In order to make room for fiscal consolidation, the Institute of Fiscal Studies (IFS) has advised the government to, among other things, thoroughly assess all of its social assistance programs, particularly the Free SHS. In actuality, all of these programs are financed by borrowing.
The IFS based its prediction on the government’s increasing dependence on borrowing to fund all of its programs, which has led to a public debt that, as of June this year, stood at 78.3 percent, close to unsustainable levels.
Currently, employee compensation and debt services, which together accounted for more than 111 percent of the country’s domestic revenue and grants in 2021, are the only two budgetary items that even need a loan top-up.
Simply put, this means that all social intervention programs and other expenditures outside of these two categories are financed primarily through borrowing, which is why the IFS has called for a reassessment of these programs in order to create budgetary flexibility.
By reducing some of them and eliminating those that may be abolished after a thorough examination, the government should be able to lessen the budgetary strains brought on by the many social intervention programs and policy initiatives (such as Free SHS, Agenda 111, YouStart, Ghana CARES, etc.).
In its assessment of the government’s fiscal consolidation efforts, IFS noted that “such bold policy reforms will strengthen government’s fiscal consolidation efforts and help to bring Ghana out of its present crushing budgetary crisis, which is fueling the macroeconomic instability.”
Lesley Dwight-Mensah, a research fellow, elaborated more on the matter, stating that while such interventions are generally significant, there is no reason to pursue them in great detail if the economy cannot afford to pay for them through generated revenue.
“Our viewpoint is that all social intervention programs, including the Free SHS, Agenda 111, YouStart, and those that have joined, should be thoroughly reviewed. If Agenda 111 is going to make the financial problems we now have worse, there is no need to build 111 hospitals in the next two years.
We can have a better, more convincing medium-term plan to overcome the health infrastructure deficit since we haven’t had these facilities for 60 years. Therefore, the examination of all of these spending plans aims to provide financial savings. How can we enhance our fiscal balance by reducing the scope of these programs to conserve fiscal resources? How might the effectiveness of these programs be increased through review? At the release of the announcement, he told journalists in Accra that we needed to cut back on spending so that you could narrow your imbalances.
Senior Research Fellow Dr. Saed Boakye continued by highlighting the fact that when some citizens can afford to pay, the government does not necessarily need to make a wholesale intervention like the Free SHS.
“Each and every dollar spent on Free SHS was borrowed money. Government revenue is insufficient to pay for debt servicing and staff salaries. Therefore, implicitly, every dollar spent on Free SHS is borrowed. Why should the government borrow money and pay interest when those who could pay for it are getting it for free? The Free SHS should therefore be examined.
“Those who can afford it should pay, but the poor and the weak can continue to benefit. It’s good if the economy improves and the government decides to help everyone, the president added.
The IFS also suggested a few ways for the government to free up some funds. One of them is to increase revenue from the extractive industry. Others include lowering the ratio of employee compensation to total revenue and grants, lowering the cost of debt service as a percentage of total revenue and grants, and reviewing the current earmarked/statutory funds and eliminating the non-essential ones.
