Let’s restore fiscal discipline
The Institute of Economic Affairs (IEA) Ghana is proposing constitutional provisions and reforms to ensure fiscal discipline in an ongoing constitutional review process it has initiated.
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The institute proposes amendments to sections of the Constitution and additional provisions to entrench fiscal discipline and macroeconomic stability.
Speaking at an IEA Constitutional Review Series, Dr John Kwakye, the Director of Research, IEA Ghana, said fiscal discipline and macroeconomic stability are important prerequisites for sustained growth of the country.
He was speaking on the theme, “Institutionalising Fiscal Discipline and Macroeconomic Stability for Sustained Growth in Ghana: The Constitutional Pathway.”
For us, the country has suffered from large fiscal volatility for the past three decades.
This volatility has been identified as one of the key challenges to the country’s development programme.
The major problem the country faces now is rising debt levels which stands above 80 per cent of GDP and is projected to reach over 100 per cent by the end of 2023.
The country has been thrust into debt distress with over 70 per cent of its total revenue used to service debts, which leaves little room for other statutory obligations such as education, health and infrastructure.
In fact, the problems began when international credit rating agencies downgraded the country to junk status due to its unsustainable and growing debts.
The relegation denied access to global capital markets and prevented the raising of almost $3 billion Eurobond, which was required to service debts and support the Ghana cedi, which then went into a free-fall.
The economy has suffered significantly since early 2022, plunging the country into a full-blown economic recession.
Inflation rose from 13.9 per cent in January 2022 to 54.1 per cent in December. Inflation has now receded to 45 per cent in March 2023. Petrol and diesel prices have jumped by 88.6 per cent and 128.6 per cent respectively.
Public transport fares have increased by over 100 per cent since January.
While the government blames the economic crisis on COVID-19 and Russia’s invasion of Ukraine, there are yet others who believe state mismanagement is largely responsible.
To ensure fiscal discipline, several structural problems must be fixed. For instance, the country’s inability to produce for export and its reliance on imports for daily consumption both led to a perpetual deficit in its balance of trade.
That means the Ghanaian currency is fated to be inherently weak compared to the dollar, leading to high import prices that hit consumers.
Successive governments, who also have a history of large fiscal deficits in election years, must also learn to stay within budgets to ensure that the economy does not overheat.
In 2020, for instance, the deficit was 15.2 per cent of GDP compared to the eight per cent average from 2017 to 2019.
Domestic revenue mobilisation must also be improved to ensure we have enough funds for development.
This is because domestic revenues over the years have been weak due to tax exemptions for large corporations.
For us, the government could use technology to improve property tax collection, which has been sporadic and low due to poor information about ownership and accurate valuations.
The extractive industry could also bring in more revenue if the tax regime is tightened and properly implemented.
The government must also seal the leaks at the ports to realise more from excise and import duties.
Parliament should also enact legislations to establish a debt limit and cap government borrowing to prevent the crisis from recurring.
Constitutional amendments to limit the number of ministers and appointees in government, abolish ex gratia payments and review emoluments to public servants must be considered.
It is our considered view that when these suggestions are carefully implemented, fiscal discipline will be restored.
