IMF programme too reliant on taxes — IFS
The Institute of Fiscal Studies (IFS) has said that the revenue mobilisation efforts under Ghana’s three year extended credit facility (ECF) programme with the International Monetary Fund (IMF) is too reliant on taxes.
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As a prior action before Ghana’s programme was approved by the Executive Board of the Bretton Woods institution, the government in the 2023 budget introduced three new taxes which were subsequently approved by Parliament.
Given Ghana’s low revenue-to-GDP ratio and the need to create space for higher development spending over the medium term, the government intends to make domestic revenue mobilisation a key plank of the programme.
The objective is to raise the public revenue-to-GDP to over 18.5 per cent by the end of the programme, up from the 15.7 per cent recorded in 2022.
To achieve this, the government is in the process of laying out a strategy, with technical support from the IMF.
The medium term revenue strategy, which would be approved by Cabinet and published by end-September 2023, would serve as input in the 2024 budget.
Presenting the IFS’s review of the IMF programme, a Senior Researcher at the Institute of Fiscal Studies, Dr Said Boakye, said the programme’s efforts to increase revenue mobilisation relied unduly on taxes.
He said more taxes were expected to follow under what he described as a tax-centred revenue strategy.
Dr Boakye said the overreliance on taxes would certainly hurt businesses and industries and ultimately harm the economy’s competitiveness and long-term growth potential.
“Although in relation to peers, Ghana’s public revenue is low and should be expanded, a tax-centred approach is not the way to go.
“From IFS’s research, the revenue gap between Ghana and its peers is largely due to the country’s relatively poor revenue generation from the extractive sector,” he stated.
$22 billion worth of minerals
He said the IFS had found out that out of the $22.72 billion worth of minerals produced in Ghana from 2015-2018, only $1.48 billion, representing 6.5 per cent was paid as revenue to the government.
He noted that the remaining $21.24 billion went to private producers of minerals, mainly the multinationals, even though mineral resources are publicly owned and should benefit the state.
“In terms of economic rents, only 10.5 per cent of the $14.14 billion generated from mineral production over the same period was paid as revenue to the government, leaving private producers to keep as much as 89.5 per cent of the supernormal profits.
“This is in spite of the fact that governments are generally understood to be entitled to all economic rents or supernormal profits from their extractive resources,” he stated.
In contrast, he said in Botswana, government mineral revenue constituted about 95 per cent of the supernormal profits and about 52 per cent of the total value of production.
Dr Boakye mentioned that in the oil sector, the government’s revenue amounted to less than 20 per cent of the total value of production, whereas the Nigerian government was able to secure about 52 per cent of the total value of oil produced.
He said these wide differences in the extractive sector revenue generation were because in Nigeria and Botswana, the governments were active participants, with significant stakes in their oil and mining sectors.
Fuel levies
The IFS also urged the government not to adopt the IMF’s suggestion to adjust fuel levies in line with inflation or exchange rate changes.
Dr Boakye said it should be recognised that fuel prices changes had powerful effect, both directly and indirectly on inflation in the country.
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He said adjusting fuel levies in line with inflation which was bound to increase fuel prices would feed back into inflation, requiring further increases in fuel levies.
That, he said would create a vicious cycle of higher fuel prices and thus worsen inflation/macroeconomic instability in the country.
“Similarly, since exchange rate depreciation usually cause fuel and other prices to rise leading to inflation, adjusting fuel levies in line with currency depreciation would further increase fuel prices,” he stated.
