2024 elections: Govt to sacrifice fiscal discipline — Bokpin predicts
The government is likely to sacrifice fiscal discipline in favour of winning the next election, Economist at the University of Ghana, Professor Godfred Bopkin, has cautioned.
With 2024 being an election year, he said the government would sacrifice all the gains that have been made under the three year IMF supported programme when it perceives any risk of losing the elections.
Five months after implementing the Post COVID Programme for Economic Growth (PC-PEG) backed IMF programme, Ghana’s economy is beginning to see some stability after battling for the last two years. Gross domestic product (GDP) growth has averaged 3.1 per cent in the first half of the year and expected to beat the 1.5 per cent growth forecast of the IMF.
Inflation which reached a 22 year high of 54.1 per cent in December 2022 has also declined to a 14-month low of 35.2 per cent in October and on the fiscal front, the primary balance on commitment basis for first half of the year was a surplus of about GH¢2 billion compared to a target of a deficit of GH¢4 billion.
Gross International Reserves (GIR) also stood at US$2.1 billion equivalent to 1.0-month import cover, compared with US$1.5 billion (0.6 month of import cover) recorded at the end of December 2022, with the Cedi also stabilising.
With the country going into another election year, there have been some fears in the investor community on how to sustain this growth path due to the overspending which is usually associated with election years which ends up in huge budget deficits.
Sharing his view on the 2024 Budget on the Graphic Business X Dialogue Series, Prof. Bopkin said all the successes that have been chalked up so far under the IMF programme could be derailed next year, similar to what happened in 2016.
It will be recalled that prior to the 2016 elections, Ghana was under an IMF programme which started in April 2015 and had chalked up a lot of successes in the first year.
However, the successes were all sacrificed in the 2016 election year, with the country recording a budget deficit of 8.7 per cent against a programme target of 5.3 per cent.
This meant that the IMF programme which was expected to be completed in 2018 had to be extended for a further year.
Going into the 2024 election, Professor Bokpin said there was a real risk that the government might not be able to keep to the assumptions underlining the 2024 budget.
“In the first half of the year, we are likely to be on track, typically what happens in Ghana is that in all the competitive election years, you see that the last four months of that year, nobody manages anything, we don’t even track budget performance as all government officials are after votes.”
“And once we take our eyes off the fiscal dashboard then the pressure mounts on the Minister of Finance to open the flood gate so that they spend,” he stated.
He said when it gets to the crucial point, where the government is at risk of losing the elections, they will make a position whether to keep to fiscal discipline or look at their own interest which is winning the election.
“If it comes to breaking the eight, nothing will stop them. They won’t put the interest of the country above theirs,” he noted.
Election year slippages
In 2004, despite the country just benefiting from the HIPC initiative which led to a total debt relief of US$3.5 billion, Ghana still recorded a budget deficit of 3.2 per cent of GDP against a target of 1.7 per cent.
In 2008, which was another election year, the budget deficit went into double digits and more than double of what was budgeted for, recording 11.5 per cent of GDP against a projection of four per cent.
The story was no different in 2012 as the country recorded a budget deficit of 12 per cent against a target of 6.7 per cent. In 2016, despite being under an IMF programme, the government still missed its budget deficit target.
The overall budget deficit on cash basis was the equivalent to 8.7 per cent of GDP against an IMF programme target of 5.3 per cent of GDP.
On commitment basis, the fiscal deficit was 10.3 per cent of GDP.In 2020, COVID-19 expenses coupled with election year spending led to the missing of the deficit target. The overall budget deficit on cash basis was 11.7 per cent of GDP against a revised target of 11.4 per cent of GDP.
In 2024, the government has set a budget deficit target of 5.9 of GDP. With the government so far meeting all the criteria and project targets of the extended credit facility programme with the IMF, it will face its biggest test in 2024 as it tries to maintain fiscal discipline, while at the same time trying to ‘break the eight.
One of the critical components of the IMF programme is to ensure debt sustainability and the programme has a target of reducing the country’s debt to GDP to 55 per cent by 2026.
Assurance from government
The Minister of Finance, Ken Ofori-Atta, some few weeks ago assured the investor community that the government would restrict itself to budgeted expenditure, irrespective of 2024 being an election year.
He said in spite of 2024 being an election year, the government would stay within the International Monetary Fund (IMF) supported budget which was presented to Parliament last week.
“Ahead of the 2024 election year, let me assure you that we are committed to implementing the IMF supported PC-PEG as planned, and this is what our constituents expect from us. “This will help us further support the strong economic recovery,” he stated.
He said having been deeply impacted by the crisis of last year, Ghanaians now expected the government to deliver macroeconomic stability, a swift return to low inflation and a sustained stabilisation of the value of the Cedi; and not an increase in public spending. “This is completely in line with the successful implementation of our IMF programme,” Mr Ofori-Atta added.