Building Public Support Towards Mobilizing

Resources Domestically for Development

Presentation at the National Development Conference Organized

by the Church of Pentecost

Dr. Maxwell Opoku-Afari

First Deputy Governor, Bank of Ghana

Pentecost Convention Centre (PCC), Gomoa Fetteh

Date: July 26-27, 2023

Introduction:
1. Let me begin by thanking the leadership of the Church of
Pentecost for showing leadership in creating such an important
forum which is necessary to building national consensus for the
development of our dear country, Ghana. I feel very grateful and
privileged to be part of this very important and historic program,
and the opportunity to share a few thoughts and ideas to guide the
discussions on creating the building blocks for financing
development in Ghana. My topic today is on “Building Public
Support Towards Mobilizing Resources Domestically for
Development”. This topic is timely, and appropriate. For those who
would recall my public lecture at the University of Ghana in
September 2021, on the topic “Re-Thinking Development
Financing: Macroeconomic Management When the Love is
Gone”, I touched on this issue and made a case that once the love
from our development partners appear to have shifted to a different
direction—this comes when countries graduate into middle
income status—the financing of development in such economies
shifts from dependence on donor support to raising domestic
resources.

2. In my remarks today, I will argue that the love from donor

 partners has shifted in a different direction, but government
revenue on the other hand has consistently underperformed,
forcing successive governments, in the last couple of years, to
seek funding from the international capital markets to close their
financing gap. However, funding from the international capital
markets has become unsustainable as evidenced by the recent crisis
that culminated in the decision by the government to seek support
from the IMF. Therefore, the time has come for Ghanaians to step
forward to support government implement difficult but necessary
measures to boost revenue generation and prioritize our
expenditure towards investments in productive infrastructure and
human capital development to secure the future for our children. It
is also time for those of us privileged to be in public office, to
demonstrate integrity and a commitment to solving real problems
that impede the progress of our people. I am therefore encouraged
that the Church of Pentecost has taken this very important step of
providing a forum to discuss issues on national development.

Why is domestic resource mobilization critical for Ghana’s

development?
Dwindling Official Development Assistance
3. In the early 1980s, majority of Sub-Saharan African (SSA)
countries faced dire economic challenges driven by high fiscal and
current account deficits, rising inflation, slow growth, and weak
currencies. These were caused by both domestic economic
mismanagement, poor governance, and external shocks such as the
fall in most agriculture commodity prices, while oil prices
increased sharply. These economic imbalances worsened living
standards, widened the inequality gap and increased poverty levels.
The Bretton Woods Institutions packaged what was later termed,
the Economic Recovery Program (ERP) and the Structural
Adjustment Program (SAP) to address the economic imbalances,
restore macroeconomic stability, and support economic growth.
Ghana signed on to these programs and became a star performer
and as a result Official Development Assistance (ODA) poured
into the economy.

4. Technically, the Official Development Assistance was a major

source of medium- to long-term concessional financing from
bilateral and multilateral sources, intended to support infrastructure
and human capital development, and sometimes used as balance of
payments support. As the Ghanaian economy regained some level
of stability, such investments in infrastructure and human capital
provided incentives for private sector development, and therefore
played a catalytic role in promoting private sector-led economic
growth and poverty reduction. At the peak in 2004, Ghana received
about 16.0 percent of GDP in ODA and most key development
 projects were financed by donors. In fact, donor financing was
about 28.6 percent of total revenue in 2004. However, as Ghana
attained the lower middle-income status and had regular access to
the international capital markets, the “love” from our development
partners shifted in a different direction. Recent estimates released
by the World Bank suggest that Official Development Assistance
declined to 1.59 percent in 2021 from the peak of 16 percent of
GDP in 2004, creating a huge financing gap that needed to be
filled.
How do we fill this gap as domestic revenue has underperformed?
5. The informal sector in Ghana is very large but majority of the
businesses in this sector are outside the tax net. Attempts to
migrate them into the tax net has become a major challenge for
successive governments and the Ghana Revenue Authority. Efforts
by government to raise additional revenues through the
introduction of e-levy was met with fierce resistance from a section
of the population. As a result, revenue outturns from the e-levy tax
handle were far below expectation. Thus, the revenue
underperformance has emerged as a major obstacle to closing the
ever widening financing gap and providing the needed resources to
finance infrastructure and social services such as schools, hospitals,
portable water, and sanitation services in the country.

6. Ghana’s tax revenue-to-GDP ratio between 2011 and 2020

averaged 12.67 of GDP, far below the average of 31 African
countries (16 percent of GDP), some of our neighbours (Burkina
Faso—16.6 percent of GDP; and Togo—15.4percent of GDP), and
our peers such as South Africa-26percent of GDP, Kenya-
17percent of GDP, Egypt-15percent of GDP, Morocco-28percent
of GDP and Tunisia- 29 percent of GDP. In the year 2020 for
instance, Ghana’s tax revenue-to-GDP ratio was 13.4 percent of
GDP, lower than the average of 31 African countries of 16 percent,
and an average of 23 percent of GDP for our peers, according to
Revenue Statistics in Africa, published by Organization for
Economic Cooperation and Development (OECD). Thus, our
revenue has consistently been below the average for our
neighbours and peers.
And our infrastructure gap is rising
7. The government’s critical expenditure on salaries, infrastructure,
and social services such as health, education, water and sanitation,
have consistently exceeded total revenue. A report released by the
National Development Planning Commission in November 2018
showed that Ghana needs an estimated $37.9 billion annually to
meet its infrastructure needs by 2047. The financing gap left by the
dwindling ODAs, and revenue underperformance raises important
questions: How should this gap be financed in a more reliable and
sustainable way? Can Ghana afford to borrow the difference every
 year?
Unsustainable funding from the international capital markets
8. Faced with funding challenges, some low-income countries with
relatively strong fundamentals and stable democracies such as
Ghana (called the Frontier Economies), turned to the international
capital markets for financing. Between 2007 and end of 2021,
Ghana had borrowed US$15.525 billion from the International
capital markets. However, these funding sources are usually
unreliable and unsustainable. As a result, over dependence on this
could become a major source of instability to developing
economies. For example, the funds borrowed are usually in dollars
while government revenues are in Ghana Cedis, giving rise to what
economist call “Original Sin”. As a result, Ghana’s economy is
often exposed to shocks that strengthen the U.S dollar. By
November 2022, the exchange rate depreciation had added more
than GHC200 million to the revalued external debt component of
the total public debt. Thus, the exchange rate depreciation
compounded the pressures government’s debt servicing
obligations, especially given that Ghana was already in debt
distress.

9. Also, loans from the international capital markets attract extra

scrutiny about the stability of the macroeconomic environment
from investors and particularly Rating Agencies. The goal is to
ensure that our actions as a nation is one that fosters confidence,
grows the economy to create jobs, reduce poverty and repay our
debts in a sustainable way. Therefore, Ghana’s continued access to
the international capital markets was contingent on our ability to
repay the loans. However, ratings are not a perfect science and
there is often disagreement between rating agencies and the
sovereign government over the conclusions reached about the
outlook in the country. Thus, although their assessment of the
repayment potential of the country could be wrong, it could still
trigger sudden reversal of foreign investors and cause exchange
rate crisis for the country.

10. For example, on the 4th of February 2022, Moody’s downgraded

Ghana’s long-term Issuer and Senior unsecured bond rating to
Caa1 from B3 and changed the outlook from negative to stable.
The Ministry of Finance issued a statement on February 6, 2022,
disagreeing with their assessment. However, their rating coincided
with the beginning of the Russia-Ukraine war and triggered
portfolio reversals, disorderly exchange rate movements and a
sharp rise in debt service burden of the government. Rating
Agencies can therefore accelerate an otherwise benign shock to a
country.
11. In 2022, a combination of pre-existing vulnerabilities – limited
fiscal space, rising sovereign spreads, depleting reserve buffers and
unsustainable debt, along with external shocks, triggered acute
financing pressures in Ghana. In response, several Rating Agencies
downgraded Ghana’s sovereign bonds to junk status, citing debt
sustainability concerns, effectively shutting the door to
government’s ability to access the international capital markets. By
Mid-Year of 2022, the economic environment had become very
challenging: Inflation accelerated, and government was facing
difficulties raising revenues to meet commitments including
servicing domestic debt and Central Bank reserves was depleting at
a fast rate. Against this backdrop, the Central Bank had to step in
to provide liquidity to address auction failures, pay bond holders
and maturing instruments and avert a domestic crisis. The absence
of such support could have resulted in a difficult set of choices for
the Ghanaian people.

12. But support from the central bank is not a sustainable way to
finance government expenditures. Government deficit
monetization by the central bank can undermine its autonomy and
credibility and potentially de-anchor inflation expectations of
forward-looking economic agents, making it extremely difficult to
fight inflationary pressures in Ghana. Faced with these realities, the
government had no choice but to request an IMF programme. An
IMF programme provides some breathing space for government to
implement its remedial policies in an orderly manner. The
corrective measures that are often implemented by the government
as part of the programme requirements and IMF’s own credibility
in ensuring that they are implemented, may help to restore investor
confidence in the economy and reignite portfolio flows. In
addition, it can also unlock additional donor funds that were
withheld because of the crisis. However, the painful domestic debt
restructuring process that preceded the approval of the IMF
programme, highlights the importance of shifting the paradigm
from external financing to domestic resource mobilization.

How should we Build Public Support Towards Mobilizing

Resources Domestically for Development?
13. Ladies and gentlemen, the love from our development partners
has shifted, and domestic revenues have consistently
underperformed. But the infrastructure gap is rising, while the
external sources of funding have become costly and unpredictable.
In the face of these challenges, it has become necessary that we
bind together and solve the deep-rooted challenges of our time
such as access to water, health care, education, sanitation and the
eradication of poverty among others. The natural question is: how?
In what follows, I will share some thoughts on steps to take to
 build public trust for national programmes. In particular, I will
highlight five areas that require urgent attention. These include
promoting effective leadership in public service, building trust
between the general public and the government (the need for a
social contract), enhancing public expenditure management,
improving tax administration, and promoting inclusive growth to
create jobs and leverage our demographic dividend.
Promoting effective leadership in public service.
14. When former President Kufuor left office on January 7, 2009, he
identified poor leadership as the biggest obstacle to Africa’s
development. He went on to set up the John A. Kufour Foundation
to produce leaders who are imbued with a strong sense of
patriotism and integrity and are innovative and creative thinkers.
Despite the widespread perception of poor leadership in Africa, Sir
Seretse Khama of Botswana and Sir Seewoosagur Ramgool of
Mauritius managed to build public support towards national
development through visionary leadership. The strength of
character and integrity demonstrated by these leaders, enabled
them to lift millions from poverty. The leadership template they
left behind, has sustained these two countries as shinning stars on
the African continent.

15. Also, the selfless and visionary leadership of Nelson Mandela

allowed South Africa to forge ahead in unity after his release from
Prison in 1990. Here in Ghana, the visionary leadership provided
by President Akufo Addo during the peak of the COVID-19
pandemic enabled Ghana to save millions of lives. Thus, building
public support requires a re-think of what constitutes effective
leadership in public service. It is when public office holders show
that power and authority are means to serve the common good, that
citizens would respond when called upon to contribute their fair
share to national development.

Building trust between government and the general public (Social

Contract).
16. One of the challenges confronting domestic resource mobilization
is the lack of trust between the general public and policy makers.
This trust deficit can be attributed to several factors, including the
increase in the perception of corruption among public office
holders, the lack of participation in the democratic governance,
lack of transparency and accountability in governance and broken
promises of politicians. Closing this trust deficit would require
strengthening the fight against corruption. This may take the form
of resourcing state institutions such as EOCO, Office of Special
Prosecutor, and CHRAJ among others, to fight against corruption
and enhance accountability. Government should also strengthen the
existing asset declaration system to hold public office holders
 accountable for their stewardship.

17. We can also rebuild trust in government by encouraging citizens’

participation in the governance process. This can be done through
several ways: First, the occasional government town hall meetings
that were held in the recent past to explain government
programmes to the electorate, and also take questions from the
general public, should be continued to deepen citizen participation
in the governance process, and build trust for national
development. Also, the decentralization of government functions to
the regions and districts, should be strengthened, to enhance access
to government services across the country. Participatory democracy
can increase the knowledge of the general public about the benefits
of government programmes and activities and make them more
likely to contribute their share to national development.

18. There is also the need to promote transparency and accountability

in government. Without transparency and accountability, trust will
be lacking. It is important to note that, the government has agreed
under the IMF deal to reinforce public procurement transparency
by rolling-out the e-procurement system and its integration with
the GIFMIS system. Also, the transparency of procurement will be
strengthened by facilitating access to beneficial ownership
information of companies awarded public procurement contracts.
On the other hand, politicians should learn to make promises that
they can keep when voted into office. The electorate usually view
such promises as a social contract that must be fulfilled.
Therefore, failure to keep such promises breaks the bond of trust
between the general public and politicians, thereby making it
difficult to court their support for government programmes.

Enhancing public expenditure management

19. There is the need to enhance efficiency of public spending to
reduce waste, the chronic fiscal slippages and growing debt
burden. We therefore need to identify and eliminate areas where
spending is either wasteful, inefficient or does not deliver value for
money. Also, negotiation of government projects and contracts
must be effectively handled and scrutinized to ensure that losses
are minimized. Efficiency in public spending is also important
because the level of tax compliance is tied to the effective use of
the resources. When citizens perceive that the tax system does not
inure to their benefits, they are likely to evade or not comply with
such tax obligations. But where tax revenues are used to finance
productive spending programmes, taxpayers are more likely to
accept their tax obligations. Concious efforts are therefore needed
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. The Auditor general has started some work in this
regard and the government has agreed under the IMF programme
to further enhance the efficiency of government spending.
Improving tax administration in Ghana
20. Raising tax-to-GDP Ratio: Ghana’s tax -to -GDP ratio is one of
the lowest compared to its peers. For instance, the ratio of tax
revenue to GDP in 2020 was 13.4 percent compared to an average
of 16 percent for Africa, 19.1 percent for Asia and Pacific region,
21.9 percent for Latin America and the Caribbean region and 33.5
percent in OECD. This calls for broadening the tax base, upgrading
tax policies, and revenue administration systems to mobilize more
revenues. Broadening the tax base requires getting more people to
honour their tax obligations and minimization of tax exemptions.
Also, business support incentives for tax compliance should be
introduced to instil the discipline in all taxpayers to honour their
tax obligations. In this regard, the Revenue Assurance and
Compliance Enforcement initiative, will go a long way to block
leakages and increase domestic resource mobilization, widen the
tax net and ensure compliance with tax obligations.

21. Also, the recent introduction of the Ghana card means that we
now have data on more employees and entities that fall within the
tax bracket. It is therefore up to the Ghana Revenue Authority to
reach out and bring all these potential taxpayers into the tax net. As
more people and entities are enrolled to pay tax, the per capita tax
burden could be reduced through elimination of nuisance taxes,
while raising the tax-GDP-ratio from a larger base.

22. Efficiency in property tax collection: Ghana suffers from

underexploited taxes such as property taxes. The rapidly expanding
real estate sector has the potential to boost domestic revenue
mobilization if efficient collection means are deployed. The
property tax collection was administered by the local government
authorities but hampered by lack of proper records and inefficient
collection efforts. According to a recent OECD report, taxes on
property as a ratio of GDP was only 0.3 in Africa in 2020
compared to 0.7 and Asia Pacific and 0.8 in Latin America and the
Caribbean. It is important to mention that the Ghana Revenue
Authority has recently set up an online tax collection system to
enhance property tax collection. In this regard, the GRA can
leverage on the ongoing digital address system, the issuance of the
national identification card, the high level of mobile phone
penetration, as well as recent advancement in the Fintech sector, to
enhance tax revenue mobilization. The government is also
encouraged to take advantage of the digital technologies to
 enhance fairness, efficiency and accountability in tax collection.

23. Taxing the informal sector: In Ghana, like in many African

countries, the burden of taxation is not equitably distributed
because of the large informal sector. A large segment of the eligible
taxpayers is outside the tax net. For instance, a World Bank study
showed that in SSA, almost 90% of the labour force is in the
informal economy vs less than 15% for OECD countries. In
addition, the informal economy is almost 40% of GDP in SSA,
compared to just 18% of GDP in OECD countries. Under these
circumstances, the tax system would neither be efficient nor
equitable, hampering tax morale and therefore tax revenues. The
presence of a large informal sector implies that most of the existing
tax systems inherited from the western countries may not be
effective in mobilizing domestic resources. Therefore, reforms
should be introduced in the revenue administration to enhance tax
collection.

24. For instance, the country Georgia introduced a simplified tax

regime by establishing thresholds based on annual revenues for
Micro, Small and Medium Enterprises. Those that fell within the
Micro enterprise threshold were exempted from income tax. Firms
classified as Small Enterprises had the option to be taxed based on
revenue instead of profits at a rate of 3 or 5 percent. This was one
of many tax reforms that had been introduced in the country. Other
reforms to the tax code include eliminating “nuisance taxes” that
had been generating little revenue and replacing the progressive
income tax rate with a flat rate of 20 percent. Also, corporate
income tax was also reduced to a flat rate of 15 percent. The
revenue lost from the lower tax rates was compensated by a
broader tax base, better compliance and strict enforcement. It is
true that the Georgia reforms may not be feasible in Ghana.
However, we can assess the environment in Ghana and come up
with reforms that will work for us. The Georgia example shows
that a well-thought through reforms can generate more revenues to
support government programmes.

25. Reforming tax exemptions: Issues of tax exemptions must be

tackled urgently. In this regard, the IMF has identified removing
VAT exemptions (which are estimated at close to 2 percent of
GDP), phasing out tax holidays and exemptions and strengthening
safeguards against profit shifting, and reducing customs
exemptions as some of the tax measures that can be implemented
to sustainably increase tax revenue. In addition, generous tax
breaks offered to multinational corporations to attract investments
to Ghana must be reviewed.
26. Digitization of government revenue collection: Efforts at
digitization of government’s revenue collection and payment
systems must be intensified to ensure that revenue leakages and
wastes are curtailed, and corruption in this area is eradicated or
minimized. Digitization as we know facilitates the capacity to
process vast amounts of data and can be leveraged upon for
effective tax administration. In addition to providing tax authorities
with quick access to more reliable information, it also reduces the
cost of tax administration to both administrators and taxpayers by
eliminating the numerous manual processes involved. In this
regard, the digitization efforts of the government led by the Vice
President should be commended.

27. Promote efficient resource use: Efficiency in revenue

mobilization is not only about its collection, but also how we can
use domestic resources to gain public confidence. The need for
resource mobilization must always be balanced with effective
utilization of those resources. As we encourage more people to pay
taxes, there is the need to enter into a kind of social contract
whereby citizens agree to pay their taxes and government promise
to effectively use those resources to develop the country.
Promoting inclusive growth
28. The ability to generate sustainable levels of tax revenues for
development depends to large extent on the performance of the
economy. It is for this reason that the government of Ghana
announced in July 2022, its recourse to a Fund-supported
programme to address the current macroeconomic imbalances and
supporting structural reforms to promote efficiency and
competitiveness. In particular, the programme, would restore fiscal
and debt sustainability including reducing the cost of financing;
minimizing fiscal risks, including risk from contingent liabilities
from SOEs (e.g. COCOBOD); re-anchor inflation expectations,
achieve low and stable inflation, and strengthen the exchange rate
regime; deepen structural reforms, restore investor confidence,
improve sovereign credit ratings and regain ICM access; build
buffers to strengthen resilience to economic shocks and diversify
the economy to achieve a value-added export driven regime. These
objectives should create conditions for balanced growth to support
inclusive growth, economic transformation and diversification (i.e.,
agribusiness and industrialization), job creation, and social
protection. And, by growing the economy, we would have prepared
it for taxation.
Conclusion
29. Let me conclude by reading a short scripture taken from the book
of Romans 13:1-8. The verses 1-2 talks about the fact that the
 authorities that exist have been appointed by God. Consequently,
whoever rebels against the authority is rebelling against what God
has instituted, and those who do so will bring Judgment on
themselves. The verse number 5 says therefore, it is necessary to
submit to authorities, not only because of possible punishment, but
also as a matter of conscience. The verse number 6 says that “this
is also why you pay taxes for the authorities are God’s servants,
who give their full time to governing”. What this verse is saying is
that public office holders and persons in authority are also
Ministers of God, but unlike pastors, their focus is on the physical
needs of the citizens. Therefore, verse 7, “Give to everyone what
you owe them: If you owe taxes, pay taxes; if revenue, then
revenue; if respect, then respect, if honour then honour”. The verse
8 says “Let no debt remain outstanding, except the continuing debt
to love one another, for whoever loves others has fulfilled the law”.

30. The Bible is very clear on this: as public office holders and
leaders in governance and authority, we should see ourselves as
Ministers of God. What would God expect from us as we serve the
citizens? We have a mandate which—clearly from the passage—is
a mandate blessed by God to serve the people and provide for their
needs. We cannot afford to miss this mandate. We have no option
than to deliver since as Ministers of God, we will account for our
mandates. It is only when we have delivered on this mandate that
Romans 13:7 can fully be expected. It is only when we deliver that
we would have the moral right and courage to expect the citizens to
endeavour to pay their taxes and revenues because doing so
honours God.

31. Thank you for your attention.

References:
Robert I. Rotberg (2004) Strengthening “African Leadership: There Is Another Way”
Foreign Affairs, Vol. 83, No. 4 (Jul. - Aug., 2004), pp. 14-18
NDPC (2018) Ghana Infrastructure Finance for Sustainable
Development Goals

Appendix
Table 1: Revenue statistics for selected African countries
 Average of
Country Ghana's
Tax Revenue (as % of GDP) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 average(2011-2020) Peers
Ghana 11.8 12 11.3 11.9 12.9 13.1 13.4 13.7 13.2 13.4 12.67
Burkina Faso 13.4 14.9 15.9 14.3 14.6 15.3 16.2 16.6 17.3 16.6 15.51
Togo 12 12.5 14.5 15.5 16 16.4 15.8 14.6 15 15.4 14.77
Cote d'Ivoire 11.1 12.8 12.7 12.2 12.6 13.1 13.3 13 13.2 13.4 12.74
Kenya 16.5 16.1 16.1 17.3 16.8 17 17.4 16.8 16.4 15.3 16.57 22.824
South Africa 24 24.4 24.8 25.4 26.5 26.1 26.1 26.6 26.2 25.2 25.53
Tunisia 27.7 27.7 28.3 29.3 28.5 27.9 29.2 29.9 32.2 32.5 29.32
Egypt 15 14.1 15.5 14.3 14.7 14.5 15.3 15 14.4 13.3 14.61
Morocco 28.4 29.5 28.1 27.8 26.8 27.5 28 28.2 28.3 28.3 28.09
Africa(31) 15.1 15 15.3 15.5 15.6 15.6 15.7 15.9 16.2 16 15.59

Source: OECD (2022)

Figure 1: Tax revenue -to-GDP Ratio: Ghana and Africa

(Average of 31 countries)

Source:

BOG/OECD (2022)