The cancer called fiscal indiscipline
Fiscal discipline basically means spending within your means over a period of time. We know that any individual who consistently spends above his or her means would end up in trouble. It is no different for a country. Monetary discipline on the other hand involves the central bank matching the money supply with the level of production or foreign exchange reserves in a country.
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Understandably as a developing country, Ghana has huge gaps in sectors such as roads, water, energy, education, health, agriculture, among others. The problem that the government faces is one of insufficient financial, institutional and human capital resources to solve these problems.
The Government, therefore, has the onerous responsibility to manage the resources of the country to meet the aspirations of its citizens today as well as future generations. While it is clear that accomplishing these goals require fiscal and monetary discipline, the lesson from history is that the temptation to abandon discipline for political expediency is very high.
Fiscal discipline cannot be discussed in isolation. The issue has a direct bearing on our front page lead story. The Bank of Ghana's (BOG’s) role in funding Ghana's budget deficit in the first half of the year illustrates the financing challenges the government faces. Yields of 182-day Ghanaian Treasury bills jumped above 25 per cent in September, from 19 per cent in January 2014.
Between January 1 and September 19, government domestic borrowing, through the sale of short-dated instruments, amounted to GH¢26.18 billion, up from the GH¢19.03 billion it borrowed within the same period last year.
A GRAPHIC BUSINESS analysis further reveals that the government borrowing was 37.57 per cent more than the previous period, in spite of the substantial rise in the interest rate at which the funds were borrowed.
With such large-scale borrowing, the government is crowding out the private sector which is unable to borrow to grow their business. Electricity and water supply has been erratic and inadequate, shooting up the cost of doing business. It is, therefore, not surprising that businesses are having a hard time in Ghana presently.
The solution lies in a more ambitious and front loaded fiscal consolidation to help place public debt on a sustainable path, and to allow monetary policy to be more effective in bringing down inflation. Also there is the need for BoG to strictly limit budget deficit financing.
There is a critical requirement by governments of a commitment to fiscal discipline beyond the electoral cycle. Are the politicians willing to abide by this discipline regardless of the impact on our electoral fortunes? More importantly, are the voters going to demand this discipline from politicians?
The passage and enforcement of a Fiscal Responsibility Act will be important in this regard if it is supported by political will. A Fiscal Responsibility Law will require governments to declare and commit to a fiscal policy that can be monitored.
It will include fiscal rules (including rules governing election year spending), provisions for transparency and sanctions (including sanctions on the Executive).
It would mean for example that governments cannot by law spend above a certain limit relative to revenues. Fiscal indiscipline and the resulting fiscal excesses are ultimately paid for by ordinary citizens who have no place at the decision-making table of the politicians.
It is, therefore, important for labour, civil society and all other stakeholders to make a push for the passage of a fiscal responsibility law as soon as possible.
Graphic Business