Former Minister for Finance, Seth Terkper, has reacted to statements made by Dr Albert Touna-Mama, the IMF Representative to Ghana, over the country’s classification as a Low-Income Country (LIC) from a Middle-Income Country (MIC) status.
As reported by norvanreports on Monday, April 12, 2021, Ghana according to the IMF’s 2021 April Fiscal Monitor Report, was classified as a Low-Income Country (LIC).
The downgrade of the country’s income status, is due to the poor state of the nation’s fiscal economy given the fact that budget deficit end-2020 was 11.7 percent with debt to GDP reaching 76.1 percent, using more than 110 percent of tax revenues to pay for wages, compensations and interest payments among others.
But reacting to the report, Dr. Albert Touna-Mama, described as ‘fake news’, the media reportage that Ghana had been classified a Low-Income Country (LIC).
According to Dr Albert Touna-Mama, the generally accepted classification of countries by income level – low, lower-middle, upper-middle, and high-income – is done by the World Bank.
Adding the classifications are updated each year on July 1 and are based on the Gross National Income (GNI) per capita in current USD (using the Atlas method exchange rates) of the previous year (2019 in this case).
He further stated that the latest updated classification was completed on July 1, 2020 with Ghana still classified as a Lower Middle-Income Country by the World Bank.
It later turned out the IMF had been also engaged in classification over the last number of years and indeed had since inception classified Ghana as a Low-Income Country (LIC) usinf their own parameters which was different from that of the World Bank.
Reacting to Dr Touna-Mama’s assertion, Mr Terkper, despite admitting to the fact that Ghana, per the World Bank’s classification criteria, is still a Middle-Income Country (MIC), the country’s indices are that of a Low-Income Country.
“The institution responsible for categorizing the income-level of countries is the World Bank and it uses the country’s Gross Domestic Product (GDP) in doing that.”
“The World Bank takes the total income of the country which is the GDP and divides it by the total population to arrive at an amount which each individual in the country is supposed to get known as the per capita income. When that amount falls below $1,100, the country is classified as a LIC, if the amount falls between $1,100 and $12,000 the country is classified as a MIC, above that the country is classified as an advanced economy or high-income country.”
“So when you use the World Bank’s primary criteria, which is the per capita income, Ghana is still a middle income country, because the country’s per capita income is at the moment above $2,000 because of the rebasing, and the growth in the services and construction sectors and the oil,” he stated.
He continued saying, “Now the report is a fiscal report, and just like how institutions like Moody’s and Fitch Ratings can take a look at the country’s fiscals and downgrade a country, the IMF looks at your status as a MIC and asks, how should or how are MICs behaving. Now the consequences of becoming a middle-income country is losing grants and concessional financing.”
“And this is because your income has gone up and you are expected to take care of yourself better so the world can take care of the fragile countries. And as a middle-income country in the Sub Saharan region we are to generate between 18 and 20 percent tax revenues to GDP but as a country we are doing around 12 to 13 percent.”
“Ghana’s indices as compared to that of other middle-income countries as captured in the report are bad. Even the indices of some of the low-middle income countries in the report are better than ours. Their average deficits is around 5 to 6 percent, but ours is around 13 percent and we are not generating enough revenue too.”
“We are heading towards 80 percent debt to GDP, we use between 110 and 150 percent of tax revenues to service compensations and interest payments and not to talk about the principal.”
Quizzed if Ghana could potentially be classified as a LIC in the World Bank’s next income classification update on July 1 this year, the former Finance Minister answered in the affirmative saying it is likely Ghana can be classified as an LIC.
“If we put all of our indices together, then we could be classified as a low-income country this July when the world bank does it’s classification,” he averred.
