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These measures will make going to the IMF unnecessary - IEA

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Fri, 18 Mar 2022 Source: www.ghanaweb.com

IEA proposes measures to build policy credibility

Government to take urgent measures to reduce expenditure

Abolish the current import benchmark discount of 30%, IEA


The Institute of Economic Affairs has urged government to employ some policy measures prescribed by Bretton Woods to help address the financial woes of the country.

The Institute mentioned that these measures if adopted, will save the country from going to the IMF for financial and economic support.

The IEA in a statement said, “I suggest below measures that I believe Government and Bank of Ghana can take help build the needed policy credibility, restore the economy to some level of sanity and make going to the IMF unnecessary.”

The Ghanaian economy is facing a serious crisis brought on to a large extent by COVID-19 and recent geopolitical developments.

A domestic policy credibility deficit, arising in part from the budget stalemate in Parliament over the E-Levy and a rising debt level, has compounded the crisis.

The crisis has led to the downgrading of Ghana by credit rating agencies, which has restricted access to international bond markets, increased borrowing costs, and fuelled disinvestments from the money and capital markets, causing a sharp depreciation in the cedi.

Rising commodity prices across the world have also fuelled domestic inflation.

Given the fast-deteriorating economic conditions, calls have been made to Government to approach the IMF to obtain policy credibility and restore investor confidence.

“To me, however, Government need not go to the IMF if it can adopt some of the key measures that the IMF is known to prescribe for members seeking its assistance.”

Dr. John Kwakye, Director of Research-IEA, stated that urgent steps such as working to resolve the current budget stalemate in Parliament over the Electronic Transaction Levy (E-Levy) should be urgently done.

He suggested “splitting the proposed rate of I.75% between telcos (I .0%) and consumers (0.75%). We believe this is a compromise that both the majority and minority can accept.”

He also wants government to take additional measures to scale up revenue, which is below par including the passage of the Tax Exemptions Bill to reduce the scope and scale of exemptions, enforce tax compliance, especially by professionals, introduce segregated corporate tax ranging from the current level of 25 percent for indigenous companies to 35 percent for foreign companies.

They also want the introduction of a temporary ‘windfall tax’ of 10 percent on ‘excess profits’ of mining companies, oil companies, telcos, and banks and abolish the current import benchmark discount of 30 percent for general goods and 10 percent for vehicles.

Again, it wants government to take urgent measures to reduce expenditure, whose level and composition remain problematic.

The measures, it added, should also include “restructure ministries and reduce the number from 30 to 20, reduce the number of Ministers from 86 to 56 (including 16 Regional Ministers), slash executive pay by 20% and enforce the announced 20% reduction of MDA’s budgets”.

In conclusion, he said, “it is important that government and Bank of Ghana collectively take these measures to restore investor confidence and gain needed policy credibility. Failure to act accordingly will only worsen the economic crisis, with the widening of spreads on Ghana’s bonds, decreasing access to international bond markets, growing disinvestments from local financial markets and growing pressure on the cedi.”

He stated that if the crisis continues, “the government could be forced to seek the needed policy credibility from the IMF, which is expected to recommend the very measures that government might fail to initiate by itself.”

Source: www.ghanaweb.com
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