With the planned tax cuts and their potential impact on Ghana’s debt-distressed economy, economists are proposing various policy options to restore and sustain macroeconomic stability. The latest recommendation comes from Financial Economist and University of Ghana Business School lecturer, Professor Lord Mensah.
Prof Mensah has called for the rationalization and efficient prioritization of government expenditure as a crucial strategy to mitigateing the potential revenue shortfall which could result from the new government’s proposed tax cuts.
Speaking in an interview with the High Street Journal, Prof Mensah noted that tackling corruption and enhancing fiscal discipline would create the necessary fiscal space to sustain economic stability without jeopardizing public finances.
He observed that over the past seven years, financial mismanagement and widespread corruption had significantly drained state resources, noting that addressing the inefficiencies through stringent anti-corruption measures and prudent expenditure allocation could help cushion the economy against the shocks that may arise from tax reductions.
“If we are able to prevent corruption and rationalize our expenditure efficiently, we should be able to absorb the possible shocks from the tax cut and keep prices stable,” he stated.
The Role of Fiscal-Monetary Coordination
The economist further advocated for stronger collaboration between Ghana’s fiscal and monetary authorities to ensure policy coherence. He pointed out that an independent central bank operating in isolation from government fiscal policies could inadvertently fuel inflationary pressures.
“We all know the pass-through effect of taxes on prices. When taxes increase, businesses shift the burden onto consumers. If the central bank works in isolation, it will keep chasing price hikes caused by fiscal missteps. The key is to ensure fiscal and monetary policies are synchronized,” he said.
Prof. Mensah noted that the newly appointed central bank governor had signaled a willingness to work closely with the government to ensure price stability. He emphasized that such coordination would ultimately lead to lower interest rates, benefiting businesses and households alike.
Transparent Governance and Public Trust
Beyond economic policies, Prof. Mensah underscored the need for transparency and public engagement in economic management. He warned that failing to involve citizens in national decision-making could lead to political discontent and social pressure on the government.
“Governments must be open with the electorate. If the economy improves, the public should see the benefits. If there are challenges, they should be informed so they understand the need for belt-tightening,” he said.
He also acknowledged global economic uncertainties, particularly U.S. policy shifts under former President Donald Trump, as factors that could impact Ghana’s fiscal outlook. However, he maintained that prudent financial management and prioritizing critical investments would help Ghana navigate these challenges.
Prof. Mensah concluded that the most sustainable way to fill revenue gaps created by tax cuts is through expenditure efficiency rather than excessive borrowing or over-reliance on external aid. He urged the government to take bold steps in eliminating wasteful spending and redirecting resources towards productive sectors of the economy.
“The way forward is simple: be transparent, cut waste, tackle corruption, and ensure that both fiscal and monetary authorities work together to stabilize the economy,” he advised.
