Maintaining fiscal discipline: Ghana first - Dr Asuming challenges citizens at Graphic Business/ Stanbic Bank Meeting
Maintaining fiscal discipline in an election year will require the collective effort of the government, Parliament and all citizens, Economics Lecturer at the University of Ghana, Dr Patrick Asuming, has said.
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He said to end the political cycle of overspending in election years, all stakeholders must commit to putting the country first.
While advising the government to put the country first and not sacrifice fiscal discipline for winning the next election, he also urged Parliament to step up its control measures to ensure that the government stays within the 2024 budget targets.
Speaking as one of the two-member panel at the Graphic Business/Stanbic Bank Breakfast Meeting at the Labadi Beach Hotel, Accra yesterday, Dr Asuming also encouraged all citizens to take interest in government spending and not put so much pressure on the government by making too many demands because of elections.
The other panel member was the Chief Executive Officer of Petrosol, Michael Bozumbil.
The breakfast meeting, which was on the theme: “Fiscal Discipline; Breaking the Political Cycle Business in 2024”, brought together business leaders, people in academia and economists to discuss how the country can maintain fiscal discipline amid spending pressures that are normally associated with elections in the country.
Dr Asuming said considering how Ghana’s current International Monetary Fund (IMF) programme had cost Ghanaians due to the domestic debt restructuring, every Ghanaian must be more interested in government spending and borrowing now.
“Parliament must step up its role and hold the government accountable, and Ghanaians should be informed that this time if people come and they are promising things, let us be bold and not only think that because it will benefit us, that is good enough,” he posited.
“It might be good for us or the community but the mess that it will create post-elections is longer term and all of us will pay for that mess,” Dr Asuming added.
“We should get the sense of putting the nation first over our immediate needs, let’s think about the nation,” the economist advised.
Election year deficits
Election years in Ghana have witnessed huge budget deficits as the government in a bid to win over the electorate overspends its budget.
In 2004, despite the country just benefiting from the Highly Indebted and Poor Countries (HIPC) initiative which led to a total debt relief of $3.5 billion, Ghana still recorded a budget deficit of 3.2 per cent of Gross Domestic Product (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 not different in 2012 as the country recorded a budget deficit of 12 per cent against a target of 6.7 per cent.
Context
In 2016, in spite of 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.
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.
Borrowing
Dr Asuming added that if the government was pressurised to spend more than it had planned to do in 2024, it might be forced to borrow and looking at the current market conditions, “this will come at a high interest rate”.
That, the lecturer said, would have a cascading effect on businesses and the economy as a whole in the medium term.
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Dr Asuming said Ghana’s elections had been very tight and there was a sense by those in power that if they spent more, they might tilt the balance.
The two dominant political parties in the country are encouraged to think that it was better to stay in power and clean the mess created from election year spending rather than lose power and leave a clean fiscal space for the next government, he said.
“Because of this incentive, there is always the desire to overspend and nothing stops them due to the looseness of our public financial management space”.
“We don’t have sufficient controls and independent monitoring of government spending so the politicians are able to get access to public funds easily for spending,” Dr Asuming stated.
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He, therefore, called for the introduction of more control mechanisms to make it more difficult for people in power to divert funds from planned to unplanned.
Control your destiny
For his part, Mr Bozumbil advised business leaders to break the political business cycle in 2024 and take absolute control over their destiny without betting on the assistance of the political class.
“I have seen businesses collapse after each election and most of them are those who put so much trust in assurances from governments rather than concentrating on their internal systems, processes and making sure that they don’t place so much confidence in political pronouncements,” he said.
“To ensure business sustainability in a political climate such as Ghana’s, we business people must not rely on the yearly budget readings of the government; we must act as though there is no national budget for this country,” Mr Bozumbil noted.
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He stated that to remain in business in the current challenging economic conditions, businesses would have to rely on themselves and avoid any affiliations with any political party.
“Most often provisions in the budget are not fulfilled, and even when they are, they do not benefit the average business operator, because government is always taking from us, so let’s comply with the regulatory requirement and break the electoral cycle,” he stated.
He advised businesses to ensure financial discipline within their operations while pitching their operations on worst case scenario assumptions when it came to how the national budget execution would impact their businesses.
That was to help them to manage expectations of government performance.
Step up operations
Mr Bozumbil added that business operators must step up their operations and understand that the best way to survive was to make sure “your obligation to the state are complied with, not obligations to any political party.”
Amid all the challenges, the Petrosol CEO urged businesses to do their best and comply with all tax and regulatory obligations.
“Do not follow politicians and forget about regulatory requirements. If you do not comply and you follow politicians with all the promises, they will mess up the system, lose elections and your business will collapse,” he stated.
To break the electoral cycle in businesses and ensure that businesses thrive when government changes, companies must honour their obligation to the state first and foremost before donating to any political party from their net profits, Mr Bozumbil advised.
