The Institute of Economic Affairs (IEA) has outlined its expectations for Ghana's 2025 Budget and Economic Policy.
The IEA recommends that the government abolish certain taxes, such as the E-Levy, Covid Levy, and Emissions Tax, which are considered nuisance or obsolete taxes.
However, it observed that the Betting Tax, which is seen as useful for revenue and deterrence purposes, should be retained, albeit at a reduced rate of 5 per cent.
To offset the revenue loss from tax abolition, the IEA suggests:
- Plugging tax loopholes, including trade mis-invoicing and tax exemptions
- Broadening the tax base through digitisation and formalisation of the economy
- Improving tax administration efficiency using modern technology
Expenditure rationalisation
The IEA advocates for expenditure rationalisation, particularly in areas such as administration, travel, and entertainment. However, it suggests that essential sectors like health, education, and infrastructure should not be compromised.
To achieve this, the IEA recommends:
- Increasing capital expenditure (CAPEX) to at least 10 per cent of GDP over the medium term.
- Establishing an Independent Value-for-Money Department (IVMD) to address inefficiencies and corruption.
- Leveraging fiscal space created by restructured public debt and suspended external debt service to reduce the budget deficit and build reserves.
Debt management
The IEA notes that Ghana's debt restructuring efforts have reduced the debt-to-GDP ratio from over 100 per cent in 2022 to about 72 per cent as of November 2024. However, the country needs to maintain a strong fiscal consolidation effort to keep the public debt on a sustainable path.
Energy sector policy
The IEA recommends that the budget address the huge legacy debts in the energy sector and propose a comprehensive plan for debt resolution and sectoral financial sustainability.
Cocoa sector policy
The IEA suggests that the budget propose a revival strategy for the cocoa sector, including:
- Restructuring Cocobod to reduce operational costs and indebtedness
- Streamlining funding for cocoa purchases and ensuring timely payment to farmers
- Ensuring a competitive producer price for cocoa to spur production and reduce smuggling
Monetary, Financial sector policy
The IEA notes that inflation remains high, and the Bank of Ghana needs to supplement its Policy Rate with measures targeted at food, energy, and the exchange rate. The IEA also recommends:
- Implementing a phased plan to stem the cedi's depreciation
- Enhancing financial intermediation through strengthened safety nets and development banks
- Maintaining a regime of low interest rates to engender investment and economic growth.
