A nation in need of empathy that offers none for herself

E. Ablorh-Odjidja

November 26, 2021

Ghana has a problem with yearly budget shortfalls.  And not much has been done to fix the problem in recent times.

The latest attempt to fix the problem is to put the onus and the solution on a levy on “electronic transfers” for the budget next year. 

 But note, if you were a Ghanaian returnee or still live abroad, the target for the solution has been placed on your back.

 Your back means on money that you saved, that has already been taxed abroad, and that you want to send home.  Consequently, your remittances home, either for yourself or to help family and others, will be negatively impacted.

 But according to the Minister of Finance, you will not be “patriotic enough” if you don’t subject yourself to the E-Levy.  The shortfall in the budget, coupled with the impact of COVID 19, has made it necessary for the E-Levy taxation.

Thankfully, as of the time of writing this piece, Friday, November 2021, Parliament voted down the measure.

But it is worth discussing this plan further for its erroneous assumptions and misapprehensions on remittances.

Remittances come unfettered.  Again, call this the goose that laid the golden egg.

The E-Levy’s impact will prove less optimal for all – the sender, receiver, and the nation.

About $3.5 billion are brought in annually to Ghana from the diaspora.  Whether it is taxed on the first receipt or not is pointless. 

Pointless because every currency after receipt from overseas becomes part of the cedi pool that can be transmitted to others and therefore, becomes automatically subjected to the E-Levy.

 Through the E-Levy proposal, the government is hoping to raise about $6 billion.  A voluntary clawback of 10% ($350,000,000), on the $3.5 billion sent from abroad will crush the government’s hope for reaching the E-Levy goal.

 But it appears, the proposal intends to extract as much as possible as it can from the remittance sectors since those to be affected most are outsiders but citizens who have less internal political power because of their absence on the political scene.

 Witness the approximate GHS100.00 a day threshold that is placed on in-country money transactions. 

While this threshold doesn’t absolutely protect the middle-income worker, the political majority, who will never transmit anywhere near this amount daily, it helps to dull the mental pain. 

This threshold is a signal - a wish-away mark from the government to avoid an anticipated political backlash.  However, the backlash has already started.

But if you lived abroad or were a returnee and fortunate enough to be building a house at home, self-remit to support life, or be involved in any meaningful enterprise or venture to support a large family in need, you would be using electronic transfers for funds and then you could be a huge target for this levy scheme.

Again, thankfully it was voted down. 

 For this writer, it is not so much the E-Levy that is wrong.  It is the abuse and mismanagement of available revenues that have brought up the need; adding to the shortsightedness that avoids other approaches to generate extra revenues for the country.

 With some assurances of integrity, the $3.5 billion annual remittances can be turned to some use.  Some see this as an opportunity to float a Diaspora Bond.

A Diaspora Bond was once proposed but it did not gain traction because of the lack of vigorous promotion.  And the lack brought diffidence against the offer among the Ghanaian communities abroad.

The bond could have worked. 

 A 4% interest rate paid on such a bond, held for five years, could have also provided a partial retreat for the government from the high-priced international bond market while offering the citizen abroad a haven for savings.  A win-win situation.

Instead, the government is left with one option, the external market: “an inevitable option despite the huge debt service burden and dire implications on exchange rate stability,” wrote Ghana Business News.

 Ghana has high remittances annually from abroad, the “2nd largest recipient of remittances in Sub-Saharan Africa….117.6 million USD in 2007 to an estimated 3.8 billion USD in 2018 to 7.4% of GDP,” said the World Bank.

The remittance size is greater than that of cocoa (2 billion for 2019).  Mining companies, including gold, have less, (about 5% of the GDP).  And more than receipts from petroleum resources, donors, and foreign businesses.  This is enough receipt to float a bond on.

But who will trust a bond from the Ghana government now, with the E-Levy on the table? 

With a stroke of the pen and a lack of foresight, this government has crushed a critical chance to grow an indigenous bond market.

The attraction of a bond is still there.

 “Sending money to recipients in Sub Saharan Africa remains the most expensive in the world, about 8.9% - 9.25% ….” said the World Bank.

 For returnees, mostly the retired, who must remit themselves from foreign accounts to support life in Ghana, the 10% reduction would mean a lot - less money ultimately received on value.

 In sum, about 10% of devaluation occurs; all at the expense of the sender.  Moreover, there will be now the new 1.75% proposed on the E-Levy.

 The reduction will have a downcast in employment, put holes in the social safety net for relatively poor kin, and inflict serious damage on the buffer system that supports a positive foreign exchange rate for the country.

Without the optimum in remittances, the exchange rate between the dollar and the cedi will be at a catastrophically negative rate than it is today, adding to more budget deficits.

This E-Levy effort shows no empathy for the individual sender, nor the eco-system that the transmittals go to support in Ghana.

What the government has to do now is to take proper account of the revenues we have currently before it starts on measures to bring more in. 

Choose the expansionary approach first, instead of the contractionary eye it has on remittances.  Not doing this will lead to fewer transfers and thus a defeat of the objective to shrink the national debt.

Hopefully, a lesson will be learned.

E. Ablorh-Odjidja, Publisher ww.ghanadot.com, Washington, DC, November 26, 2021.

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