February 11, 2025

Fitch Solutions Urges NDC to Prioritize Fiscal Consolidation Over E-levy Removal and Other Political Issues

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Fitch Solutions has raised concerns about the incoming National Democratic Congress (NDC) government’s plan to remove several taxes introduced by the outgoing New Patriotic Party (NPP) administration. The research firm warns that such a move could disrupt Ghana’s ongoing efforts at fiscal consolidation, which is crucial for maintaining financial stability. Fitch Solutions believes that the NDC’s promises to abolish taxes like the Electronic Transaction Levy (E-levy), Emissions Levy, and Covid Levy are largely political gestures, rather than effective measures to address the country’s fiscal challenges.

The company has emphasized that Ghana is currently under an International Monetary Fund (IMF) Extended Credit Facility, which is a significant part of the government’s strategy to stabilize the economy, reduce budget deficits, and improve public finances. Fitch Solutions anticipates that the new government will prioritize fiscal tightening in 2025, despite the political promises suggesting tax reductions.

Speaking at a recent webinar for Sub-Saharan Africa, Mike Kruiniger, Associate Director at Fitch Solutions, pointed out that one of the key objectives of Ghana’s IMF program is fiscal consolidation, aimed at improving public finances and reducing the budget deficit. “We anticipate a renewed focus on fiscal consolidation under a likely NDC government, despite rhetoric coming from the party that might suggest otherwise,” Kruiniger said. He also added that any changes to the fiscal approach, including the removal of specific taxes, are unlikely to have a major impact on the broader fiscal landscape.

Kruiniger noted that former president John Mahama, the leader of the NDC, has suggested he might renegotiate Ghana’s IMF program. Mahama has also indicated a desire to revise some of the policies introduced under the NPP government, including the controversial E-levy. However, Fitch Solutions argues that while Mahama may seek to reduce these taxes, they represent only a small portion of the country’s total public revenue, accounting for less than 3 percent. As a result, the firm believes that eliminating these taxes will have only a symbolic effect rather than a substantial impact on the country’s fiscal position.

“Therefore, we view the removal of these taxes as largely symbolic and political, rather than having a significant impact on Ghana’s fiscal standing,” Kruiniger explained. According to Fitch Solutions, the focus should remain on the country’s broader fiscal health and long-term financial stability, which are dependent on maintaining discipline and adhering to fiscal consolidation measures.

Regarding the possibility of renegotiating the IMF program, Kruiniger stated that it is highly unlikely that the incoming Mahama government would take any actions that could harm Ghana’s relationship with the IMF. Maintaining a strong and positive relationship with the Bretton Woods institution is critical for the country’s continued access to funding and support for its economic recovery efforts.

Fitch Solutions also underscored the importance of Ghana adhering to the terms of the IMF Extended Credit Facility to achieve the necessary fiscal reforms. Despite the political rhetoric surrounding tax cuts, the firm believes that Ghana’s fiscal policy will need to stay focused on reducing the budget deficit and ensuring long-term economic stability.

Fitch Solutions believes that while the incoming NDC government may pursue the removal of certain taxes, such moves are unlikely to significantly alter the country’s fiscal trajectory or its obligations under the IMF program. Instead, the emphasis will likely remain on fiscal consolidation and ensuring financial stability, which is essential for Ghana’s continued recovery and economic growth. The firm’s outlook suggests that the next government must balance political promises with the need to uphold sound fiscal management practices to avoid jeopardizing the country’s economic stability.

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