Will 2016 be different? Budget overruns in election years
The Finance Minister, Mr Seth Terkper, has repeated the government’s commitment to stay within its budgeted expenditure in order to avoid the habitual fiscal indiscipline registered in past election years.
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This is a heart-warming pledge, given that the country has since 1992 gained notoriety for recording large budget deficits in every election year.
Apart from 2004, when the budget deficit in an election year dropped to 3.2 per cent from 3.4 per cent in 2003, large budget deficits have virtually become synonymous with election years, with the 2012 figure of 11.5 per cent, a jump from the 2011 close of four per cent, being the worst so far recorded.
The overspending is always the outcome of a combination of push and pull factors mostly boosted by the incumbent government’s desire to impress the electorate to be able to retain power.
Among the causes include the excessive demands from public sector workers for improved conditions of service, an urge to please the electorate with new projects and subsidies on utilities and the intermittent slump in commodity prices and their resultant impact on budgeted revenues.
With these factors already rearing their heads, many wonder if Mr Terkper’s pledge to restrain himself and the government from non-budgeted projects would be followed to the letter.
Although many believe that the current three-year extended credit facility (ECF) would deter the government from overrunning the budget, it must be stated that the country has a record of defying such International Monetary Fund (IMF) targets in election years.
In 2000, although the country was under a similar programme, public expenditures overshot their targets, resulting in a year-end deficit of 8.5 per cent, against a target of 6.1 per cent.
While overrunning the budget may be good for the electoral fortunes of the government, it is very bad for the economic fortunes of the country and sends wrong signals to the investor community.
As former Finance Minister, Mr Kwame Peprah, said in the 1999 budget, people needed to understand that “when the economy goes off course in an election year, it takes years of belt-tightening and further harsh fiscal measures to bring it back on course.”
These belt-tightening measures normally strangle growth in businesses, raise the cost of living of the average Ghanaian and suppress the rate at which the economy will grow in the subsequent years. Given that economic growth is an accumulation of years of growth, any reduction in the rate of growth, irrespective of the quantum, will have a dire consequence on the progress of the country.
That is why Mr Terkper and the government need to stick to their word and ensure that only budgeted and approved expenditures are undertaken.
As Mr Peprah noted in the 1999 budget speech, the country and politicians in particular need to “resist the temptation to play political football with the economy in this election year.”
This is needed to ensure that the economic progress of the economy is not derailed after the election, irrespective of whichever party wins the 2016 polls. — GB