IMF Programme: Inflation reduction faces stalemate as BoG to tighten policy rate, Gov’t raise taxes
Inflation reduction by the Central Bank faces a stalemate as the apex bank is expected to tighten monetary policy rate while Government, via fiscal policy is expected to increase taxes.
The likely stalemate according to Professor Lord Mensah speaking on the NorvanReports Twitter Space Conversation on Sunday, May 21, 2023, will be due to reforms in the new $3bn IMF programme that simultaneously encourages monetary policy tightening and tax increments.
“Bringing down inflation is going to be a stalemate as the MPC will tighten policy rate whiles the Government will also increase taxes,” quipped Prof Mensah.
Inflation at end-April 2023 stood at 45% according to the Ghana Statistical Service (GSS). Inflation in the country has been difficult to reduce given the fiscal dominance of government over its large expenditure which reinforces inflation.
Speaking further during the discussion themed “Unpacking the IMF Approval and its Effects on the Economy”, Prof Mensah remarked that the current IMF programme is weighted towards revenue mobilisation rather than expenditure rationalisation.
According to him, the IMF programme should be expenditure weighted and not revenue weighted as this will mean difficult times for Ghanaians as government will introduce raise taxes to meet its revenue mobilisation targets in the programme.
“An IMF programme that is revenue weighted is usually done, when the structure of the country is such that the citizens are rich but the country is broke and so money is squeezed from the citizens to the state or country through taxes. And doing so hurts the citizens because of the increase in taxes,” he remarked.
“When you (IMF) design a programme that is revenue weighted and not expenditure weighted, you give a field day to the politician, as they will mobilize the revenue but then use it on expenditure, particularly in an election year as the country heads towards the polls in 2024. This coming election will show if indeed Ghana is in an IMF programme or not,” he remarked.
