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Fiscal management remains Ghana’s main challenge

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With a budget deficit of 14 % of GDP in 2008 dropping to 9.7% in 2009, the IMF believes fiscal management remains Ghana’s main challenge-an IMF mission to Ghana has concluded.

The conclusion by the IMF has a lot of credence to it. The import bill of the country has been rising. In 2009 oil imports were US$1.5 billion as against US$ 2.4 billion for 2008. This the Bank of Ghana explained as being “driven mainly by lower prices of oil products and crude oil as well as lower volume of crude oil imports by the Volta River Authority resulting from an increase in the hydro component of power generation.”

However, analysts like Ms. Razia Khan, Head of Research at Standard Chartered Bank has argued that the oil import bill will continue to rise until Ghana becomes an oil producer. Until then this will still remain a challenge to Ghana’s fiscal position.

Connected to the oil bill is the government’s subsidy on oil prices. Even though oil prices have been rising on the world market, local prices are yet to reflect global price trends. The government has just announced that it will absorb fuel increases worth GH¢12 million for two weeks. This may be a reprieve to the public, but may create a budget problem.

Electricity tariff adjustments were one of the recommendations of the IMF mission. This conclusion comes to buttress calls by the three players in the utilities industry for increases in electricity tariffs. However, the government has postponed consideration of these proposals until August this year. The utility companies argue that their operations may come to a halt if action is not taken to increase tariffs. An increase in tariffs may be necessary, but a rationalization of the operations of the utility companies is more urgent and must go hand in hand with tariff increases. This is the time for the Public Utilities Regulatory Commission (PURC) to bare its teeth and bite.

There is also the huge public administration cost which has contributed to the budget deficit. The implementation of the Single Spine Salary Structure is expected to streamline this cost. Before its implementation, some labour groups have started opposition to the salary structure.

Doctors have also threatened to lay down their stethoscopes if their allowances are not paid. A few weeks ago graduate teachers threatened similar action over unpaid allowances. Could we give the Single Spine Salary Structure a chance? It is good to note that the Fair Wages and Salaries Commission is on a road show to create awareness on the new pay system.

The integration of the three revenue collection agencies into the Ghana Revenue Authority (GRA) is expected to promote efficiency in revenue collection and administration. This is one of the steps towards a fiscal balance. It has also been proposed that the GRA will be responsible for collecting taxes from oil revenues. With oil production scheduled for the last quarter of 2010, the institutional arrangements of the GRA should be sped up

The government should focus on keeping the budget deficit to the minimum. This may call for hard decisions which can make the government popular or unpopular. But these are the hazards of being in government.

By Dode Seidu

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