Sustainability of free SHS depends on Ghana’s capacity to mobilize domestic revenue – 1st Dep Governor

Opoku Afari
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First Deputy Governor of the Bank of Ghana, Dr Maxwell Opoku-Afrai has said that infrastructure and human capital development are key drivers of economic growth and transformation.

He explained that in the area of human capital development, the free Senior High School (SHS) introduced by the Government in 2017 is a novel programme aimed at ensuring free access to education for all children in recognition of the role education plays in fostering long-term economic growth and development, and poverty reduction.

Financing of the free SHS programme, he said, has definitely come at a cost to the fiscal authorities, but we know that this initiative has immense long-term benefits.

The Finance Minister, just last month, disclosed in Parliament that the nation has spent about GH¢7.6 billion on the ‘Free SHS’ programme, with about GH¢4.2 billion (about 55 per cent) coming directly from Government revenue, and the remaining GH¢3.4 billion (about 45 per cent), from the Annual Budget Funding Amount (ABFA) – which is the amount of petroleum revenue allocated for spending in the budget, he said, adding that, the long term sustainability of the free SHS programme will depend largely on the country’s capacity to mobilize domestic revenue to continue to support this worthy and critical initiative.

Delivering a public lecturer at the University of Ghana Business School on Thursday September 2, on the topic “Re-thinking development financing: macroeconomic management when the love is gone” Dr Opoku-Afari said “Economic diversification and transformation would also require significant investments in infrastructure such as energy (generation, transmission and/or distribution of electricity); transportation (roads, rails, airports, ports and harbors); telecommunications; oil and gas; as well as mining and tourism infrastructure.

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These, he said, will be critical to boost the much needed inclusive growth, drive development, and help alleviate poverty. Infrastructure supporting social services such as health, education and sports and cultural centres, among others also remain critical and are vital for growth and development including improving on the quality of life.

“The Ghana Beyond Aid Charter and Strategy Document estimates that Ghana’s infrastructure needs are about US$7 billion annually over the next 10 years.

“This is the kind of investment needed to push us into that upper middle income class. But there are constraints. And I must say that these are staggering numbers which will require a new paradigm shift in the way we finance development. How do we finance these projects to ensure improvement in living standards of Ghanaians?

“As we think of how we finance these projects, we need to be conscious of the fact that we also faced a major constraint—an optimization problem requiring us to control total public debt exposure to ensure high debt levels do not constrain growth and poverty reduction efforts.

“This is where we need a reality check on what it means and what it takes to “eat solid food and chew bones”. This is where I will focus on creating the capacity for government to deliver the public goods needed for the private sector to thrive. And with capacity I mean, defining creative ways of delivering fiscal space for financing development to close the staggering infrastructure deficit.

“I will focus on two options available to us: first, is the need to enhance efficiency of public spending, expenditure rationalization, and value for money projects that will deliver projects more efficiently.

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“No matter the efforts we make towards enhancing domestic revenue mobilization, we will continue to experience chronic fiscal deficits and a growing debt burden, if we do not take steps to rationalize our expenditure levels. The high levels of government spending required to close the huge infrastructure deficit and debt are limiting fiscal room for maneuver.

“This therefore calls for the kind of fiscal consolidation that involves both revenue-raising measures and expenditure-rationalization policies, with the aim of reducing the overall fiscal deficit to sustainable levels and achieving structural fiscal balance over the medium term. This is achievable when governments are efficient and serve as a catalyst for private-sector-led growth and development.

“We therefore need to identify areas where spending is either wasteful, inefficient or does not deliver value for money, with the view to curtailing or eliminating them completely. Negotiation of government projects and contracts must be effectively handled and scrutinized to ensure that losses are minimized, and facilitate value for money considerations.

“I think we need a change in mindset when it comes to negotiating such state projects. We must ask ourselves these key questions: to what extent does the State benefit from such projects? and what are the feasibility studies and cost-benefit considerations that go into these? Technical, operational, financial and economic feasibility must be paramount in such decisions.

“ Another reason for efficiency in public spending is the fact that the level of tax compliance depends on citizen’s perception of the utilization of such taxes.

” Thus, their acceptance and compliance are tied to the effective use of these resources. When citizens perceive that the tax system does not inure to their benefits, they are likely to want to evade or not comply with such tax obligations. But where revenues are used to finance productive spending programs, they are more likely to accept their tax obligations. The current Government has started reforms in this area; let us all support them to institutionalize these reforms.

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“Efficiency in expenditure also requires public financial management reforms that increase the efficiency and transparency of public spending, and this can be helpful in supporting tax reform efforts. Professionalism and morale can be compromised unless government shows real commitment to efficient utilization of state resources. Conscious efforts are therefore needed to be made to ensure that we stamp out misapplication in the management of the public purse not only through punitive action but also by implementing recovery measures to ensure that the public purse is protected. And in this regard, we should all support the recent work being done by the Auditor General and the appointment of the new Special Prosecutor.”

Source: 3news

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