We Need Fiscal Discipline to Stabilize Economy – IFS Senior Research Fellow

A Senior Research Fellow at the Institute of Fiscal Studies (IFS), Dr Said Boakye, has restated the need for more political commitment to ensure fiscal discipline amidst the Coronavirus pandemic era.

According to him, with Ghana’s debt servicing taking 72 per cent of government revenue, the county’s fiscal position is likely to get worse if the government does not take some tough measures in reducing expenditure while it increases revenue.

While speaking in an interview to make bare the facts, Dr Said Boakye stated that the government must tread cautiously as most of its social intervention programmes in the pandemic have been poorly executed and lack fiscal prudence.

“The suspension of the Fiscal Responsibility Act, to a large extent, was unavoidable because the situation was bad and the pandemic- related expenditures were real. So, we are not much bothered about the suspension, but you cannot hide behind that and continue to be populist and provide expenditures because you are good. Why should we be borrowing and dashing it out? That is what we are talking about,” he said.

He further added that;
“Our study of the economic history of this country reveals that fiscal populism is the cause of the country’s recurring fiscal distress. This can be seen from the ’70s through to the ’90s and in current times when the HIPC was employed to relieve the country, but we still engage in populism. Of course, it is no secret that there is competition in terms of who can promise. If we do not stop it we cannot fix this country. We need to take certain bitter decisions now if we are interested in fixing the economy.”

The Coronavirus pandemic and its unforeseen economic burden has created uncertainty and weakened economic growth, resulting in an expected deficit of 11.7 per cent of Gross Domestic Product (GDP).

This resulted in increased government and external financing needs as policy interventions were drawn to sustain household incomes and business activities.

It has also resulted in a revenue shortfall of GH¢13.6 billion and unanticipated but necessary expenditures of approximately GH¢11.7 billion.

The Background

Earlier this month, Ghana’s parliament approved the government’s request to suspend the Fiscal Responsibility rules which forbid the Finance Minister, Ken Ofori-Atta, from exceeding a budget deficit of 5 per cent of the previous year’s GDP.

In the Finance Minister’s response, he explained that the suspension was needed to mitigate the negative impact of COVID 19.

In retrospection of the 2020 Mid-Year Budget, he revised the budget deficit for 2020 from 4.7 per cent of GDP to 11.4 per cent of GDP due to revisions in the country’s total revenue and expenditure.

The revisions in the Total Revenue and Grants and Total Expenditures resulted in a fiscal deficit (on a cash basis) of GH¢44.1 billion (11.4% of GDP) for 2020, up from the original 2020 Budget target of GH¢18.9 billion (4.7 per cent of GDP).