Suspension of Fiscal Responsibility Act could adversely affect Ghana’s credit ratings- ISSER

An economist with the Institute of Statistical and Social Economic Research, Prof. Augustine Fosu is warning suspension of the fiscal responsibility act could negatively affect the country’s rating.

The suspension of act was approved by parliament for 2020 based on the pandemic which has invariably caused a budget deficit of more than 5%.

The government, in January 2019, established a seven-member Fiscal Responsibility Advisory Council to develop and recommend to the President, fiscal responsibility policies for the maintenance of prudent and sustainable levels of public debt.

The Council was to ensure that the fiscal balance is maintained at a sustainable level and the management of fiscal risks in a prudent manner, to achieve efficiency, effectiveness, and value for money in public expenditure.

Professor Fosu believes government has to put in more effort to convince ratings agencies about its commitment to fiscal prudence.

“I think that so far Ghana has done quite well in terms of meeting the fiscal responsibility target. Before COVID, we were actually moving quite close, around maybe 63% and it was targeted to be met actually. So COVID came along and the target now cannot be met, no doubt about that. So as I indicated earlier the 11% points added the target to 76% of GDP”.

Prof. Fosu

Recently, Parliament approved the suspension of the Fiscal Responsibility rules in the Fiscal Responsibility Act, 2018 (Act 982) for the 2020 financial year.

On the back of the Minister of Finance, Ken Ofori-Atta, in the Mid-Year Budget presented to parliament in July this year.

The rules forbid the Finance Minister from borrowing to spend beyond a threshold that will push Ghana’s fiscal deficit to over 5% of GDP. But in government’s projections during the presentation of the 2020 Mid-Year Budget, the uncertainties of COVID-19 will push the fiscal deficit above 5%.

The Chairman of Parliament’s Finance Committee, Dr. Mark Assibey-Yeboah, explained the reason behind the suspension on the floor of Parliament.

“As required by Section 33 of the Act, the necessary documentation has been put before the House for approval for the suspension of the Fiscal Rule. Mr. Speaker, the Committee observed that, the COVID-19 pandemic has affected virtually all countries of the world and every aspect of the Ghanaian economy. The pandemic has impacted on economic activities, created uncertainty and weakened growth and there have been massive capital flight from low income countries,” he said.

Dr. Assibey Yeboah

However, Prof. Fosu indicated that the government must justify its action of suspending the fiscal responsibility act to the appropriate quarters.

 “So we have to justify to the rest of the world that indeed covid-19 is responsible for this difference, otherwise it can have adverse effect on the economy in terms of the interest rate premium that we have to pay in the capital market, and that of course means there’ll be less funds available for capital expenditures for various programs including free SHS.

“It is quite critical that whatever funds that are utilized to make up the difference… those funds are utilized efficiently”.