Lead partner of tax firm PFM Tax Africa, Seth Terkper, has shared his thoughts on the linkage between Domestic Resource Management (DRM) and debt management in Sub-Saharan countries.
Mr Terkper speaking as part of a three-member panel discussing the relevance of DRM to financing low-income countries post a Covid world, noted that with effective tax administration systems, African countries particularly middle-income countries can raise enough revenue to manage debts and fiscal needs.
According to Mr Terkper, who served as Ghana’s Finance Minister from 2013 to 2016, effective tax administration imply the non-distortion of the objectives of tax instruments such as the VAT, income tax and import duties which have for some decades now become the main source of revenue mobilization for African countries particularly middle-income countries.
He argued that, a distorted tax administration system will not be strong enough to grow let alone grow the economies of African countries.
Speaking further he noted that, effective tax administration systems which will result in increased DRM will help in supporting better fiscal and debt management. He asserted that African countries during times of ‘booms’ or increased revenues should prepare and save revenues in Sovereign Wealth Funds to help in times of ‘busts’ or crisis such as the Covid-19 pandemic.
To make clear his point of Sub-Saharan countries using DRM to manage debts and fiscal deficits, he made reference to some $500 million drawdown, made by Ghana from its Sovereign Wealth Funds for amortization purposes between 2014 and 2017 as well as some $250 million to support its fight against the Covid-19 pandemic.
“We should pay attention to revenue management in the context of booms and busts because once recovery is starting, revenue generation in Sub-Saharan countries is going to increase because revenue generation in African countries is linked to demand in advance countries, so as commodity prices increase due to demand from advanced countries revenue increases, but revenue drops when there is a crisis and so in coming out of deficits and debts there must be an allocation of resources by African countries for debt and fiscal management,” he stated
In concluding his presentation to the participants of the webinar organized by the Centre for Global Development (CGD), Mr Terkper posited that African countries should integrate DRM with fiscal and debt management.
“DRM should be integrated in fiscal and debt management particularly in borrowing, so how do you borrow, how do you manage your debts, how do you buy-back and amortize and when do you refinance,” he noted.