Any day from now, Finance Minister Ken Ofori Atta will present his mid year review of the 2020 budget in fulfillment of constitutional requirements. Undoubtedly, this will be the most difficult mid year review any finance minister in Ghana has had to prepare, because of the totally unforeseen, but deeply debilitating impact of the COVID 19 pandemic on the national economy.
Indeed, the impending presentation will in effect be more of a brand new budget than a review and consequent tinkering of the original one presented to Parliament in November last year. It will even be significantly different from the plan the finance minister presented to Parliament in March, when the pandemic first arrived in Ghana, because at that time, government had little inkling of the real effects it would have on the economy, nor the resources that would become available to it and the needs that would have to be met.
Now however, government has a better grasp of the situation facing it.
At the most basic level, government will have to decide whether to loosen its fiscal policies to keep the economy afloat, even though it can ill afford the costs involved; or to tighten policy in order forestall a runaway public debt situation. Standard practice in Ghana when presented with this situation would be to adopt the first option, especially in an election year, and worry about the consequences after the election, by which time it might even be someone else’s problem. But the incumbent government is confident that it will win the impending elections (whether that confidence is justified is another matter, not for discussion here) and so prudently will not want to adopt a strategy that would leave it with a distressed economy to manage in 2021 and thereafter.
The fact that government is been tight-lipped about its mid year budget review plans suggests that it has not yet made a final decision as to which way it wants to go.
Here are some suggestions though.
Firstly revenues. Broad tax increases to restore income lost to COVID 19’s impact would push Ghana even closer to recession. On the other hand government direly needs more tax revenues.
Therefore we suggest two policies. One is to convince the industries that are benefitting from the viral pandemic – such as providers of digital services – to agree to a temporary levy on the supra normal profits they are now making. To get such companies on board, a clear sunset clause would need to be inserted, and a promise of increased goodwill from government towards them when this crisis passes.
The other is to increase import duties on products where local producers have sufficient production capacity. Actually this simply amounts to temporary protectionism, using COVID 19 as an excuse to prevent retaliation from trading partners and sanctions from the World Trade Organisation itself. Imports from Africa would have to be excluded because of the impending African Continental Free Trade Agreement though.
On the expenditure side we recommend a reduction in public expenditure on goods and services. Government’s financial situation during the COVID 19 outbreak supports the assertion that the current bureaucracy is too big and too expensive to maintain and this is therefore the time to trim it, even if only temporarily.
We wish the finance minister good luck in his impending task; he is certainly going to need it.