Rethinking the country’s development finance and macroeconomic management will require effective domestic revenue mobilisation to fund the budget and infrastructural projects, the First Deputy Governor of the Bank of Ghana (BoG), Dr Maxwell Opoku-Afari, has said.
He said with Ghana’s attainment of a lower middle income status, Official Development Assistance (ODA), aid and grants to the country had waned and that would require the country to look within for financial resources to finance development projects.
Dr Afari disclosed this at a public lecture organised by the University of Ghana Business School in Accra on Friday, and said ODA inflows which historically were the main source of external financing flows for Ghana, rising from US$2.9 million in 1960 to US$1.4 billion in 2004 and peaking at US$1.8 billion in 2011, declined to $936 million in 2019.
Speaking on the topic “Rethinking Development Finance: Macroeconomic management when the love is gone,” he observed that, the declining levels of ODA, aid and grants called for effective domestic revenue mobilisation to finance the budget and development projects.
“The share of ODA to Gross Domestic Product (GDP) has fallen from a high of 16.0 per cent of GDP in 2004 to less than 2.0 per cent of GDP in 2019. Similarly, the share of grants in financing the budget has also declined from 30.1 per cent in 2001 to 16.6 per cent in 2019,” he said.
Dr Afari noted “These developments have created a fiscal resource gap, and presented policy makers with a different challenge to macroeconomic management. This calls for important policy decisions if we are to bridge this gap and finance infrastructure for development, since most ODAs were targeted at financing infrastructure and human capital development.”
To achieve the objective of effective domestic revenue mobilisation, the First Deputy Governor pointed out that there was the need to enhance efficiency of public spending, expenditure rationalisation, and value for money projects that would deliver projects more efficiently.
Dr Afari indicated that no matter the efforts made towards enhancing domestic revenue mobilisation, the country would continue to experience chronic fiscal deficits and a growing debt burden, if steps were not taken to rationalise expenditure .
He said the high levels of government spending required to close the huge infrastructure deficit and debt were limiting fiscal room for maneuver.
“This therefore calls for the kind of fiscal consolidation that involves both revenue-raising measures and expenditure-rationalisation policies, with the aim of reducing the overall fiscal deficit to sustainable levels and achieving structural fiscal balance over the medium term,” Dr Afari said.
The First Deputy Governor said there was the need to identify areas where spending was either wasteful, inefficient or did not deliver value for money, with the view to curtailing or eliminating them completely, pointing out that negotiation of government projects and contracts must be effectively handled and scrutinised to ensure that losses were minimised, and facilitate value for money considerations.
Among a raft of measures, to boost domestic revenue mobilisation, Dr Afari mentioned raising the tax to GDP ratio, efficiency in property-related tax collection, taxing the informal sector, improving royalties from natural resources, and digitisation of tax collection.
BY KINGSLEY ASARE