Former Finance Minister Seth Terkper has offered insights into Ghana’s economic trajectory and criticized Vice President Dr. Mahamudu Bawumia’s proposed adoption of Estonia’s economic model.
At a stakeholder interaction with members of the Ghana National Chamber of Commerce and Industry in Accra, Dr Bawumia underscored the need for a new tax regime which will make Ghana one of the most tax competitive countries in the world, while citing Estonia as an example of economic model to adopt.
In his response to Dr. Bawumia’s assertion, Mr. Terkper emphasized the need for comprehensive planning to navigate the complexities of transitioning away from IMF reliance.
Speaking with Dr. Randy Abbey on Metro TV’s Good Morning Ghana on Friday, March 29, he cautioned against hastily altering tax regimes without considering Ghana’s unique circumstances, citing structural frameworks crucial for economic stability.
“This whole thing about winning yourself of the IMF, it takes serious planning. When the Vice President Bawumia was making reference to Estonia, he must know that Estonia being a small country in the EU, has structures which gives them a lot of inflows. The same structures that erstwhile NDC built and they came to destroy it. So you don’t all of a sudden change your tax regime because Estonia is doing it without looking at your conditions”
The former Finance Minister highlighted the importance of institutional structures established during his tenure, designed to manage debt and ensure fiscal prudence.
He noted the significance of funds like the stabilisation fund, which, when managed effectively, could mitigate economic shocks such as fluctuations in crude oil prices. However, he criticized the current government’s borrowing practices, which he claims depleted these funds, leaving Ghana vulnerable during crises like the COVID-19 pandemic.
“We cut the stabilisation fund and use part to set up the sinking fund and part to set up the contingency fund. These are all initiatives to keep us from running to the IMF or the World Bank.
We did all that with only one oil field and now that we have three, if the Nana Addo-Bawumia government since 2017, started putting 250 million dollars aside for each of the three oil fields, when COVID struck, could we have gone to the IMF or World Bank?”
“It was the money the NDC/John Mahama government set aside in the stabilisation fund with one oil field, that was what Nana Addo-Bawumia government depleted during COVID, and still run to the Britton Woods institution,” he noted.
“Having worked with the IMF, every emerging economy which has succeeded, have these structures, a fund to repay your debt, proper debt management, etc and the capacity to implement these are there in the Finance Ministry because we left them there, they only need to set it in motion”
Reflecting on past challenges, Mr. Terkper acknowledged the complexities surrounding initiatives like the Single Spine Pay Policy and managing legacy debts.
He outlined efforts made to address these issues, including the establishment of sinking funds to mitigate impending debt maturities. He emphasized the importance of prudent financial management, suggesting that effective utilization of Ghana’s oil revenues could have mitigated the need for IMF or World Bank interventions.
“Then apart from the single spine pay policy setback, there were issues with debt. On the debt side, apart from the bonds that we had issued, there were bonds that were issued further back to the Rawlings’ era. By 2014, we were 3 years away from the first sovereign bond under H.E Kuffour 750 million dollars maturing, in addition to some of the bonds we introduced, and this was one of the biggest issues”
“We knew there was no way in 3 years we could cough up that 750 million dollars that was why we set up the sinking fund which was part of the petroleum revenue management Act”
He further explained that “In 2015 when we read the budget, we cap the stabilisation fund because of the fall in crude oil at the time, so with two additional oil fields, the cap was never removed for more funds to flow into it. But this government kept borrowing until we have crushed”
“The petroleum revenue management Act, was design as a new flow into the budget, to tackle areas where we were having difficulties already. So, the sinking fund helped in reducing our principal from the borrowings we were doing otherwise we were going back to HIPC. That was a major initiative and one of the solutions”
“So why did we keep borrowing without the flows?” he asked.
By: Bright Yao Dzakah | Metrotvonline.com | Ghana
