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13.11.2019 Article

Expectations From The 2020 Budget Statement

By Dr Eric Akobeng | Economist and Development Policy Expert
Expectations From The 2020 Budget Statement
NOV 13, 2019 ARTICLE

Article 179 of the 1992 constitution provides “the President shall cause to be prepared and laid before Parliament at least one month before the end of the financial year, estimates of the revenues and expenditure of the Government of Ghana for the following financial year”. In fulfillment of this provision, the Finance Minister will present the 2020 Budget Statement and Economic Policy to Parliament on Wednesday, November 13. The 2020 budget and economic policy must identify measures for prudent expenditure management, boost revenue, uplift underprivileged session of society, create sustainable jobs and improve security.

We expect the 2020 budget to give an update on the interventions undertaken by government to support and sustain the industrial transformation vision involving improving collaboration with the private sector and consolidating government strategic initiatives such as One-District-One-Factory, One-Village-One-Dam, Free Senior High School, Planting for Food and Jobs, revitalization of Microfinance and Small Loans Centre, Zongo Development Fund initiative and the National Builders Corps.

The political cycle in Ghana has led to a recurring pattern of rapid fiscal expansion, followed by fiscal consolidation and the imposition of expenditure controls to restore the economy back on track. The budget crises in Ghana have been associated with the four-yearly election cycle leading to post-election fiscal crunch. The budget deficit escalates in almost every election year since 1992. The first major attempt to deal with this problem was the passage of the Bank of Ghana Act, 2002, Act 612 that allows the Bank of Ghana to ensure deficit financing to the tune of 10% of total revenue. This was not strictly enforced during previous elections.

One indicator that will be used to assess the performance of the 2020 budget is the Fiscal Responsibility Act which is meant to anchor fiscal discipline and ensure prudence in the management of the economy. The Fiscal Councils are mandated to monitor the performance of the government budget with regards to compliance with fiscal rules and targets so as to ensure a budget deficit of not more than 5% of GDP, positive primary balance and debt to GDP ratio of not more than 65% of GDP. The Fiscal Responsibility Act provides for the Minister of Finance to be sanctioned when he/she spends beyond defined boundaries.

Factors such as high public ­sector wage bill, high-interest payments on debt and capital expenditure meant to achieve the determined industrialization and infrastructure development promises of the government may present a challenge in achieving the stipulated budget deficit of not more than 5% of GDP. To achieve the set fiscal target, Government must use the 2020 budget to re-strategize by strengthening revenue mobilization and work towards improving and sustaining on-going interventions and undertake programs that can only translate economic growth and macroeconomic stability into tangible improvements in the lives of Ghanaians. Measures must be outlined in the 2020 budget to ensure that Ministerial functions are well coordinated to prevent excessive expenditure and misuse of state resources in order to free up more resources for service delivery.

Government’s debt management strategies have led to appreciable level of fiscal consolidation, but more work must be done to put the public debt on a more significant downward and sustainable path. The economic management team must further implement innovative strategies which would help Government to manage the public debt stock with the main aim of increasing adequate financing at the lowest possible cost and ensuring a prudent degree of risk. The medium term debt management strategy must focus on an appropriate financing mix aimed at supporting fiscal consolidation without compromising macroeconomic stability.

In the 2020 budget, we expect the government to outline measures of sustainability to facilitate smooth exit from the National Builders Corps programme by providing enabling environment for permanent jobs. We expect the 2020 budget to clearly indicate measures to improve the textile industry as well as create additional employment in line with the policy of building a stronger economy for jobs and prosperity. The 2020 budget must focus on supporting private companies to produce more and be able to export. More investment is required to produce more food and reduce the country’s huge food import bill. A strong private sector can offer the best sustainable solution to the unemployment challenge.

Ghana is far below the optimum level of infrastructural provision especially in the areas of roads, water, bridges, electricity, hospitals and sanitation. The 2020 budget must strategically outline measures to rehabilitate bad roads, and provide other infrastructure in the areas of sanitation, health, education and disaster management. Ghanaians would like to know measures and funding arrangements put in place to complete the road projects captured in the 2019 budget.

On the revenue side, the budget must widen the tax base and encourage corporate entities to file their tax returns. There is the need to review some of the tax exemption policies to generate more revenue. The 2020 budget must strengthen Ghana Revenue Authority (GRA) to collect taxes for the country with optimum efficiency as mandated by Section 3 of the Ghana Revenue Authority Act, Act 791. We expect the 2020 budget to outline measures to synchronize the various digital systems introduced by the government to manage database on taxation. This will help GRA to determine the revenue collection potential and effort index of the country.

The property tax collection at MMDAs levels is low partly due to insufficient valuation capacity and the high cost of valuation. The 2020 budget must highlight on measures put in place by the central Government to collaborate with the Local Government Service to enhance efficiency both in the valuation of properties and revenue collection process from property rate.

The development thinking in the 2020 budget must be guided by improvement in employment, infrastructural development, debt sustainability, fiscal discipline, financial soundness, enhanced revenue mobilization and upgrading defense capabilities for national security.

BY Dr Eric Akobeng
PhD (Leicester), MSc (Manchester), BA (Ghana)
[Economist and Development Policy Expert]

Lecturer in Economics
Business Studies Department
Lancaster University Ghana

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