Controlling election year overruns
For more than a decade, Ghana has towered above its peers in the sub-Saharan region, making many economic gains and later pumping oil in 2010.
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Before then, the country had won debt forgiveness, attained a coveted middle-income status and seen five years of economic growth above eight per cent that made it the envy of other African nations.
But a spending spree ahead of the 2008 elections pushed the country’s deficit above 20 per cent of gross domestic product. The government managed to trim the public deficit to below seven per cent of GDP in 2010 and has targeted 5.1 per cent for 2011.
Just when the country was about achieving that target, another election-related spending resulted in fiscal overruns of 11.8 per cent in 2012 — GH¢2.8 billion — the highest ever.
The history since 1992 has been that in every election year cycle, the fiscal situation deteriorates. But this time, under an IMF programme, the government has expressed commitment to execute the programme over an election-year cycle.
This year, the government is aiming to cut its budget deficit from 7.3 per cent to 5.3 per cent of GDP — a move economists have judged as ambitious, especially in an election year when governments are susceptible to spending on unplanned projects to woo voters.
Election-year overspending has been an established trend in Ghana. The situation, invariably, spirals the economy into the doldrums after every general election.
The country goes to the polls this year and President John Dramani Mahama, who is seeking a second four-year term, has pledged to stick to spending limits agreed under the IMF deal while ensuring free, fair and transparent elections.
Although the President faces a tough battle against his main contender in the 2012 elections, Nana Akufo-Addo, he has assured us that he will not raid state coffers ahead of the polls.
“We have a commitment. . . even in an election year. We must keep expenditure under control, we must make sure we increase revenue and keep wages under control,” he said.
But there are concerns that the government may not stick to that promise and will overspend any way.
But the Graphic Business is confident that the government will stick to the election-year expenditure plan.
This confidence stems from the fact that this year the election spending will be under the watchful eyes of the IMF.
Graphic Business wishes to caution the government that, given the country’s debt situation, which has consistently risen over the years, it is not in a position to accommodate any further budget overruns.
For us, the debt to GDP ratio, which is around 70 per cent, is way higher than the country’s peers in the lower middle-income bracket.
If we allow a further fiscal slippage, it will make debt management extremely difficult and thereby complicate its refinancing.