Interview: Ken Ofori-Atta
What are the challenges to reducing the deficit?
KEN OFORI-ATTA: When it comes to rebalancing the budget, the initial challenge we faced was related to statutory transfers. There were also issues with the wage bill and the debt-to-GDP ratio was very high. The most relevant obstacles are budget rigidities, including the accumulation of arrears. In 2017 the biggest risk has been revenue-related, but we can expect that the revenue projection will be more accurate for 2018 as there is a greater understanding of the fiscal situation and the key revenue drivers.
Incentives aimed at the private sector are expected to eventually yield higher revenues through tax collection. Growing the tax base is one relevant task, but the main focus is on promoting growth and ownership for the private sector. In addition, some of the main infrastructure projects on the horizon will need strong private sector financing in order to not compromise the government’s fiscal flexibility and capability of promoting economic growth.
Some of the government’s initiatives include: One District, One Factory; Planting for Food and Jobs, which is expected to generate more than 700,000 jobs; and Nation Builders Corps to provide young Ghanaian graduates with employment. All of these are aimed at the country becoming self-sufficient in terms of food production, as well as export oriented. These are critical to having an inclusive economy, and require the government as a partner that can live up to its targets when it comes to economic stability, since this ultimately has an impact on all industries, and defines private sector expectations as well as decisions regarding investment.
How has the technical assistance agreement with the IMF impacted revenues and expenditure?
OFORI-ATTA: The IMF is a partner for implementing the needed fiscal reforms. Reducing financial sector-related risk is another common focus area, while the implementation of fiscal targets and fiscal rules are also part of the intersection of government policies and IMF recommendations.
We are already seeing results. The downwards trends of inflation and interest rates have resulted in renewed confidence in the ability of the economy to sustain long-term growth in a fiscally responsible way. The fiscal deficit target has been reviewed to 6.3% of GDP in the mid-year budget for the end of 2017, and 4.5% for the end of 2018. As a result of prudent policies, we have witnessed macroeconomic indicators move in the right direction.
What scope is there for reducing the government’s reliance on domestic debt markets?
OFORI-ATTA: When it comes to debt management, Ghana is taking a responsible approach towards managing both its domestic and international sources. The main objective is reprofiling the debt, since local short-term interest rates are too high, and we have extended the yield curve to 15 years. On the other hand, external borrowing is not disregarded, and as the country takes bold steps towards becoming one of the most business-friendly destinations in Africa, its costs could become more competitive. Ghana is definitely open to a more diversified investor and financing base in order to avoid over-relying on a single source. Building a solid financial system is at the top of the agenda, as it would allow financing sources for the private sector.
However, when it comes to debt, the main target for Ghana is not necessarily the mix in terms of public and private or internal and external. The core criteria is more closely linked to its impact on debt sustainability, its total costs and the risks involved in terms of currency fluctuations or interest rates. Hence, the debt-to-GDP ratio and having a primary balance that shows the government is not borrowing to service its debts, are critical for the short and medium term.
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