Fiscal policy think tank, Institute of Fiscal Policy (IFS) observed here on Thursday that spending cuts by government of Ghana in its quest to achieve fiscal consolidation is inimical to economic growth and long term revenue mobilization.
Briefing the media about their observations on the performance of the Ghanaian economy in the first half of 2017, Prof. Kusi Newman, Executive Director of IFS cautioned that with revenue targets in the 2017 budget already too ambitious, further cuts in expenditure will dampen economic growth and threaten the attainment of revenue targets.
The 2017 budget had projected an overall economic growth rate of 6.3 percent for the year as a result of increased production of crude oil.
The Gross Domestic Product (GDP) including the oil sector grew by 6.6 percent during the first quarter of 2017, compared to the 4.4 percent growth during the same period last year.
However, the non-oil sector growth was weaker turning in at a modest 3.9 percent growth in the first quarter of 2017, against 6.3 percent recorded for the same period of last year, as lower non-oil growth, according to Bank of Ghana, continues to reflect low activity in the services sector.
The think tank however blamed the lower non-oil sector growth on the government’s spending retrenchment.
“Nevertheless, the IFS finds the rate of growth of non-oil GDP very disappointing. This unfortunate development is partly due to the government’s spending retrenchment, which has severely hit expenditure on goods and services, capital expenditure and arrears payment,” Prof. Kusi noted.
In all, the government’s expenditure cut totaled 3.6 billion Ghana cedis or 820 million U.S Dollars during the first four months of the year.
He noted that payment of arrears helps to improve private sector liquidity and spending, while capital spending helps to support projects and also provide the much needed infrastructure, such as roads and power.
“Cutting back capital spending and not paying valid arrears hold back economic activity, with serious consequences for domestic revenue mobilization,” he cautioned.
Government, he said was compelled to cut back on expenditure due to the shortfalls in revenue projections for the first quarter of the year.
“From developments so far, it is obvious that the projected revenue for the year will be difficult to achieve in 2017 unless new measures are introduced to grow the non-oil economy and enhance revenue administration,” IFS cautioned.
On his part, Director of Research at IFS, John Kwakye underscored the need for discipline in spending, in order to sustain fiscal consolidation, urging the government to do away with irregular and fruitless spending.
He said it might not be necessary to seek external interventions from institutions such as the International Monetary Fund (IMF) if “we can put the structures in place ourselves and ensure fiscal discipline.” Enditem