Ghana’s Economic Governance: ‘Reset’ or ‘Update’

I cannot recall any other time in Ghana’s recent political history where two leading political parties have so clearly and elegantly named their campaigns.

Former President John Mahama promises “reset” and Dr Mahamudu Bawumia promises “modernization.”

It is a testament to former President John Mahama’s genius as a communications expert that he came up with the slogan “reset” to sum up his presidential campaign.

The word resonates with most voters, especially those under 45 and Generation Z, because it is associated with electronic devices and information technology (IT) and implies a solution when things are not working properly.

The irony is that in doing so he unwittingly gave his opponent, Dr. Bawumia, a platform upon which he could define his campaign in one word, something that Dr. Bawumia’s campaign was struggling with.

In turn, Dr. Bawumii’s “modernization” refers to information technology and electronic devices and reaches the same group of recipients.

It promises new, improved and better performance.

“Reset” refers to a return to a known and preferred state of affairs from the past, especially in relation to electronic devices.

Political battles are now clearly defined by the words “reset” and “modernization.”

This article assesses two competing proposals for managing the country’s economy to determine which is best for Ghana.

We defined “reset” as a return to a known and preferred past state.

Former President John Mahama proposed holding an economic summit within his first 120 days in office to discuss ways to revive the economy.

When it comes to managing Ghana’s economy, finding such a “preferred state in the past” in our history is a challenge.

Evidence suggests that Ghana’s past economic management has never been exemplary.

Ghana is struggling with a chronic debt problem and is currently using an International Monetary Fund (IMF) programme, its seventeenth in 67 years of independence; this does not include the Heavily Indebted Poor Country (HIPC) or Structural Adjustment Programme (SAP) initiatives.

Every four years we turn to the IMF for assistance, regardless of which party is in power or what form of government it has.

This is a systemic problem that previous governments have failed to solve.

The challenge was the lack of fiscal discipline.

We have never been able to raise enough tax revenue to cover public spending; as a result, some $23 billion of our potential revenue per year remains outside the tax system.

Successive governments have consistently spent more than they could afford, borrowing excessively to finance their spending.

Governments borrowed from the central bank externally, internally, and worse. The consequences of this borrowing were dire.

The private sector, the engine of economic growth, is being forced out of the credit market, which limits its ability to invest and develop business activity and the economy.

Governments typically spend borrowed money on services and infrastructure, which has an inflationary effect on the economy.

This persistent inflation enriches the rich and impoverishes the poor and middle class as income is redistributed from people with fixed incomes, such as workers and retirees, to those with variable incomes.

It penalizes savers and rewards spenders, discouraging delay of gratification and undermining the morality of society.

As inflation erodes some of the purchasing power of private capital, it can no longer buy what it once could.

With private sector growth subdued and fewer opportunities to invest in job creation and finance development, the vicious cycle of debt and taxation is destroying the country’s productive base, leading to default and crisis.

This has been the recent history of Ghana’s economic management. It is not exactly something we would like to return to.

Ghana’s economy is at a crossroads and faces enormous challenges that must be addressed through the development of a strategic and comprehensive plan.

Achieving economic independence and meeting our citizens’ aspirations for economic growth and prosperity without overreliance on foreign capital and influence is a complex task.

This requires a well-considered plan to address our debt problem, increase public revenues, reduce public spending and stabilise the cedi.

This is the task that Dr. Mahamudu Bawumia’s “modernization” proposal aims to undertake. The concept of “modernization” offers a glimmer of hope for Ghana’s economic future.

It promises a new, improved, and therefore better condition of the economy.

This concept involves a transition to more effective and efficient fiscal policies and practices when applied to economic management.

It has the potential to steer Ghana’s economy towards a brighter and more prosperous future, instilling a sense of optimism and hope in our citizens and policymakers.

Dr. Bawumia’s “improvement” involves the introduction of a new flat tax system and a tax amnesty to expand the tax base to cover about 90% of potential taxpayers.

If implemented, this would be the first time that Ghana has implemented such an efficient and effective tax system.

Recent advances in digital technology, such as the National ID Card using national ID cards as tax identification numbers, mobile money interoperability, financial inclusion, SIM card re-registration and the digital address system, have made this new system possible.

The projected increase in revenues has significant implications. It could reduce the government’s need to borrow to cover spending and encourage private sector investment to stimulate economic growth and job creation.

This increase in income could help ease inflationary pressures and stabilise the cedi, making the country more attractive to foreign direct investment and supporting economic growth.

In addition, it could create fiscal space to remove “onerous taxes” such as the electronics fee, betting taxes and emissions taxes, and reduce port dues to the level applicable to the port of Lomé.

This would lead to lower living costs and improved living standards.

On the expenditure side, Dr. Bawumia’s “update” aims to reduce the budget deficit and interest rates by introducing fiscal discipline measures such as an independent fiscal responsibility council and amending the Fiscal Responsibility Law to include a rule that limits budget expenditure to 105% tax revenue from the previous year.

In addition, the plan calls for reducing public spending by limiting the size of the government to fifty ministers and deputies, outsourcing government projects to external entities, and opting for leasing rather than purchasing equipment and vehicles.

These measures are expected to cut government spending by 3% of GDP, or about $2 billion a year, while increasing private sector growth.

Dr Bawumia proposes the continuation of the Bank of Ghana’s (BOG) “Gold for Reserves” policy to support and stabilise the Cedi in the long term.

This policy is implemented through the National Gold Purchase Programme (DGPP).

Through the DGPP, the Bank of Ghana increases its foreign reserves by purchasing locally mined gold with cedis.

Before this program, Ghana’s total gold reserves since independence were 8.7 tons. However, the BOG has purchased 80 tons of gold since the DGPP began under its “gold for reserves” policy.

Thanks to this, BOG’s gold reserves increased to over 88 tonnes (as of July 2024).

The Bank of Japan intends to continue to increase its gold reserves as well as pursue prudent fiscal policy to ensure the long-term stability of the Cedi.

In addition, the DGPP includes the use of commodity swaps, such as gold-for-oil transactions, to reduce local pressure on currency markets.

The gold-for-oil program allows oil imports to be paid for in gold, thereby reducing pressure on Ghana’s foreign reserves and stabilizing the exchange rate.

In contrast to the “reset,” the “modernization” proposal presents a new and exciting vision for Ghana’s economic future.

Dr. Mahamudu Bawumia’s proposal is to improve economic performance through the introduction of effective and efficient fiscal policies and practices.

This approach could address issues such as debt, increasing public revenue, reducing public spending, and stabilizing the cedi. Proposing innovative solutions such as a new flat tax system and a tax amnesty to broaden the tax base, the “upgrade” proposal instills a sense of optimism and hope for Ghana’s economic trajectory.

It offers a real path to sustainable growth and economic independence, making it a favorable choice for managing the country’s economy.

The author, Mordecai Quarshie, is a seasoned Ghanaian politician with many years of experience in his private life. You can contact him at[email protected]

RESERVATION: The views, comments, opinions, statements and declarations of Readers and Contributors posted on this platform do not necessarily reflect the views or policies of Multimedia Group Limited.