DON\u2019T RUSH TO PRAISE ALL OF AFRICA\u2019S \u201cPOPULAR\u201d BUT FISCALLY UNSUSTAINABLE PROGRAMMES
Introduction
– Context is 2019 Mid-Year Review and the need to be realistic about the fiscal prospects for the country\u2014based on past views in interviews and articles.
– A general call on those who relate to Africa and its leaders not to ingratiate or praise all \u201cpopular policies and initiatives\u201d, even if well-meaning, that eventually lead to waste of fiscal and economic resources\u2014even disaster.
– The call goes for domestic leaders (e.g., chiefs, experts, clergy) and foreigners (e.g., multilateral and bilateral institutions, development partners, CSOs, professionals, etc).
Background
– Even the President now concedes (e.g., Oxford University lectures) that the Free Senior High School (F-SHS) will take a lot of resources, including:
– diversion of petroleum revenues from the path of investment to consumption
– including early hints of the use of \u201cHeritage Fund\u201d for F-SHS;
– accumulation of arrears (e.g., pensions, roads, bailouts cost, etc) at May Day Speech;
– higher levels of borrowing than the government had anticipated; and
– despite three (3) (two (2) additional) oil fields with almost 3 times the output since 2017 and recovery of prices that has tripled revenue from petroleum.
– It will involve serious long-term commitment\u2014merit only in leaving a legacy that future leaders will grapple with for decades.
– Note that the Minister for Finance also highlighted the point but was quickly shouted down by hawks within the Cabinet and the Party.
The \u201cunsustainable promise\u201d of F-SHS and other political promises
F-SHS appeared sustainable because\u2014
Unlike the original promise of a \u201cbig bang\u201d during elections (starting with all students), SHS program was \u201cstaggered\u201d to start with only Year 1 students:
– Years 2 and 3 students continued to pay fees\u2014while program remained \u201cuntargeted\u201d, with even middle-class and affluent parents benefitting;
– additional petroleum (oil and gas) revenues provided initial buffer from 2017\u2014but these one-time inflows are against expanding expenditures (F-SHS and other very expensive electoral promises such as 1D1F);
– averting global and SSA recession and investments in energy sector
Ghana among few SSA states to avoid recession
– reverse rate of accumulation of national debt from positive to negative;
– investing directly and supporting private-sector investments in TEN and Sankofa petroleum fields;
– a substantial part of highly-rated fiscal consolidation came through another \u201cillusion\u201d\u2014budget \u201coffsets\u201d rather than a program of paying down arrears;
– bequeath of buffers\u2014previous administration bequeathed buffers:
a. Sinking Fund: use to pay off outstanding balance of Ghana\u2019s first 2007 Sovereign Bond;
b. Ghana Infrastructure Investment Fund (GIIF): balanced used; VAT flow diverted to consumption; and no further allocations made to Fund;
c. Energy Sector Levy (ESLA): continuous flow of Ghc3 billion annually for clearing arrears directed at providing relief for domestic banks;
GDP \u201crebasing\u201d provided fiscal room and breadth, through
– room for borrowing through GDP growth and \u201cillusionary\u201d lowering of Debt\/GDP ratio that is being trumpeted as an achievement by the government; and
– deferred the impact of increasing costs.
– \u201ccapping\u201d\u2014has not provided needed fiscal relief, despite diverting vital resources from vulnerable programs (i.e., education {GETFund} and health {NHIL}; rural development {DACF}; and institutions {IGF}
Fiscal signs not favourable\u2014going into Mid-Year
– one-time cushions\u2014the \u201cbump\u201d in GDP growth from rebasing and additional crude\/gas production is \u201cone-time\u201d and will no longer cushion the worsening indicators like debt and budget deficit;
– arrears owed to contractors and suppliers\u2014large amounts owing to these vital economic players in various sectors, including Presidential initiatives, are becoming apparent and are now acknowledged by the Government\u2014
– pensions\u2014concession at May Day celebrations by HE the President;
– contractors and suppliers\u2014concessions by Roads and Finance ministries and \u201cdemonstrations\u201d by contractors;
– salaries\u2014civil servants, nurses, and presidential initiative employees;
– banking sector \u201cbail-out\u201d costs\u2014despite unprecedented funds from ESLA;
F-SHS\u2014no comprehensive disclosure yet to Parliament and the nation on true costs and inevitable arrears;
– increasing tax burden\u2014retention of temporary (\u201cnuisance\u201d) taxes & introduction of new tax measures
– retention of temporary (\u201cnuisance\u201d) taxes such as ESLA, special import levy (SIL), national fiscal stabilization levy (NFSL)
– implicit.increase in ESLA levies: introduced at a period of low crude prices low US$40s pbl so consumers are paying more now at current higher price above US$60pbl;
Implicit ESLA levy: levy should have lasted 3-to-5 years but increased duration of ESLA Bond to 7-to-10 years;
– new tax measures\u2014increase in top rate of personal income tax (PIT); 2.5 percent increase in VAT rate (from 15% to 17.5%); luxury tax (user fee) on vehicles; blocking VAT input tax credit (ITC);
– discretionary change in basis (valuation and classification) for calculating import duties, VAT, fees\/charges; etc;
– fiscal expansion\u2014the worsening fiscal gap may not taper or abate due to
– subtle, not bold, new tax measures (e.g., luxury tax etc.)
– continuing with expenditure programs (likely borrowing, not reallocation to support the pace of president\u2019s electoral promises;
– fiscal deficit and borrowing\u2014these indicators are deteriorating fast and corrections for offsets in, and lowering of estimates, will make these indicators worse;borrowing to support the increasing fiscal deficit;
– borrowing to finance belated infrastructure;
– pledge of resources (e.g., royalties from minerals, bauxite deposits, etc.) to support the budget;
– Sinking Fund\u2014despite three (3) oil fields, not using the SF to reduce debt (as was done from one (1) oil field for the NPPs first 2007 Sovereign Bond;
– Ghana Infrastructure Investment Fund (GIIF)\u2014diverting funds (i.e., VAT and ABFA) for investment in infrastructure to consumption.
Wanted now\u2014cautious voices
\u201cMeasured\u201d approach is fiscally prudent\u2014being \u201cmeasured\u201d with
– F-SHS [e.g., alternative \u201cprogressive\u201d approach] and other programs is consistent with fiscal prudence, as elicited in Public Financial Management Act [PFMA] and Budget Responsibility Act [BRA];
– Benefits of being \u201crealistic\u201d\u2014refreshing to hear the voices of caution emerging
– Domestic experts\u2014professors, experts, think tanks, and chairperson of vital constitutional commission have sounded note of caution;
– Opinion leaders\u2014it is important for other domestic opinion leaders to follow a realistic lead (e.g., clergy and chiefs must reflect condition in religious and community schools);
– IMF\/WB MD\u2014sounded note of caution, not ringing endorsement, on government expenditure and debt programs; nonetheless
– roll-back of tax measures (e.g., VAT on non-core financial sector and commercial real estate) in Program;
– failing to acknowledge Ghana\u2019s avoidance of recession; permitting fiscal expansion; and not being critical of \u201coffsets\u201d that underestimated arrears and gave impression of accelerated fiscal expansion;
– Development Partners (DPs)\u2014countries that may be capable of free (education) social programs choose to make them \u201ctargeted\u201d (i.e., tuition-free programs, as Ghana had) and adopting alternative options (e.g., concessional student loans);
– Preference for using fiscal support for investments, not consumption, is global
– in advanced countries (e.g., quantitative easing): invest in infrastructure to support private sector and rural\/urban development, not place scarce fiscal resources in consumption;
– MIC states\u2014approach adopted by middle-income countries (MICs) such as Emirates and Asian economies;
– Developing countries\u2014Angola and South Africa now showing a preference for infrastructure development through Sovereign Wealth Funds (SWFs) as in Ghana\u2019s PRMA.
Conclusion
– Current fiscal environment is different from late 2014-16 when many SSA countries were headed into recession, due to global financial crisis, fall in crude oil and other commodity prices, and domestic pressures such as non-supply of gas from Nigeria
– Now, three (1) oilfields, not one (1); rebound in commodity prices, and, therefore, enhanced budget buffers.
– Problem is unbridled expenditure due to electoral promises; non-conventional approach to managing arrears; and borrowing
– Time for realistic review and appraisal as well as domestic and international experts toning down their praise or holding back their reservations on Africa\u2019s politically-motivated \u201cpopular\u201d but unsustainable electoral and fiscal promises.
Source: Seth Tekper
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DON\u2019T RUSH TO PRAISE ALL OF AFRICA\u2019S \u201cPOPULAR\u201d BUT FISCALLY UNSUSTAINABLE PROGRAMMESIntroduction– Context is 2019 Mid-Year Review and the need to be realistic about the fiscal prospects for the country\u2014based on past views in interviews and articles.– A general call on those who relate to Africa and its leaders not to ingratiate or praise all […]<\/p>\n","protected":false},"author":8,"featured_media":3477,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_post_source_name":"","_post_source_url":"","footnotes":""},"categories":[1],"tags":[109,1648,2567,7207,11866,9330,11967,5673,9042,5249,3782,9194,8256,11232,8051,2961,8440,5499,6725,12175,12507,9198,423,6732,5494,9196,12774,12354,10627,11844,9643,3577,5491,1237,2260,192,2264,6543,12634,5060,12138,7998,12773,8995,5910,10954,9343,3874,6565,6205,434,7406,5441,6582,11973,3983,1198,5081,12155,13256,6027,3805,11377,12103,10390,11625,12273,6069,8383,9859,10334,6736,8810,213,244,10041,6059,7770,6047,5376,1502,6206,214,6348,8632,3954,594],"class_list":["post-3476","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-1d1f","tag-africa","tag-angola","tag-asian","tag-bail","tag-banks","tag-bilateral","tag-bond","tag-borrowing","tag-budget","tag-cabinet","tag-charges","tag-chiefs","tag-clergy","tag-consumers","tag-contractors","tag-crisis","tag-crude-oil","tag-debt","tag-developing-countries","tag-discretionary","tag-economies","tag-education","tag-emirates","tag-energy","tag-environment","tag-fees","tag-finance","tag-financial-crisis","tag-foreigners","tag-fund","tag-future","tag-gas","tag-gdp","tag-getfund","tag-ghana","tag-government","tag-growth","tag-health","tag-imf","tag-import","tag-income-tax","tag-increase","tag-infrastructure","tag-initiative","tag-international","tag-investment","tag-lead","tag-loans","tag-may-day","tag-nigeria","tag-nurses","tag-oil","tag-oil-fields","tag-one","tag-oxford-university","tag-parliament","tag-petroleum","tag-petroleum-revenues","tag-players","tag-pledge","tag-president","tag-presidential","tag-price","tag-prices","tag-professionals","tag-real-estate","tag-recession","tag-revenue","tag-royalties","tag-salaries","tag-school","tag-schools","tag-shs","tag-south-africa","tag-speech","tag-student","tag-student-loans","tag-students","tag-tanks","tag-tax","tag-taxes","tag-university","tag-us","tag-vat","tag-will","tag-who"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/www.nsemgh.com\/api-json\/wp\/v2\/posts\/3476","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nsemgh.com\/api-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nsemgh.com\/api-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nsemgh.com\/api-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nsemgh.com\/api-json\/wp\/v2\/comments?post=3476"}],"version-history":[{"count":0,"href":"https:\/\/www.nsemgh.com\/api-json\/wp\/v2\/posts\/3476\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nsemgh.com\/api-json\/wp\/v2\/media\/3477"}],"wp:attachment":[{"href":"https:\/\/www.nsemgh.com\/api-json\/wp\/v2\/media?parent=3476"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nsemgh.com\/api-json\/wp\/v2\/categories?post=3476"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nsemgh.com\/api-json\/wp\/v2\/tags?post=3476"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}