Ghana on its own can bounce back from the downturn caused by the pandemic, overcome the current rising debt stock of over 76 percent of gross domestic product; but achieving this will however require that the interests of the country are put first, ahead of all others, Prof. Godfred Bokpin has said.
He noted that tax collection, currently below the African average of 18 percent of gross domestic product, will need to improve – and, most importantly, there must be effective use of these taxes. “I think Ghana can come out of this on our own. I have that hope, but provided we put the country first. If you look at how much taxes we are collecting now, we could do far more than that without burdening the faithful few,” he said.
Prof. Bokpin said this in Accra at the maiden edition of The Money Summit, a foremost platform to dialogue on issues pertaining to the financial sector. It was organised by the Business and Financial Times (B&FT) in collaboration with the Bank of Ghana (BoG), Ghana Association of Bankers (GAB), Ghana Stock Exchange (GSE) and Ghana Insurers Association (GIA) under the theme The Role of the Financial Sector in Post-Pandemic Recovery, and sponsored by FBN Bank, Fidelity Bank and MainOne.
Just like many economies across the globe, the COVID-19 pandemic has led to a decline in economic activity, reduction in government revenue against increasing expenditure to combat the virus and its impact on businesses and individuals alike.
As a result, government expects the economy to grow at five percent by the end of 2021, which will be an improvement on the 1.1 percent for 2020. Apart from a strong 4.9 percent growth in the first quarter of 2020, with onset of the COVID-19 crisis the economy contracted by 3.2 and 1 percent in the second and third quarters of last year respectively, pushing the country into a recession for the first time in 38 years.
Prof. Bokpin, an economist and professor of finance at the University of Ghana Business School, believes that the country – if run in a manner devoid of partisan politics and with genuine commitment to see real progress – can bounce back from the current crisis and curb the ballooning public sector debt, estimated to reach 80 percent of GDP at the end of 2021.
He however said the recovery efforts must not necessarily be about increasing taxes or introducing new ones, but rather improving and promoting compliance as well as effective utilisation of the public purse in a way that gives value for money and confidence to the taxpayer.
“There is conventional wisdom in managing the economy to the extent that it is predictable and comfortable for businesses to plan. For instance, banks probably would have planned for 2021 toward the end of last year, and then toward end of the first quarter there is a 5 percent levy at a time when their budget probably had been approved. At it stands, the banks do not have a choice.
“And the reality is that government also does not have a choice, because it cannot continue to shoulder that burden without finding help from citizens and body corporates,” he said.
“At the level where the debt is, we are all thinking ‘how is the government going to pay?’: and if government decides to hike taxes, then that is a cost to me as a private person, as a bank or body corporate,” Prof. Bokpin added.
To go to IMF or not?
Asked if going to the International Monetary Fund (IMF) should be an option available to government, he said: “We have to consider that option carefully because we have been there 16 times since independence, but the question is what do we have to show for it? If there is any lasting solution from going to the IMF, having been there 16 times, it should be obvious for us to point to”.
The last support the country sought from the Bretton Woods institution came between 2015 and 2018, in an extended credit facility.
This time around, he wants the country to focus on internal solutions rather than external. “We are more than capable of doing it. Even if we go to the IMF there are certain things that it will not do for us. For example, during the 2016 elections we were under an IMF programme but we still had excesses; so the best helping hand that we can find as a country is at the end of our own arm.”
He further explained that should going to the IMF become the only solution, the country would still have to make deliberate efforts to use such support for reaching the desired result or destination.
“We must believe in ourselves and allow institutions to work – less of the politics and more of actual work and honest commitment to do what’s in the best interests of Ghana. So, if Ghana wants to do it, we are more than capable of doing it,” he concluded.