ECONOMIST HAILS FITCH RATINGS BUT SOUNDS CAUTION
9/27/2012 12:00:15 PM -
An Economist and Lecturer at the Cape Coast Business School has said the Fitch B+ rating of the Ghanaian economy is good but Ghana must be cautious not to take it as absolute.
Explaining this, John Gatsi said even though revenue has gone up greatly, 'it does not match up with the level of economic expansion we have right now. We expect about 30% GDP tax collect6ion but we now do only 20% which leaves a great shortfall of 10%. That shortfall is so great that it can affect the economy'.
John Gatsi punched holes in the country's tax administration system and said the loopholes in tax collection can derail economic gains if not addressed straight away. He made the analysis on Joy News' current affairs program, pm:EXPRESS.
According to the economist, Ghana must not be complacent with these kinds of positive sovereign ratings but must tighten its revenue mobilization efforts. Drawing on best practices elsewhere, he mentioned that countries with high revenue mobilization success are those who have automated their system to make collection electronic - a system that is easier, cost effective and efficient. This, he maintained, eliminates the possibility of tax evasion or exclusion by the informal sector.
Kwakyu Antwi Boasiako, Commercial Officer of Antrak Air, also on the show said the Fitch B+ rating and its forecast of an 8.6% average growth rate of the economy over the next three years should make cost of finance cheaper in the aviation industry. 'Finance is one of the key components of aviation operations. If you are able to lease an aircraft at a cheaper cost or if you want to finance a new aircraft and you can borrow at a lower rate than currently, - example, if you are borrowing at 27%, you obviously won't be making any profit', he offered.
Ghana's Oil find has increased air traffic especially on the Takoradi route. Between 2010 and 2012 alone, the aviation industry has seen an increase of 200% in air traffic - a growth that is being attributed to the favorable economic environment and growth - the result of which has seen healthy competition in the industry. The rise has also seen a reduction in air fares, reports suggest.
According to Antwi-Bosiako, the Fitch rating has a lot of significance for air business because it gives airlines the impetus to go outside Ghana to borrow based on a syndicated facility by Ghanaian banks, 'to get 8-10% on the dollar. If you can get that kind of finance as a result of the rating, then you are in good business' Mr Antwi Boasiako said.
For now, taxes on aviation fuel are on the high side hiking aviation fuel prices, among the highest in the sub-region. A reduction in aviation taxes, Mr Antwi-Bosiako believes, will have a rippling effect of reduction in air fares which consequently would encourage more people to fly. Presently, aviation fuel alone constitutes between 20 to 30% of the business cost and a reduction will boost and sustain the air business, reports say.
He mooted the idea for government to provide sovereign guarantee to some banks so they can seek syndicated capital and on-lend to airlines to procure new aircrafts.
Economist John Gatsi encouraged private businesses to subject themselves to be rated - a sure way of attracting foreign investments into their companies or lower cost of borrowing.