Policy think tank, the Institute for Fiscal Studies (IFS), has asked the government to be cautious in the implementation of its policy proposals, explaining that the fundamentals of the economy are weak and incapable of supporting major policies initiatives immediately.
Instead of rushing to implement some of its manifesto pledges, the institute said the new administration should engage in sober reflections on the state of the economy to ensure that every decision reflects the true conditions of the nation.
A Senior Research Fellow at the IFS, Dr Said Boakye, told the GRAPHIC BUSINESS in Accra that the institute’s own analysis of the fiscal position of the economy showed that it was not good, hence the need to improve them before moving on to implement the policies proposed by the new government.
“The fiscal position of the country is not good despite the continuous talk about consolidation,” Dr Boakye said on the sidelines of a press conference by the IFS.
“Something serious has to be done to improve the fundamentals. If you are able to have a handle on the fiscal fundamentals, then you can talk about those big things they were promising,” he added.
Of concern, he said, was the “high level of rigidity in the economy,” which made it difficult for every administration to manoeuvre without resorting to borrowing.
“Currently, there is so much rigidity on the macro economy. There is no room to operate fiscally.”
“The little income that comes in also goes into other things,” he said, referring to statutory funds, disbursements and payments that were backed by law.
Without overcoming these challenges, Dr Boakye said the current administration would have to borrow in the midst of growing concerns of high debt to GDP, which is above 70 per cent.
“Without getting additional revenue, you will need to borrow to be able to do some of these things (fulfil the problems) and the fiscal situation is already dire and they need to understand it,” he added.
Restoration of allowances
Commenting on the decision to restore the allowances paid to nurses and teacher trainees, Dr Boakye said it was not the best of steps to have been taken at this time.
“I am not saying it is the best of policies, but it is one of the campaign promises.
“They can go ahead and do it, after all it is not a huge expenditure. But if they do not restore it, probably it is the best,” he said.
While explaining that the institute was not against the implementation of the government’s policies, he said “I am concerned that the situation is not strong.”
“You want to expand infrastructure and a whole lot of things. You cannot do all that with only income in this rigid type of economy. You can only do that with borrowing and the debt level is already high,” he explained.
In its policy brief for January, the IFS advised the government to undertake policies that will help transform the economy.
It explained that restoring and sustaining high growth would require concerted actions on a number of fronts, including the transformation of agriculture and land use by supporting large-scale farming alongside smallholder farming.
IFS also tasked the government to promote industrialisation by addressing the bottlenecks facing the manufacturing sector such as the energy constraints, poor infrastructure, unaffordable credit, high rate and multiplicity of taxes.
It also flagged the lack of indigenously-developed technology and high cost of public services as some of the areas that the government must work to address.
“There is also the need to establish appropriate processing and refining facilities to add value to the country’s export commodities,” it said in the document that was read to the media by Dr John Kwakye, Senior Research Fellow at IFS.
The institute also urged the government to promote the private sector as the engine of growth and job creation by improving the business environment, including creating a favourable regulatory environment, improving land use planning and administration, improving business linkages to foster transfer of know-how and technological innovation.
“It should also expand businesses’ access to credit and access to domestic and international markets while helping to reduce business risks, the IFS added.