The Member of Parliament for Ajumako-Enyan-Esiam Constituency in the Central Region, Dr. Cassiel Ato Forson, believes that the Ghanaian economy is in an Intensive Care Unit (ICU) and as a matter of fact, requires urgent attention.
Speaking on the Floor of Parliament on Tuesday, November 23, 2021, during the debate on the 2022 Budget Statement and Economic Policy, Dr. Ato Forson revealed that
Ghana’s economy is currently suffering from Stagflation with acute Debt Overhang Syndrome.
Below is his full statement;
Thank You, Mr. Speaker, for the opportunity to debate the 2022 Budget and Economic Policy Proposal of the Government of Ghana.
- It is an undeniable fact that all is not well with the Ghanaian Economy.
- Our Economy is in an Intensive Care Unit (ICU) and requires immediate attention.
- Mr. Speaker, permit me to diagnose the malaise of the Ghanaian Economy.
- The Economy of our beloved country is suffering from STAGFLATION WITH
ACUTE DEBT OVERHANG SYNDROME – “SADOSES”.
- Stagflation is a situation of “slow and jobless” real sector growth resulting in rising unemployment, co-existing with rising inflation.
➢ Rising inflation due to skyrocketing increases in fuel and food prices.
➢ Unemployment rising at an alarming rate and becoming a national security crisis because of the negligible impact of real sector growth on employment generation.
- Gross Domestic Product (GDP) grew at 0.4% in 2020 and is projected to grow at 4.7% in 2021. The real sector of the Ghanaian Economy is experiencing a “slow and jobless” growth in 2021.
➢ Agriculture that grew at 7.4% in 2020 is expected to grow at 5.3% in 2021.
➢ Industry that grew at -3.6% in 2020 is expected to grow at -0.5% in 2021.
➢ Key sectors of the service industry such as
a) real estate that grew at 12.5% in 2020 is expected to grow at 10% in 2021.
b) Financial and insurance sector that grew at 5.5% in 2020 is expected to grow 5% in 2021.
c) Information and Communication sector that grew at 22.5% in 2020 is expected to grow at 21% in 2021;
d) Health and Social sector that grew at 8.2% is expected to grow at 8% in 2021;
- Coupled with this “slow and jobless” real sector growth is an acute debt overhang. As at
September 2021, Ghana’s Total Public Debt stood at GHC341.8 billion of which GHC221 billion representing 65% of GDP have been accumulated in the last four and half years. According to the 2022 budget, between January- September 2021, the Government of Ghana collected GH₵37 billion in Tax Revenue (App 2A, pg. 227), of which 92% (GH₵34.4 billion) was used for debt servicing alone – interest payment (GH₵25.4 billion) + amortization (GH₵9 billion). This clearly is a case of an acute debt overhang.
- I repeat, Mr. Speaker, the Ghanaian economy is unfortunately suffering from “SADOSES” – an unfortunate economic condition.
Mr. Speaker, we need to make difficult choices in treating this Economic malaise. A choice to either treat the illness ourselves with local medication (home grown policies) or seek the advice of an external medical expert (visit the hospital, IMF). However, the most critical issue is the right medication and the right dosage.
- Our government has decided that we treat the malaise ourselves, with local medication (home grown policies). What is crucial is the right medication, and the right dosage; and if care is not taken, Ghana, will be going straight into the Highly Intensive Care Unit (HICU).
I say this because:
1) The policies and the estimations in the 2022 budget are not credible and realistic in dealing with the acute debt overhang.
a) Revenue for the last quarter of 2021 is overstated by about GH₵3 billion compared to that of 2020, signaling that our debt situation could be worse than anticipated by end year 2021.
b) For 2022, Revenue is over-estimated by about GH₵10 billion, equivalent to about 2% of GDP. This pushes the fiscal deficit for 2022 to almost 10% of GDP with a negative Primary Balance.
2) In an attempt to deal with the debt overhang, the government has introduced tax policies that will further exacerbate the illness.
Mr. Speaker, permit me to evaluate the infamous Electronic Transaction Levy (E-Levy) by pointing out its Economic inefficiencies
- E-Levy – The three-legged tax
a) Inward Remittance Tax – This is likely to discourage the much-needed remittances that have become the life wire of our struggling currency (Cedi) and drive the remittances market underground. Remittances have contributed immensely to the growth of the Ghanaian economy. Any attempt to tax it will discourage Ghanaians in the Diaspora from using the formal channels of transfer and encourage underground activities in the remittances market. It would also discourage Foreign Direct Investment (FDI).
b) Bank Transfer Tax. Mr. Speaker, I am not aware of any country in the world that taxes the principal amount involved in a Bank Transfer. This policy is inimical to the growth of the banking sector and will be counterproductive. If care is not taken, it will send Ghana back to the cash economy in the 1980s and the banking sector will struggle to survive.
c) Tax on MoMo. This is a super regressive tax that will impose unbearable hardship, pain and suffering on poor Ghanaians. We are aware that most traders and ordinary
Ghanaians use Mobile money wallet as savings account, therefore, any attempt to
impose a tax on mobile money transactions will be a tax on savings, – a disincentive to save – which should never be encouraged.
Mr. Speaker, I beg to say that this E-Levy will introduce more inefficiencies in the Ghanaian Economy than ever.
- Reintroduction of Full Benchmark Values and an Increase in Public Sector Service Fees and Charges. The government proposes to reintroduce the full benchmark values and increase all public sector service fees and charges by15%, will be inflationary. These proposed policy measures could increase prices of goods and services by at least 25% – 30%, and further increase the already high cost of living, rising unemployment and poor economic growth.
- In conclusion, Mr. Speaker, I would urge the government to seek the right prescription and dosage for the “SADOSES”. This government had the opportunity to address the huge debt overhang by accessing the Debt Service Suspension Initiative put together by the IMF under which we would seen our debt service suspended to give us some much-needed breathing space and channel the savings into critical expenditure. They would not have been the need to impose the draconian and killer taxes this government has heaped on us to survive. This government chose instead not to take advantage of this because they would have been required to maintain fiscal discipline. They chose rather to overspend in order to win the 2020 elections and this is why we are in this mess.
I would also urge Mr. Minister, to ignore the politics and save Ghana by seeking external help through the G20s Common Framework beyond the Debt Service Suspension Initiative (DSSI) in dealing with our debt overhang.
Thank you, Mr. Speaker!