November 7, 2018

Members of the National Assembly of the Republic of Burkina calls on IFS

A ten-member delegation of the National Assembly of the Republic of Burkina Faso has called on the Institute for Fiscal Studies IFS to gather first-hand knowledge and best practices in Ghana. The purpose of the visit was to deepen the understanding of the delegation on the role civil society organizations play in ensuring effective monitoring and assessment of Ministries, Departments, and Agencies in Ghana. Professor Newman Kusi, Executive Director of IFS in his welcome address to the delegation explained IFS’ work in promoting a better understanding of the Ghanaian economy and government finances in particular for the benefit of the government, parliamentarians, the business community, and civil society. He emphasized the objectivity and independence of the institute in providing economic policy advice and advocacy based on practical experience and insights developed through quality research and analysis. Commentary on the state of the Ghanaian economy by IFS fellows The fellows at IFS took turns to brief the parliamentarians on the state of the Ghanaian economy and impact on citizens. Dr. Said Boakye, a Senior Fellow at IFS elaborated on the current macroeconomy fundamentals of the Ghanaian economy and why citizens should care about these indicators. He touched on the weak economy the present government inherited and explained the efforts being made by the ruling government to attain stability and growth. Mr. Leslie Mensah, a Research Fellow at IFS, touched on the revenue mobilization challenges the country is facing. Donor funding support for Ghana’s budget has reduced over the past few years as a result of the middle-income status of the country, he noted. Government is adopting new strategies to raise more revenue domestically to finance its expenditure and also utilization technology to block revenue leakages, he added.   Dr. John Kwakye, Director of Research at IFS, spoke on the challenges the financial sector has faced over the last few years and its impact on the Ghanaian citizens. He explained the rationale for the new GH₵400 million minimum capital requirements for banks and steps being taken by the Bank of Ghana to clean up the banking sector The members of the delegation of the National Assembly of the Republic of Burkina Faso enquired about the design Value Added Tax (VAT) and how it is operationalized in Ghana. The issue of illicit financial flows across Africa was of concern to them and they engaged IFS’ researchers to understand how Ghana was dealing with it. Other key issues which were discussed during the visit, included the budget monitoring and implementation role civil society organizations like IFS plays in Ghana as well as Ghana’s recent dealings with China for infrastructure development. At the end of the visit, the delegation commended IFS’ work in enriching economic policy and development in Ghana. Mr. Kaobre Tibila, head of the delegation emphasized the need for more such independent policy research institutes to spearhead the development of African countries.        
April 6, 2017

IFS PRE-BUDGET FORUM 2017

1.0 Introduction The Institute for Fiscal Studies, IFS, held its annual Pre-Budget Forum for 2017 at the Kempinski Hotel in Accra on Monday, 13th February 2017 under the theme: “Towards a Healthy National Budget”. The forum was attended by about 100 participants from diverse stakeholder organizations. These included: Members of the Finance Committee of Parliament; representatives of Ministries, Departments and Agencies; World Bank, IMF, USAID and other development partner organizations; Bank of Ghana; High Commissions and Embassies; Civil Society Organizations; the business community; and other stakeholder groups. Seated at the high table were Hon. Dr. Kwabena Duffuor, the Founder and President of the IFS and a former Governor of Bank of Ghana, as well as a former Finance Minister; Mr Alex Ashiagbor, Chairman of IFS Governing Council and a former Governor of the Bank of Ghana; Prof. S.K.B. Asante, a member of the IFS Governing Council; Hon. Dr. Assibey-Yeboah, Chairman of the Finance Committee of Ghana’s Parliament; and Prof Newman Kusi, Executive Director of the IFS. Prof Kusi, who chaired the function, delivered a keynote and welcome address to open the forum, after which two presentations were delivered to set the stage for discussions. The program was moderated by Bernard Naasara Saibu, a broadcast journalist with Starr FM. 2.0 Summary of Keynote Address (by Prof Newman Kusi, Executive Director of IFS) The title of the keynote address was Creating Space in the Government Budget for Policy Manoeuvre.  Prof Kusi noted that Ghana’s IMF-supported program aims at restoring debt sustainability and macroeconomic stability to foster a return to high economic growth and job creation, while protecting social spending. The program, he continued, calls for a strong front-loaded fiscal adjustment; structural reforms to strengthen public financial management and enhance fiscal discipline; a rebuild of external buffers to increase resilience to shocks; and high effectiveness of monetary policy by limiting its fiscal dominance. Prof Kusi noted that after two years of the IMF-supported program, the IMF has insisted that strong efforts at fiscal consolidation are required to support debt sustainability. He pointed out that the fiscal consolidation effort is currently taking place in the context of a slow growth and commodity price slump environment, with serious dampening effects on revenue generation capacity. Revenue earmarking, he noted, consumes a large proportion of government budget, leaving limited space for discretionary spending. Consequently, the government has inadequate space for policy manoeuvre, consequently crippling fiscal policy. By way of recommendations, the IFS boss recommended that as part of government’s efforts to enhance fiscal policy effectiveness, it has to ensure that future budgetary resources are not exhausted by projected earmarked expenditure commitments. He noted that a successful fiscal consolidation effort under the IMF-supported program can be achieved by increasing tax revenue share of GDP and rationalizing expenditure; and mobilizing additional resources from borrowing. He again pointed out that government may choose to borrow without taking specific account of the direct returns from the particular expenditure item. Government must do so, however, within the context of an assessment of overall sustainability of its borrowing program, given the size of the existing obligations for debt service and principal payments. Prof Newman Kusi further identified grants as a channel for providing fiscal space in contrast to borrowing. He however cautioned that external grants and loans may reduce the incentive of the government to improve its revenue mobilization efforts and may create dependency and rent-seeking effects within government bureaucracies. Therefore, assessments of fiscal sustainability must necessarily look at such disincentive effects, particularly given the uncertainties on the long-term sustainability of external assistance inflows. 3.0 Summary of Presentation on Revenue Earmarking in Ghana; Management and Performance Issues (by Leslie Dwight Mensah, Economist, IFS) Leslie Mensah defined Revenue Earmarking (RE) as the budgeting practice of assigning or dedicating revenue from taxes, fees or other sources to specific government programs or projects through a statutory enactment or constitutional clause. He cited examples as the GET Fund, Road Fund, Ghana Infrastructure Investment Fund, among others. He explained that the goal of  RE is to protect and insulate what is considered important expenditure items from the vagaries of the political process by linking those expenditure items to a particular revenue source. The presentation identified the pros and cons of earmarking. Among the arguments for earmarking are that it guarantees funding and therefore leads to better planning; ensures lower cost and speedy completion of projects; overcomes resistance to tax increases; and satisfies the benefit approach to equity in taxation. Critics of earmarking point out that it generates budget inflexibilities; leads to poor scrutiny of funding arrangements; facilitates resource misallocation and infringes on government’s powers of discretion. The speaker noted that in spite of the arguments for and against earmarking, there is general agreement across the board that earmarked funds should be effectively and efficiently managed; the automaticity principle of earmarked arrangements should not be violated; and earmarking should not lead to fiscal complications. The presentation delved into six earmarked funds namely, the Social Security Fund, District Assemblies Common Fund, Road Fund, GET Fund, National Health Insurance Fund, and Ghana Petroleum Funds. It traced the history of each Fund, reasons for their establishment, peculiar institutional arrangements, while discussing the challenges associated with the management of the Funds. It came to light that earmarking in Ghana faces serious challenges of management inefficiencies and ineffectiveness. Earmarking contributes significant inflexibility to Ghana’s budget, accounting for 30% of government revenue and grants.
  • Summary of Presentation on Fiscal Rigidities and their Effects in Ghana (by Dr. Said Boakye, Senior Research Fellow, IFS)
Dr. Boakye identified Fiscal Rigidities as institutional, legal, contractual or other constraints that limit the ability of the government to change the size and structure of the public budget. He identified three types of rigidities namely: Expenditure Rigidities (e.g. wages and salaries, debt service), revenue rigidities (e.g. revenue earmarking) and other rigidities (e.g. tax expenditure). He noted that Ghana’s budget is characterized by high levels of rigidity, and explained that budget rigidities create fiscal complications for government. These complications include:
  • Governments are unable to create enough fiscal space without resorting to borrowing
  • Governments become ineffective in managing fiscal crisis
  • The quality of fiscal adjustment reduces
  • Incentives to improve efficiency in spending is lowered
  • Misallocation of resources may arise
  • Government spending becomes pro-cyclical.
  The presentation identified 4 main rigid expenditure categories in Ghana’s budget – Earmarked Expenditure, Wages and Salaries, Debt Service Expenditure, and Tax Expenditure. Dr. Boakye noted that since 2013, total rigid expenditure in the public budget has been extremely high, considering that it exceeded total government revenue and grants. Consequently, there is no room for discretionary spending. He noted that Ghana’s ongoing macroeconomic difficulties is largely as a consequence of this fiscal predicament. He recalled that when Ghana found itself in a similar situation in 2000 and 2001, it was rescued by debt reliefs the government gained through the HIPC and Multilateral Debt Relief Initiatives. Unfortunately, however, those options are no longer existent in current times. The presentation ended with some key recommendations: On earmarking,
  1. The establishment of new earmarked funds should be avoided, at least until the country is able to significantly reduce the total rigid expenditure ratio below the revenue limit.
  1. The existing earmarked funds should also be urgently reviewed with the goal to:
    1. cut, where necessary, parts of the earmarked revenues and return them to the general budget in order to gain some level of flexibility to address the enormous fiscal challenge.
    2. close down nonessential funds so that the monies involved could be passed through the general budgeting process.
  1. For those funds that cannot be closed down, greater management efficiency should be pursued, since most of these funds have been managed inefficiently. In this regard,
    1. Political interference that has the tendency to undermine the usefulness of earmarked funds should be halted.
    2. The management boards of the earmarked funds should be made to sign performance contracts and the provisions therein should be enforced to the letter. The contracts should aim at cost minimization.
  1. The current practice whereby the parent MDAs seek to perform some of the same functions delegated to the funds’ managers, as if transfers to the earmarked funds are mere statutory obligations that do not form part of the government’s programs, should be brought to a halt. This creates duplication in the system.
On Wages and Salaries:
  1. The rate of growth in wages and salaries of public sector workers should not be allowed to exceed the rate of revenue growth anymore. This should serve as a guiding principle during wage negotiations and when forecasting the ‘wage bill’ for the budget.
  2. A thorough review of public sector employment should be undertaken in order to right-size the sector by getting rid of redundant workers.
  3. Public sector recruitment and the payroll system should also be effectively managed. While the efforts being made to remove “ghost” names from the payroll systems is commendable, there should be constant auditing of the payroll to prevent new “ghost” names from entering the system.
On Debt Service Expenditure:
  1. The country is clearly caught in a debt trap. Therefore, budgetary expenditures should not be allowed to follow their current trajectories.
  1. Discretionary expenditures should be drastically cut while making sure that growth is not badly affected. Importantly, all non-essential discretionary expenditure items should be eliminated.
  1. A complete moratorium on borrowing may not be feasible in the short term given that total rigid expenditure currently exceeds total revenue and grants. However, borrowing should be significantly reduced by directing it to finance only most essential expenditure items.
He also stressed on the need to boost revenue growth, while taking measures to change the growth patterns of earmarked expenditure. 4.0 Summary of Discussions Hon. Dr. Assibey-Yeboah, Chairman of the Finance Committee of Parliament, described the presentations as insightful. He mentioned that the Finance Committee would benefit from engaging the IFS in future on the issues raised. Hon Dr Duffuor remarked that in view of the extent of rigidity in the budget, the government should consider placing a temporary moratorium on the transfer of deductions to statutory funds and rather use it to support budgetary expenditure. This, he noted, would create fiscal space for the government to operate. He further advised that proceeds of the Heritage Fund should be invested in long-term instruments to yield greater returns. The point was made that removing earmarking arrangements would restore discretionary spending powers to politicians, a move that could be risky. It was however argued that politicians, having been elected by the electorate, needed to be given adequate flexibility to take decisions on the economy. The point was made that it was not prudent for government to invest in low-yielding instruments while borrowing funds at exorbitant rates. Participants generally welcomed the recommendation of the presenters that government should undertake a careful review of all earmarked funds with the view to closing down or cutting back non-essential ones in order to create more fiscal space for policy manoeuvre.
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November 5, 2015

IFS and NRGI host Budget 2016 Forum

The Institute for Fiscal Studies (IFS) and the National Resource Governance Institute (NRGI) jointly hosted a forum on the 2016 budget on November 5 at the Alisa Hotel in Accra. The theme for the forum was: Making the Most of Petroleum Revenues.

Nana Frimpong Anokye, Omanhene of the Agona Traditional Area and a Member of the Governing Council of IFS, chaired the event, which also had in attendance Mr. Alex Ashiagbor, the Governing Council Chairman, and Dr. Kwabena Duffuor, Founder of IFS.

In an opening address to the forum, Mr. Alex Ashiagbor said the main idea for the event was to examine the challenges and risks confronting the 2016 budget, what should be expected in light of the challenges and risks, and how natural resource revenues could be better managed to contribute to the sustainable growth and development of Ghana’s economy.

On the last issue, Mr. Ashiagbor highlighted the following as important preconditions and policy measures which will facilitate the creation of broad-based prosperity from the exploitation of natural resources:

  • Government must ensure strong and effective governance, not just at the national but at all levels of governance. An important element of this is the development of strong independent, accountable, and transparent institutions that can help manage the revenues from natural resources.
  • Fiscal discipline is an important prerequisite, together with policies to smoothen out swings associated with natural resource revenues, proper exchange rate management, and prudent management of the public debt.
  • Using natural resource revenues for short-term purposes such as budgetary support is not advisable; rather, the revenues should be invested in long-term capital accumulation, both human and non-human, to establish a strong basis for sustainable growth.
  • It is also important to ensure inclusiveness, ie. active participation of all sectors in the growth process, and to reduce the threat of the so-called Dutch Disease, which refers to the situation where natural resource booms lead to the decline of other important economic sectors.
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November 17, 2014

IFS media launch takes place in Accra

The media launch of the Institute for Fiscal Studies (IFS) took place at the Holiday Inn hotel in Accra on November 17, 2014. Members of the Governing Council of the Institute, its staff,associates, and other important invited personalities joined Dr. Kwabena Duffuor, IFS Founder/President, and Prof. Newman Kusi, the Executive Director, to unveil the Institute to the media and the public.

In his speech at the event, Dr. Duffuor shed light on the reason for establishing the Institute as well as its mission and vision.

“Throughout our country’s history,” he observed,“instances of apparent economic progress have soon been followed by periods of economic deterioration. These economic ups and downs are far from being part of the normal business cycle that all economies undergo. Simply put, the Ghanaian economy has over the years woefully underperformed, given the resource endowments we have. What have accounted for this phenomenon? While many factors are at play, central to them include the general lack of integrity; frequent and sometimes arbitrary changes in government; clash of economic policies and political interests; corruption; and external influences. In plain language, ladies and gentlemen, our fiscal and macroeconomic management have generally not done well. Our economic management decision-making and choices have more often than not been shaped by political expediencies and not by sound economic policies. It is to help reshape and improve upon our fiscal and macroeconomic management and thus meaningfully transform our national economy that the Institute for Fiscal Studies (IFS) was established.”

Dr. Duffuor underlined that the mission of IFS rests on two basic premises. First, that growth and development occur where there is sustained sound management of the economy, and second, that such management is more likely to happen where there is an active and well-informed group of locally-based professionals in relevant areas to conduct relevant policy research to influence policymaking.

To this end, he said IFS will undertake innovative research into relevant policy issues, analyze public finance developments, assess the implications of government economic policy, provide practical recommendations that put government finances on a sustainable path, and share the information freely with policymakers, parliamentarians, analysts, and the general public.

The Founder called on people with knowledge and experience in the management of Ghana’s economy to step out of their comfort zones and come forward to help tackle the country’s complex economic problems.

Addressing the gathering, Executive Director Prof. Kusi explained IFS’ core activities, which comprise research, academic training, and organisation of workshops and events to disseminate research findings and provide thought leadership. He said IFS conducts an active agenda of research and studies into Ghana’s macro-economy, the fiscal system and its management; advances policy debate and generates ideas for fiscal management improvement; and disseminates its research and findings through events and publications. “It is envisaged that IFS will be an authoritative commentator on Ghana’s public finances, tax and welfare policy, unemployment and labour issues, inequality and poverty, and policies designed to promote growth and development with a reputation for objectivity and impartiality,” Prof. Kusi said.

He further stressed that the Institute’s research will be of international standard and reflect the quality of its staff, management and associates, who will bring to bear on their work a combination of world-class academic excellence and practical real-world policy making experience.

Speaking on current economic issues, Mr. Alex Ashiagbor, Chairman of the Governing Council of the Institute and chair for the launch, said Ghana’s present economic challenges have come about because the country is living beyond its means. “Our lifestyle as a country, which is represented by the budget deficit, is clearly unsustainable. I don’t believe in the much-touted home-grown economic policies. The only policy is to live within your means. If you can’t discipline yourself, then it will be imposed on you from outside,” the Chairman said.

The Institute also received a lavish public endorsement from Dr. K. B. Asante, a distinguished senior citizen, retired diplomat and former government official who served under various political administrations from independence. He said the establishment of IFS is “a bold, public-spirited initiative” that will support Ghana’s economic development. He also stated that “the array of talent at IFS is a measure of its success.”

The senior statesman noted that Ghana has talent in abundance but does not seem to be making use of it.He therefore expressed the belief that IFS will bring together the best economic- management brains in the country to offer durable solutions to the nation’s problems. He also praised the Institute’s ongoing comprehensive study of Ghana’s economic management since independence. This study is expected to lead to a book, “Economic Management in Ghana since Independence”, which will assess all the macroeconomic policies that have been implemented over the decades and highlight their strengths and weaknesses to serve as a guide for future policymaking.

K.B. Asante told the audience that “without knowing the past, we would continue to make many grievous mistakes and, indeed, we would repeat the mistakes of the past.”

Other members of the Governing Council present at the launch were James Avedzi, Chairman of the Parliamentary Finance Committee, and Mrs. Kate Quartey-Papafio, Managing Director of Reroy Cables Limited.

Click here to see event photos
Click here to read speeches made at the event

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