Associate Professor of Finance at the University of Ghana Business School (UGBS), Professor Lord Mensah, has advised government against trying to raise revenue from the populace when it has not provided them with infrastructural development and a sound economy.
He explained the growth of the economy of Ghana is dependent on individuals and the private sector. “They determine the economic performance of the country and if the government provides good roads and has policies in place to make the private man succeed, they will ultimately pay taxes without complaint. Ghanaians will willingly pay the e-levy if after sending money to their parents in the village they know they can make the money back with ease. If the roads are good and I don’t have to buy shock absorbers every now and then, then I will not mind paying taxes. If a businessman is succeeding because of sound governmental policies, he won’t mind if taxes go up.”
According to him, a government which tries to run the economy on its own will always see its citizens reacting and rejecting any and all taxes it introduces.
On Thursday, 13th January 2022, the attention of the Ministry was drawn to a widely circulated Bloomberg article captioned – “Ghana Debt Moves Deeper into Distress as Investors lose Patience”.
There are some serious factual errors in the article, which may give investors some cause for concern, if not corrected. For example, Bloomberg stated 81.5% as end of year debt to GDP ratio. This is incorrect. Our provisional nominal debt to GDP, as at the end of November 2021 was 78.4%, which is the latest data available. December revenue collections are seasonally the largest for any year, it is unlikely that our financing requirements in December will result in us exceeding 80% debt to GDP by December 2021.
The Bloomberg article gave wrong historical debt to GDP figures. It is essential we make the correction that Ghana’s debt to GDP figures a decade ago were 39.67% and 47.80% for 2011 and 2012, respectively, and not 31.4% as stated in the Bloomberg publication. Again, it is important to note that for the period prior to the COVID-19 global pandemic, Ghana experienced an average debt-to-GDP ratio of 56.4% from 2015 to 2019. In 2020, Ghana’s GDP grew by 0.4% because of the impact of the Covid-19 Pandemic on the economy. Financing of the additional Covid-19 related expenditures, in addition to revised revenue targets, due to the impact of the pandemic, led to an increase in debt-to-GDP from 62.4% in 2019 to 76.1% in 2020; these are portions of a response from the Finance Ministry to the Bloomberg article.
Professor Lord Mensah described the response from the Ministry as unnecessary as Bloomberg is not only a credible leader in financial information, but it is a third party which sees what goes on in the economy “and if they say the economy has suffered downgrade, investors will listen to them.”
To him, if the economy was really doing well as countered by the Finance Ministry, why then are Ghanaians not feeling the trickling down. “Indeed the government has laid down some foundations to boost the economy but they have not yielded anything yet,” he told Samuel Eshun on the Happy Morning Show.
He advised Ghana to accept the downgrade as a transition period but cautioned against regular downgrades as that could crash the economy.
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