IEA calls for amendment of Constitution to ensure fiscal discipline
THE Institute of Economic Affairs (IEA) has called for the amendment of the 1992 Constitution to strengthen fiscal discipline and ensure macroeconomic stability in the country.
Advertisement
For instance, it proposed the amendment of the National Development Planning Commission (NDPC) and its functions under Articles 86 and 87 of the constitution.
It suggested that the commission should be removed from the executive arm of government and made to be a stand-alone independent body empowered to formulate a long-term development plan that would be binding on all governments.
The Director of Research at IEA, Dr John Kwakye, who was speaking at a lecture in Accra yesterday, said the exact form of the development plan and composition of the commission could be discussed and redefined accordingly.
He also suggested that the commission should be converted into a full-blown Ministry of Economic Planning or Ministry of Economy alongside the Ministry of Finance with the mandate to formulate long-term development plans, among other programmes.
According to Dr Kwakye, many countries had separate ministries of finance and economy, such that one focused on the budget and the other on economic planning.
IMF bail-out
The reason why the country had been at the IMF for 17 times was because of the inability to sustain fiscal discipline, an important condition not only for macroeconomic stability but debt sustainability as well, he said.
According to him, the country had been caught up in an unending cycle of high fiscal deficits, high interest rates, high inflation, high current account deficits, rapid exchange rate depreciation and unstable growth.
“It is our prevalent fiscal indiscipline and associated macroeconomic instability and debt crises that have taken us to the IMF 17 times.
“Indeed, if you follow the numerous communiques issued by the IMF and our authorities on the ongoing programme negotiations, a common objective that runs through all of them is restoration of macroeconomic stability and debt sustainability, which we have lost,” the director said.
He said despite the IEA’s persistent efforts to ensure fiscal discipline and macroeconomic stability, progress had been limited.
To avoid repeating the perennial post-IMF policy relapses, Dr Kwakye said the country needed drastic changes to its institutional policy framework.
“The IEA is seeking a strong legal backing to its economic policy proposals of leveraging the constitutional review process that the institute has initiated, which builds on the extensive work that it has already done over the past two decades or so”, he said.
Dr Kwakye also said that to avoid expenditure overruns and unauthorised expenditure, Articles 178 and 179, which clearly spelt the need for parliamentary approval of government expenditure and withdrawals from public funds should be closely examined to tighten any loopholes.
Deficit Ceiling
Another provision in the Constitution the IEA wants to be amended is Article 36 to ensure that government overall fiscal deficit in any year “shall not exceed three per cent of GDP”.
“This will require possible amendment of the Fiscal Responsibility Act, which has five per cent deficit ceiling to reflect this lower ceiling,” the director said, adding that the three per cent ceiling was in line with the convergence criteria for ECOWAS and the West African Monetary Zone (WAMZ), both of which Ghana was a member.
According to him, the government borrowing to finance budget deficit should be restricted to capital expenditure only.
That, he said, was a prudent condition practised by countries such as the United Kingdom (UK), which ensured that loans were used only for productivity rather than consumption purposes.
“Using loans for investment ensures that it would yield returns for future repayments,” the director said.
Dr Kwakye further proposed the establishment of a provision of a Parliamentary Budget Office (PBO) under Article 24 of the constitution to be manned by independent professionals appointed by the Public Service Commission.
Its functions would include undertaking independent evaluation of government budget and fiscal policy, monitoring the implementation of the budget and fiscal policy and carrying out independent estimates of the costs of government projects and programmes.