allocating funds to key sectors like agriculture, infrastructure, energy, health, education and sanitation.
“The 2024 Budget must include a plan to address the sector’s debt comprehensively. This should involve a strategy to renegotiate the PPAs along with adoption of a tariff regime that ensures genuine cost-recovery along the energy supply chain,” stated the note by its Director of Research, John Kwakye.
The IEA also recommended social spending under the ECF programme, as well as measures to tackle inflation through coordinated efforts between the Bank of Ghana and government.
CSOs proposal on revenue transparency
With a focus on revenue mobilisation as the cornerstone of the budget and broader economic development, the Civil Society Organisations’ (CSOs) Budget Forum is urging government to implement an annual reporting mechanism on tax exemptions. This move aims to enhance fiscal transparency, building on the recent amendment to the country’s tax exemptions law.
The proposal, the Forum explained, will unveil the actual value of foregone taxes; shedding light on how much revenue the nation forfeits compared to the benefits received in return.
“In the last few years, or during previous regimes, this never happened. We give exemptions, and there’s no idea how much the Ghana government is receiving in return for granting those exemptions,” Senior Programmes Officer for Tax Equity, International Budget Partnership (IBP), Dr. Alex Ampaabeng, explained during a news conference in Accra ahead of the budget presentation.
“These are powerful bodies with significant fiscal responsibilities in the economy,” he explained, highlighting that government budgets, tax introductions or borrowing proposals go through them.
“We believe that all gains under the IMF programme can only be sustained if we have an independent fiscal council that holds government accountable. Without someone looking over your shoulder, there’s always a temptation to deviate. This will be valuable for successive governments,” he emphasised.
Additional concerns arise regarding the anticipated decrease in oil receipts during 2024. Official data reveal a decline in petroleum receipts to US$540million in first-half of the year, compared to US$731million for the same period of 2022.
Despite a modest recovery in the banking sector, scrutiny remains on the operationalisation of the GH¢15billion Financial Stability Fund, particularly concerning indigenous banks which continue to operate below the prudential capital threshold.
There is a growing demand for a reassessment of the electronic levy (E-Levy) rate, with market observers – including the Institute of Statistical, Social and Economic Research (ISSER) – proposing a reduction to 0.5 percent to stimulate economic growth.
Social activists are eager to see if adjustments will be made to the 20 percent import tax and an additional 12.5 percent VAT on menstrual hygiene products.
Additionally, there is anticipation regarding whether the Finance Ministry will entertain suggestions for specific budgetary allocations for victims of the Akosombo Dam spillage.
Attention is focused on the allocation of funds to the health sector, especially in light of recent developments. The Renal Dialysis Unit at Korle Bu Teaching Hospital raised the cost of renal dialysis from GH¢380 to GH¢765.42 per session – leading to a public outcry. Although the decision was not authorised by the hospital’s management or approved by parliament, the unit temporarily closed due to a GH¢4million outstanding debt – resulting in the unfortunate deaths of 19 individuals.
Analysts are convinced that this budget and its execution will not only define President Akufo-Addo’s final year, but perhaps his entire legacy.