IMF deal: Drastic cut-back in wages impossible – Economist

A senior economist at the West Africa Monetary Institute (WAMI), Dr. Christian Ahortor, has said that a drastic cut-back in wages as part of the fiscal tightening dose prescribed by the IMF to put the economy back in the recovery lane is impossible.

His comments follow a report by Africa Economics LLC, an international research organisation, saying that government will find it difficult to cut down public expenditure, especially public wages, due to the 2016 elections.

However, in as much as Dr. Ahortor agrees with the fact that it will be difficult for the government to cut down on public expenditure, he disagrees that the 2016 elections will be the main stumbling block to disable government from carrying out that mission.

He believes the current economic conditions in the country will be the main factor that hampers the deal.

"A drastic cut-back in wages is not a possibility because of its negative ramifications. However, this impossibility is not the result of forthcoming elections in 2016. The fact is that if the current economic conditions persist through 2016, no rational and sensitive government will think of cutting wages either before or after the elections.

“It must be understood that the value of the wages of an individual has been eroded already by the rising inflation and the deprecating cedi. Under these circumstances, the government should rather be thinking of cushioning the individual worker,” he said.

The IMF as part of its three-year budgetary support programme to Ghana, has advised government to restrain the wage bill -- which has been one of the main reasons for the country’s fiscal imbalances: by limiting the nominal increase in the total wage bill to 10 percent; scrapping the 10 percent Cost of Living Allowance granted to workers last year; and also getting an agreement with labour unions on a 13 percent wage increase over the 2013 nominal basic wage.

Additionally, the Fund wants government to freeze employment into the public sector -- except the education and health sectors -- and also do away with subsidies for utilities and fuel consumption by ensuring the automatic adjustment formula is implemented to the core.

Dr. Ahortor argues that given the bad shape of the economy, government should rather appeal to public sector workers to agree with the current wage levels instead of cutting it down, to avoid agitation from workers.

He further stated that the high wage bill does not spring from the wage levels but comes as a result of leakages in the payment system, and therefore urged government to thoroughly clean up the payroll.

"The problem is principally the result of leakages in the payments system on account of an over-bloated public sector payroll resulting from ‘ghost-workers’ syndrome. The solution is not cutting individual wages but cleaning the payroll system.

“To bring expenditure under control, government must not only look at wages but also interest payments and contract price inflation. Government must reduce its borrowing and bring some sanity into how contracts are awarded.

“The Procurement Authority must ensure value for money in all contracts for projects and supply of goods and services," he added.

The Africa Economics LLC report also stated that moves to increase revenues by widening the tax base and improving efficiency in collection are unlikely to yield any significant short-term impacts, due to weak structures such as inefficient public and business address systems.

Dr. Ahortor opines that the Ghana Revenue Authority (GRA) has been doing quite well in recent years with revenue mobilisation. However, he agrees with the report that there are weak structures in the tax collection system and GRA can do more to address the situation.

"GRA can do more by being more aggressive in tax collection. The situation where revenue collectors sit in offices expecting taxpayers to come and register with them or settle their obligations should be a thing of the past.

“There must be random checks for companies that are operating without valid registration and Taxpayer Identification Numbers (TIN). The GRA should also be looking at how to overcome the challenges of under-declaration, over-invoicing, transfer pricing, tax exemptions and tax holidays," he said.

He noted that overcoming the challenges mentioned above will rake in more revenue for the country and narrow the soaring fiscal deficit.