Dr Daniel Anim, Chief Economist with the Policy Initiative for Economic Development, has characterized Ghana’seconomy as one in the early stages of recovery but still plagued by significant structural challenges, despite President-elect John Mahama’s promises to scrap some taxes.
“Inflation has dropped from 54% in December 2022 to 23.1% currently, and the Ghana Statistical Service reports 7.3% GDP growth in the third quarter of 2023. While these indicators suggest some positive movement, the economy is not robust or sound,” Dr. Anim explained.
He noted persistent issues such as high youth unemployment, elevated living costs, and exorbitant borrowing rates, with policy rates at 27% translating into borrowing costs of 30-40% for businesses.
“This makes it difficult for industries to thrive and contribute significantly to economic growth. So, while the economy shows signs of recovery, it remains fragile and burdened by numerous challenges,” he added.
IMF Constraints and Tax Abolition Promises
Dr Anim also raised concerns about the incoming NDC administration’s pledge to abolish taxes such as the e-levy, betting tax, and COVID levy, which collectively contributed significant revenue in 2023. The Ghana Revenue Authority reported that the e-levy generated GH¢1.19 billion, while the betting tax brought in GH¢50 million as of September.
According to Dr Anim, scrapping these taxes could pose fiscal challenges due to Ghana’s ongoing IMF program, which requires evidence of revenue mobilization. “The IMF conditions include commitments to boost revenue and manage expenditure. Removing these taxes without alternative sources of revenue would jeopardize these commitments and could strain relations with the IMF and external creditors,” he stated.
He cited past experiences under the Akufo-Addo administration, where tax cuts initially aimed at moving from “taxation to production” were reversed due to the government’s inability to meet revenue targets. “Scrapping taxes without alternatives could lead to a revenue shortfall, limiting the government’s ability to meet recurrent expenditure and investment needs,” Dr Anim cautioned.
Alternatives for Revenue Generation
While the incoming administration could consider alternatives such as reintroducing road tolls and reducing the size of government, Dr Anim argued that these measures alone would not suffice. “Reducing the size of government may have minimal immediate impact. What is needed is a holistic approach, blocking financial loopholes, reducing corruption, and ensuring accountability for public funds,” he said.
Dr Anim also stressed the importance of diversifying Ghana’s economy to reduce its dependency on raw material exports. He pointed to the One District, One Factory (1D1F) initiative, which he argued has yet to achieve the desired impact on the domestic economy.
The Need for Strategic Communication
Dr. Anim emphasized the importance of strategic communication by the incoming government. He suggested that the NDC administration should clearly explain to citizens the constraints posed by existing IMF agreements and the need to tread cautiously with campaign promises.
“Government has four years to deliver on its mandate. Communicating to citizens that fulfilling some promises requires time and proper planning is crucial. Citizens must understand that rushing into such decisions without considering economic realities could push the economy backward,” he explained.
Using the implementation of the Free Senior High School policy as an example, Dr. Anim noted how rushing policies without adequate resources led to challenges in delivering quality outcomes. He urged the NDC to avoid similar pitfalls by prioritizing economic stability over political expediency.
“Economic policies take time to yield dividends. The administration must strategize and mobilize resources in the first few years while maintaining transparency with the public. Failure to do so could lead to significant backlash,” Dr Anim concluded.
