From crisis to recovery: Can Forson’s plan rescue economy?
Finance Minister-designate Dr Cassiel Ato Forson faces a daunting array of economic challenges, with the country's debt burden and ongoing restructuring programme topping his immediate priorities.
The former Deputy Finance Minister, who served from 2013 to 2017, inherits an economy grappling with a debt-to-GDP ratio of over 70% that has necessitated complex negotiations with both domestic and international creditors.
The stabilisation of the Ghanaian cedi presents another crucial test for the new finance minister, as the local currency continues to face significant pressure against major trading currencies.
This currency instability has not only fueled inflationary pressures but has also amplified the burden of servicing Ghana's external debt obligations.
Appearing before Parliament’s Appointment Committee, Dr Forson highlighted an ambitious economic recovery blueprint, targeting a dramatic reduction in inflation to 8% (plus or minus 2%) through what he describes as a "front-loaded fiscal consolidation agenda.”
The plan, presented during his vetting at the Appointments Committee of Parliament, aims to restore investor confidence and reactivate Ghana's dormant domestic bond market.
The nominee emphasised the urgency of rebuilding market confidence through immediate and decisive action.
"In the short term, we need to bring confidence back," he stated, proposing the swift introduction of a robust budget that would signal Ghana's readiness to do the heavy lifting required for economic recovery.
This approach, he explained, would be crucial in attracting foreign investors back to the country. The minister-designate's strategy combines fiscal measures with what he termed "fiscal interventions", reflecting a comprehensive approach to economic management.
He highlighted that successfully achieving the inflation target would enable the government to reopen the domestic bond market, reducing the over-reliance on treasury bonds.
This shift, he explained, would help minimise the adverse effects of both the domestic debt exchange programme and Eurobond obligations.
As the steward of Ghana's $3 billion IMF programme, Mr Forson must perform a delicate balancing act: implementing strict fiscal consolidation measures while protecting essential public services and social programmes.
His previous experience in managing Ghana's 2015 IMF Extended Credit Facility arrangement could prove valuable as he navigates these complex waters.
Addressing concerns about financing, the nominee emphasised the need for domestic solutions before seeking external support.
With the international capital market still closed to the country and the domestic bond market still dormant, Dr Forson told the committee that the government would work with development partners, including the African Development Bank, World Bank, European Union and the IMF, to secure financing for government expenditure, particularly focusing on initiatives that promote "proper and inclusive growth."
Cutting expenditure
The new finance minister's appointment comes at a time when boosting domestic revenue mobilisation has become more critical than ever.
With Ghana's revenue-to-GDP ratio of 13.8% performing below-desired levels, his ability to enhance tax collection efficiency and expand the tax base without stifling economic growth will be closely watched by both local and international observers.
“If you are confronted with a situation where you do not have finances, then there's the need for you to look within. Let's cut the expenditure and let’s not pretend that there's money out there for us.”
Just like it has been done somewhere, we can also do it here. I propose that we look at the expenditure side as well.
You shouldn't always be borrowing, It's time for us to cut the waste and so I will lead the process to cut the waste,” Dr Forson stated.
Formalising economy
Dr Forson also called for the need to formalise Ghana’s economy by encouraging businesses in the informal sector to register with the revenue authorities. He said it was also necessary to incentivise them.
“We can learn from Uganda. Uganda has been able to incentivise the informal sector. As such, they are collecting more taxes from the informal sector than a lot of African countries.
“The question is, what have they done? What Uganda did was to agree to tax education, that a percentage of whatever you pay will be used as your pension contribution even in the informal sector,” he stated.
Debt restructuring
As part of Ghana’s programme with the IMF, the country was tasked to restructure both its domestic and external debt. Dr Forson said he would ensure that the past mistakes that led to this unfortunate restructuring would not repeat themselves.
He said the government would do so by establishing an independent debt management office to monitor and streamline the country’s debts. “I will do whatever it takes to avoid the second wave of the crisis we faced in 2022. That I can assure you,” he assured.
He said in addressing the economic challenges, the government would focus more on the micro economy while it addresses the macroeconomic challenges as well. “It is important for us to understand that you don’t necessarily grow the economy from the macro.
You grow the economy also from the micro. You don't necessarily create jobs only from the macro; you create jobs from the micro.
“You don't stabilise the cedi only from the macro; you stabilise the cedi also from the micro. It is obvious that in the past years, Ghana has overly concentrated on the macro economy. I think we need to get back to the basics. If you want to fix the cedi and you fail to deal with the structural challenges you face as a country, you will firefight,” he explained.
Additional finance from IMF
Dr Forson also clarified earlier reports that the government intends to seek additional financing from the IMF. “What I said was we could request for additional finance if the need arises,” he stated.
He said Ghana’s economy had a huge potential when it comes to tax revenue mobilisation. “You don't necessarily have to increase taxes before you raise revenue. You have the handles; what we need to do is to improve compliance.
I will work with the GRE, the tax policy unit of the Ministry of Finance, to ensure that we increase compliance and raise the revenue as much as we can.”
And let me take the lead on time. It is my vision when approved, to increase the revenue from 13.8% of GDP to about 16 to 18%. That will be able to compare us to our peers,” he mentioned.