We won’t falter on economy

General News of Monday, 20 January 2020

Source: Graphic.com.gh

2020-01-20

Finance Minister, Ken Ofori-AttaFinance Minister, Ken Ofori-Atta

The government has given the strongest assurance yet that it has put in place adequate measures to ensure that election-year fiscal slippages do not recur.

Ghana will go to the polls this year to elect a President and Members of Parliament (MPs). Since 2000, it has overshot its fiscal deficit targets in all election years, except in 2004, the largest being in 2012, with a deficit of 11.5 per cent of Gross Domestic Product (GDP).

Because of that, the government has pledged not to allow election-related matters to slow down the economy and general activities in the country, as happens in election years.

The assurance was given separately to the World Bank Group in Accra last Friday, during a ceremony to announce the bank’s financial support for four thematic projects, and the International Monetary Fund (IMF) in the 2019 Article IV Consultation Report issued on December 17, last year.

No slowdown

At the signing of the financing agreements, the Finance Minister, Mr Ken Ofori-Atta, said history showed that economic activities mostly slowed down in election years, something he said would not be allowed to repeat this year.

“We want to signal that we want to work quickly and efficiently and that the good work that we are doing should not be compromised by issues of elections,” he said at the event, which was graced by the Country Director of the World Bank, Mr Pierre Frank Laporte.

He added that the government had resolved to continue with the momentum on economic management and governance for the benefit of the populace.

He said the slowdown in activities and the derailment of economic management, which were mostly reversed after the elections, were costly, hence the resolve to avoid them.

Mr Ofori-Atta, therefore, called on Ghana’s development partners and the international community to support the government to achieve its objective.

The government’s assurance to the IMF that it would maintain fiscal discipline followed concerns by the fund that the public debt stock could rebound, fiscal excesses could recur and the general macroeconomic stability could recline in the lead-up to the December 7 general election.

In response, however, the government said those fears should subside, as it had resolved “to break the political budget cycle”.

That, it said, was “to maintain the hard-earned macroeconomic gains achieved since 2017”.

‘Irreversibility’

In the Article IV Consultation Report, the IMF quoted the government as citing the predictability in the budget process introduced by the Public Financial Management (PFM) Act 2016 (Act 921), improved accountability along the expenditure chain under the Ghana Integrated Financial Management Information System (GIFMIS) and the Fiscal Responsibility Act 2018 (Act 982) as some of the “stringent” measures introduced to ensure the “irreversibility” of the current stability.

The Fiscal Responsibility Act forced the fiscal deficit target to be set below five per cent of GDP for 2020, as opposed to earlier regimes when the targets were much higher in similar election years.

“The authorities remain firmly committed to fiscal discipline and breaking with the pattern of high fiscal deficits observed in previous electoral cycles,” the fund said in the 88-page report.

‘Trappings to spend’

Meanwhile, an economist, Dr Said Boakye, has said that although the assurances were comforting, a repeat or otherwise of the political budget cycle in 2020 would be dependent on the competitiveness of the elections.

The Senior Research Fellow with the fiscal policy think tank, the Institute for Fiscal Studies (IFS), said in an interview that the real test to the government’s assurances was in the potency of the opposition to reclaim power from the ruling party.

“Election year fiscal overruns have a lot to do with the competitiveness of the elections. I do not know whether or not the opposition is strong, but if it is getting to the elections and the feeling is that the ruling party will win, it will not see the need to overrun the budget,” he said.

“But if the elections will be so competitive, that is when the real test surfaces, with the question being: ‘should they overspend with the hope that they will win or it does not matter?’

“That is the real test, which I have not seen any government being able to withstand the trappings to spend,” Dr Boakye stated.

Election year deficits

Except in the 2004 elections, all political administrations in the Fourth Republic have overrun their budgets, ostensibly to retain power.

The IMF said in the report that the fiscal deficit increased by more than three per cent of GDP, on the average, during the last three electoral cycles, strengthening fears that the 2020 elections would not be different.