The Electronic Transfer Levy Act, 2022 (Act 1075) is now the law of the land, after having been passed by parliament on March 29, 2022 and having been assented to by President Akufo-Addo two days later. The passage of the e-levy, which imposes a 1.5% levy on a whole host of digital transactions and transfers, is the cornerstone of the Finance Ministry’s plan to return the country to the path of debt sustainability after huge deficits were recorded in the 2020 and 2021 fiscal years partly due to COVID-related expenditure and revenue shortfalls. The e-levy was expected to generate GH¢6.9bn or 8.6% of total tax revenue for 2022 but this target is unlikely to be achieved due to the fact that it is going to be implemented from May 1 as opposed to the original plan of February 1, and also the fact that the rate has been reduced from the original 1.75% to 1.5%.

The e-levy has been a hard sell. A survey taken before the passage showed that even though 92% of Ghanaians were concerned about Ghana’s debt (GH¢351.8bn, 80.1% of GDP as at December 2021), only 13.5% of them thought the e-levy should be passed this year. 81.6% of them want the policy to never even be brought up for consideration in the future. The government pushing through such an unpopular bill even with stiff resistance from a parliamentary minority could only mean that alternatives are scarce in a country which has become reliant on the international capital markets, and has suffered from the closure of the markets to many emerging and developing economies this year.

In a press release on March 24, the Finance Minister outlined cost-cutting measures which the government planned to implement to meet the deficit target of 7.4% of GDP by end-year 2022. This included a 10% cut in discretionary expenditure in Ministries, Departments and Agencies (MDAs) in addition to an earlier 20% expenditure ceiling, renegotiation of charges with energy suppliers, reduction in salaries and other benefits of Ministers of State and Heads of State-Owned Enterprises (SOEs), and a ban on importation of vehicles for MDAs for the rest of the year. These strategies are designed to save a total of about GH¢3.5bn according to the minister. The minister is also seeking a $2bn external facility to help with “liability management”.

The Bank of Ghana (BoG) has also raised the policy rate from 14.5% to 17% in an attempt to tackle inflation and raise interest rates on short-term government debt as they are right now returning interest rates lower than inflation. The aggressive interest hike was also accompanied by the reversal of the relaxation of cash and capital buffer requirements for central banks which were taken to keep credit flowing to the private sector during the worst days of the pandemic. The BoG has also facilitated the acquisition of forex by oil companies to try to reduce domestic fuel prices.

Economic growth would be crucial in restoring faith in the economy. President Akufo-Addo recently announced a significant relaxation in COVID-19 precautions including the removal of mask mandates, removal of testing requirements for vaccinated travelers, and the opening of land borders which had been closed since early 2020. These relaxations appear to be an attempt to speed up the return to regular economic activity in order to help hit the growth target of 5.8% for 2022, up from the projected 4.4% of 2021.

The need for drastic action is undeniable. Inflation is at a 6-year high of 15.7%, fuel prices have risen by over 50% this year alone, the cedi depreciated by over 20% against the US dollar in the first quarter of the year, and the government has struggled with a series of strikes from public sector workers. The Russian invasion of Ukraine is also expected to lead to a significant hike in the prices of fertilizer and agricultural imports.

By eliminating the possibility of going for an Extended Credit Facility (ECF) from the IMF, government has narrowed its options to a significant performance in revenue and a tight rein on expenditure. Investors are keenly looking forward to the mid-year budget review in July 2022 for an indication on whether government’s fiscal strategy is making an impact. If half-year 2022 data shows that fiscal targets could be within reach, the Eurobond market could reopen to government and allow it to secure critical financing. However, if the numbers are unimpressive, government may be left with no other option than to turn to the IMF. Given the painful measures government is taking to avoid this, such an outcome would be disastrous. The stakes are as high as they’ve ever been.