Christine Lagarde – Managing Director of IMF
The government cannot achieve the targets outlined under the International Monetary Fund (IMF) programme with the country because of the design of the programme, the Institute of Fiscal Studies (IFS), a think tank, has observed.
“In its current form, I can tell you that by the next review, the government will slip. There is no way the government will be able to meet the conditions,” Prof Newman Kusi, the Executive Director of IFS, said emphatically, looking at the contradictory conditions imposed on the government and the Fund’s suggestion to holding up much of the funds (back loaded) until the government had significantly met targets.
The IMF programme is usually reviewed every six months.
Among the deliverables the government must meet is the front-loading of all fiscal adjustments within the first year of implementation, while the IMF is holding up much of the funds (back loading) it will release to cushion the country’s current accounts, necessary to ensure the exchange rate (cedi) stability.
This appears to be a hedge position the IMF has taken in order not to be the loser in the final analysis when the government has failed on implementation, given that elections are just a year away.
Among the fiscal (government expenditure) adjustments, the government is expected to cut fiscal deficit drastically, increase domestic tax revenues, abolish subsidies, cut public sector wages and salaries, while the central bank is expected not to finance budget deficit at all.
On the other hand, the IMF’s support will all come at later dates after the government has achieved those challenging targets, except for US$114.8 million it delivered a fortnight ago. The amount is about 12 per cent of the entire US$940 million bailout package.
“I’m wondering how the government is going to cut public wage bill, for instance, because it can neither reduce the salaries of the workers, nor can it muster the political will to downsize workers in the sector,” Prof Kusi said.
“It appears that right from the word go, the IMF itself is not sure of the government’s commitment and ability to implement the programme.”
This observation is based on the premise that the country had the knack for overspending during elections years, and next year is an election year. Therefore, the government will find it difficult to take some of the difficult and politically inexpedient decisions spelt out under the IMF programme.
Subsidies
When it comes to subsidies, the government has little to cut, the think tank believes, since it had already made it clear it was implementing the automatic adjustment formula for petroleum pricing, while subsidies on utility tariffs had also been significantly waived.
The 2015 budget only allocated GH¢50 million for petroleum subsidies. However, the announcement this week that students and lecturers in public universities are to pay their own utilities is viewed by some economists as part of the measures to remove subsidies.
Wage bill
The IFS believes the only way the government can make some progress on cutting wage bill is to clean up the public sector payroll to weed out ghost names and correct anomalies with the system.
“If I want to be radical, I will suggest that the management of the public sector payroll should be outsourced to the private sector,” the executive director of IFS said.
The head of the think tank said that would allow the private entity to put in the proper information and act as a check on the payroll, while the government makes the time to study the structure of the payroll.
“Other than that it would be garbage in, garbage out.”
Tax measures
On tax measures, the IFS said the country already had an optimised tax structure and rates in place for the formal sector, adding, “already the formal sector is overtaxed.”
Remaining adjustable areas include review of the country’s inefficient and generous exemptions. As of October last year, out of the domestic non-oil revenues, exemptions amounted to GH¢3.2 billion. Plugging revenue leakages should also include the customs system such as regular auditing of customs bonded warehouses, transit goods and free zones, and taking a careful look at domestic revenue collections from the domestic tax office.
Public expenditure
Again, the government’s hands are tied in cutting back public expenditure, because a large chunk of domestic revenues are earmarked for transfers to statutory funds and bodies such as the District Assemblies Common Fund, the Ghana Education Trust Fund and the National Health Insurance Scheme.
Other obligatory payments include interest payments, as well as wages and salaries. Interest payments have risen from GH¢1 billion (2.7 per cent of GDP) in 2009 to GH¢7.8 billion (6.8 per cent of GDP) in 2014.
The 2015 budget estimates that the cost of servicing loans will cost the nation about GH¢9.58 billion, equivalent to 7.1 per cent of the year’s estimated total output.
However, Prof Kusi suggested that the country needed a comprehensive functional analysis of the public sector and the mandates and tasks clearly identified and harmonised, an exercise which should help eliminate duplication.
“From here, we’ll be able to estimate the right number of people to work in an institution, with well-defined apt job descriptions,” he said, stressing that the civil service was currently over bloated.
Those that would fall out of the cracks would be retrained and offloaded to the private sector. In that vein, the government should put in measures to support the private sector to grow and expand, so it could absorb them.
High points of bailout
However, the programme, besides helping to unlock pledges and new grants from development partners, could also generate policy credibility and attract foreign direct investments.
