We must not sacrifice pro-poor interventions
In recent times, there has been growing consensus for the prudent management of public finances, which is a prerequisite for sustainable economic growth.
Achieving sustainable finances requires that our government implements credible medium-term fiscal consolidation strategies and plans.
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For instance, our dire fiscal situation, brought about significantly by the COVID-19 pandemic, has led to fiscal solvency concerns, manifested in important interest rate hikes on sovereign bonds and downgrading by rating agencies.
Higher long-term interest rates and debt levels could hamper future economic growth, increase the vulnerability of public finances to shifting market sentiments and reduce the scope for fiscal policies to counteract future economic downturns.
Unfortunately, concerns over the fiscal and debt position resulted in an unfavourable credit rating decision by Fitch Ratings and Moody’s Investor Services, which caused a widening in the sovereign bond spread.
The rating agencies had cited the debt situation, widening fiscal deficit, weak revenue inflows and the country’s inability to access the global financial market for the purposes of borrowing as bases for the downgrades.
The good thing about our country’s story, though, is that the government is working to improve the economic fortunes, after the country has recovered from the COVID-19 pandemic.
Last month, the government took one major step to underscore its commitment to ensure the proper management of public finances. The Minister of Finance, Mr Ken Ofori-Atta, announced that the government would cut the expenditures of ministries, departments and agencies (MDAs) and metropolitan, municipal and district assemblies (MMDAs) by up to 20 per cent as part of a strategy to align spending with revenues.
It also recommitted itself to implementing measures announced in the 2022 Budget to boost revenue collections.
It is envisaged that the implementation of the measures and the commitment to expenditure controls will signal Ghana’s commitment to keep the deficit under control and curb external pressures that may emanate because of the concerns over the fiscal position.
One of the major challenges in our economic management has been maintaining a tight fiscal consolidation programme, which entails concrete policies aimed at reducing government deficit and debt accumulation.
Simply put, budget deficit is the amount the government spent beyond its income, which is measured as a percentage of the gross domestic product (GDP), while fiscal consolidation is the ways and means of narrowing the fiscal deficit.
A government typically borrows to bridge the deficit. It will then have to allocate a part of its earnings to service the debt. The interest burden will increase as the debt increases.
Therefore, it is imperative on the government to move beyond political will to deliver concrete results by reducing expenditure and increasing revenue, so that the budget deficit is reduced considerably.
Fortunately, a Bank of Ghana report on the performance of the economy in 2021 shows that the expenditure seemed well contained, although not enough to keep the fiscal deficit for that year within the budget target. Consequently, the deficit at the end of the period was marginally above target.
While the pledge to cut expenditure by up to 20 per cent is welcoming, given the impact on the fiscal situation, we at the Daily Graphic urge that it be carefully executed to ensure that it does not affect growth-enhancing sectors and pro-poor programmes.
In view of the country’s development challenges, coupled with the need to implement initiatives that can create more jobs to reduce the huge unemployment gap, the Daily Graphic believes that the government must rationalise its expenditure and spend wisely in order not to stifle economic growth.
There is the need to carefully balance fiscal consolidation with growth initiatives by coordinating both fiscal and monetary policies more effectively to achieve the desired macro-economic benefits.
We also urge the government to continue to articulate the set of programmes and policies meant to address the situation to help regain investor confidence and carry both the local and the global financial markets along.