Economic policy think-tank, Institute for Fiscal Studies (IFS) is asking government to publish a detailed report on the challenges in the energy sector.
The Institute maintained that the surge in amortization spending in the mid-year budget, on account of what it described as “crystalised energy sector contingent liabilities,” had exposed government’s poor management of fiscal risks emanating from the energy sector.
“This situation requires decisive national attention and action, and we urge the government to provide more detailed information on the energy sector indebtedness and to consult widely regarding the best options to deal with it,” economist and Senior Research Fellow with IFS, Mr Leslie Dwight Mensah noted.
The Finance Minister Ken Ofori-Atta had in presenting the mid-year budget, said agreements signed between previous government and power producers were costing the country at least US$500 million per annum for power which were not being consumed.
The agreements, he admitted was putting a strain on government’s budget further requesting parliament to approve more funds to pay off an initial GH¢5.1 billion amount owed the power companies while the government took steps to rectify the agreements.
According to him, the fiscal policy path the country was on was unsustainable, as the country’s indebtedness was likely to worsen on the basis of current spending and borrowing decisions.
He noted that the government had to reverse course with a strategy that would reduce borrowing significantly in order to improve the debt dynamics, particularly with regard to the ballooning debt service costs.
Realistic revenue targets had to be set, as missed targets disrupted the fiscal programme and undermined effective budget execution.
“The Ministry of Finance should, therefore, strengthen its revenue forecasting. In particular, the impact of proposed revenue policy changes should be robustly appraised and realistically forecasted prior to the implementation of the policies,” he said.
He said in tackling the revenue shortfall, the mid-year budget was silent on when (or whether) the Exemptions Bill that sought to curtail widespread exemptions in the tax regime would be passed into law.
“This is puzzling, especially when the President, in his 2019 State of the Nation address, portrayed a dire picture of the tax exemptions regime, describing it as ‘an Achilles heel in the management of the economy, and a growing threat to fiscal stability and revenue generation,’ which the government was going to deal with.”
He said moreover, the Government itself had estimated that, if the Exemptions Bill was passed, it stands to save GH¢500 million of revenue that otherwise would be lost to tax exemptions in 2019.
He said this amount was more than the yield of the tax increases that had been announced; stating that “failure to take action on exemptions is, therefore, costing the nation dearly and prompting the resort to tax hikes to plug revenue shortfalls”.
Mr. Mensah said prior to the mid-year budget, the IFS had reviewed the economy’s performance and provided recommendations to the government to address challenges identified.
Mr Mensah said the government should move quickly to curtail exemptions in the tax regime, many of which were inefficient and costly.