A charge to keep
In the context of developing economies such as Ghana, the quality of the fiscal policy regime and its synergy with the monetary policy regime are deemed to be very critical to the attainment of sound economic management..
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As a result, the implications of the government budget deficit and its financing requirements are regarded as matters of considerable concern.
The concern with deficits and their mode of finance arises because deficits financed by borrowing can prove a source of inflationary pressure and they may, among others, crowd out needed credit to the private sector; engender imbalances in the external payments accounts and lead to public-sector debt levels that cannot be sustainably financed.
These negative tendencies, more often than not, translate into low and sluggish economic growth.
We think that macroeconomic stability notwithstanding, fiscal analysis should also give serious consideration to the composition of the government’s expenditure programme. Our view is against the backdrop of this year’s performance.
In particular, the government’s fiscal consolidation efforts are on track and it is encouraging that the government decided to liberalise the prices of fuel products, which bodes well for expenditure control, eliminating the need for subsidies and incurring arrears.
However, the government should firmly continue its fiscal consolidation efforts to fully restore macroeconomic stability and mitigate financing risk.
In this regard, it is crucial to continue the policy of controlling the wage bill by adhering to the net hiring freeze, excluding health care and education, while implementing the payroll clean-up plan.
To avoid the risk of fiscal overruns in connection with next year’s election, it is imperative to identify its total cost as early as possible and make provision for it in the 2016 budget, while ensuring that the fiscal targets will be achieved.
It is also important that the ongoing wage negotiations result in a wage agreement consistent with the medium-term wage bill envelope. Enhancing revenue performance will also be key in ensuring continued fiscal consolidation.
The government should continue to adhere to the domestic arrears clearance plan and avoid incurring any new arrears. Implementing structural reforms to strengthen expenditure control will support these efforts. At the same time, the government should use the resulting fiscal space to enhance its social protection programmes to mitigate the potential impact of the fiscal consolidation on the poor.
Poverty will continue to rise unless there is higher economic growth of a kind in which poor people can participate effectively and meaningfully—i.e. broad-based growth.
Prioritisation is unavoidable for a given resource envelope if the goal of accelerated growth with poverty reduction is to be attainable. — GB