IMF urges more spending cuts
The International Monetary Fund (IMF) has said government would have to trim its expenditure ahead of the December 7 polls after economic challenges meant government would not be able to meet its revenue targets.
Disruption to oil production at then Jubilee Field earlier in the year led to a production shortfall, and consequently, a massive drop in half-year revenue target, from US$484.79 million to about US$87 million dollars.
Aside that, the fund said a “budgeted package of revenue measures” aimed at boosting non-oil revenue, is not generating the needed revenue, including the revised Income Tax Act, sale of communication spectrum, and the ECOWAS Common External Tariff (CET), among others.
As a result, the Fund said it expects government to cut its spending in accordance with the US$918 million bailout programme that commenced last year.
“The authorities were hoping that the tax administration measures being implemented to enhance tax compliance and collection would bear fruit quickly and contribute to reduce these shortfalls. Staff advised to plan budget execution for the remainder of the year on the basis of a more cautious revenue projection.
“Accordingly, the shortfall in oil revenues will be offset by reducing some discretionary spending in line with the Petroleum Revenue Management Act (PRMA), while the shortfall in non-oil revenue will be mainly offset by a reduction in transfers to the investment fund,” the Fund said.
The recommendation by the fund comes barely two months to the crucial December polls where incumbent John Mahama would be seeking a re-election against main rival Nana Addo Dankwa Akufo-Addo, who recently launched his party’s manifesto centered on job-creation.
Election years in Ghana are typically characterised by increased wage pressures as workers tend to hold government to ransom, leading to frequent wage bill overruns in election years. To keep the wage bill within the budget envelope, the government had to reassure the Fund that it intends to strictly enforce the freeze on net hiring and controls on allowances.
According to government, it will also continue strict control of discretionary spending, including those related to elections.
The IMF said it expects government to implement the arrears clearance plan, mainly clearing arrears to SOEs, statutory funds and oil importing companies, following finalisation of the audit of the claims by oil importers related to subsidies and exchange rate losses in 2014 and early 2015.
“With these policies, the central government remains on track to achieve the targeted substantial improvement in the overall fiscal balance on a commitment basis by over 7 percentage points of GDP from 2014 to 2016,” the fund said.