Sunday, 29 September 2019

Tax expert proposes solution to staggering budget overruns

 Image result for Abdullah Ali-Nakyea

Adnan Adams Mohammed

A tax expert and a member of the Tax Justice Network has reiterated the need for a more efficient Budget Oversight Office or an independent Fiscal Council than the present form to help regulate government’s expenditure.

Abdallah Ali-Nakyea has doubts that the current form of the constituted Fiscal Council will be able to achieve its mandates with his reason being that the politicians would never allow technocrats to dictate economic issues.

The Fiscal Council set up by the current administration to help develop and recommend policies for the maintenance of prudent and sustainable levels of public debt among others,

The Governor of the Bank of Ghana, Dr Ernest Addison has said rising government expenditure and weakened revenue levels are the major threats to the swift stabilisation of the economy. In an interaction with the media after the Monetary Policy Committee meeting to review the health of the economy  last week, the Governor noted that the Monetary Policy Committee was also worried about continued revenue weakness which requires expenditure adjustments to contain the larger than the projected budget deficit.

“Exactly my comments, how would the Fiscal Council  be able to perform. I have mentioned this and proposed a more efficient Budget Oversight Office or an independent Fiscal Council than the present form”, Mr Ali-Nakyea has said when commenting on the statement by the BoG Governor.

He explained that, “it would be better if the politicians would allow technocrats to dictate economic issues to them. This is to avoid the order of day where politicians are bent on fulfilling campaign promises at all cost. Hear the Governor, high expenditure unmatched by revenue mobilization so why can’t we readjust some of the expenditures which are not immediate and cannot spur economic growth to generate revenues to be taxed to increase domestic resource mobilization?

“Why did we not approach the financial sector reforms in a more systematic approach than the “Big Bang” approach because domestic resource mobilization is not only through taxation but also savings which can be channeled into production through investments as well as enabling government to borrow through treasury bills and bonds which these financial institutions will patronize.”

The Fiscal Council, which among its other responsibilities is to ensure that fiscal balance is maintained at a sustainable level and the management of fiscal risks in a judicious manner, to achieve effectiveness, efficiency and value for money in public expenditure. The Council is to also monitor the performance of the government budget with regards to compliance with fiscal rules and targets, for instance, the budget deficit of not more than 5% of GDP.

But, the tax expert is not comfortable with the current state of the economy, especially with the fiscal management, nine months after being into office.

He lays his frustrations as, “Now here we are and heading in a much worse direction because we are entering the last quarter of the year and the Governor’s statement that the tax measures may start to yield fruits is not realistic.

“The GRA has set up a Task Force to as it were chase outstanding debts but I can assure you the response will be negligible because one cannot squeeze water out of stone. A lot of these businesses have their investments locked up in the collapsed financial institutions and the Receivers are not making any meaningful progress in payments to free these funds so they can honour their tax obligations and other indebtedness.”

“The chain effect is wide and frightening”, Mr Ali-Nakyea has alarmed.

“Sorry for my plenty economic analysis this holiday oooo but as economists, the managers of the economy should have considered the dynamic analysis of their policy impact rather than the static analysis I believe informed some of their policies, such as the method of the financial sector cleanup”, he added.

Apparently, the Governor of the Bank of Ghana is optimistic that, despite this challenge the situation would improve “full implementation of the new tax measures will likely impact revenue performance in the last quarter”.

This, he also believed that could help achieve the fiscal deficit target set for the year.  “If the fiscal situation was better and stable we would have gone down on the policy rate” he added.
He said we should not forget about the fact that Budget is particularly dependent on non-resident financing and we don’t want to take steps that would jeopardize the situation.
Dr Addison has also shown satisfaction with the level of compliance by some businesses in pricing only in cedis rather than foreign currencies. 

He said they took these steps to enforce regulations on foreign exchange because of its impact on the local currency and the exchange rate.

“A careful look at the various adverts in the newspapers has even shown that more companies are now quoting in cedis,” he said.

This remarkable comment comes some few days after the Economists Intelligence Unit (EIU) in their September report warned of some volatility for the cedis in 2019 and even going forward 2023.
The Unit argued that the cedi will remain prone to periods of volatility, given the country's exposure to movements in commodity prices, “currency will weaken to GH¢6.47 to $1 in 2023”.
But responding to these concerns the Governor said things are rather going to get better for the cedi as the central bank reserves are in strong position than previously.

“With very strong reserves and we have what it takes to support and firmly stabilize the cedi in the coming months,” Dr Addison said.

He added once the fundamentals are right and the interest rate well positioned, then things should be firmly stabilised going forward.

According to him, the country’s total foreign reserves should hit about US$9 billion from the last quarter of this year.  

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