Adnan Adams Mohammed
As the government prepares to present the 2025 budget statement and economic policies, many stakeholders of the economy have cautioned the government to consider fiscal responsibility.
Latest to add its voice is the Institute for Fiscal Studies (IFS) cautioning the government to set realistic budgetary targets to ensure fiscal credibility.
The think-tank believes that effective fiscal policy, among others, results in a credible budget which in effect courts investors’ confidence in the general economy.
“If a budget lacks credibility, its policy intentions are less likely to be achieved”, IFS said at its pre-budget conference in Accra. “Where this is a chronic challenge, it is likely to reduce confidence in fiscal policy, undercutting its effectiveness. An essential feature of a credible budget is realistic revenue targets, since revenue is the cornerstone of any budget.”
In a report, IFS noted that the government of Ghana has a poor track record in this area.
Over the years, the economic policy think tank recounted that budget statements have featured routine over-projection of revenues despite consistently highlighting this shortcoming with regard to the previous fiscal year.
For instance, it said, actual total revenue and grants was below the budget target every year from 2013 to 2023, with an average deviation of -7.4%.
“With respect to the Public Expenditure and Accountability (PEFA) framework, which is a globally recognized standard for evaluating the performance of countries’ public financial management systems, Ghana’s annual revenue deviation was within the framework’s ideal range of -3% to +6% for only 2 out of the 11 years from 2013 to 2023. In fact, Ghana’s average revenue deviation of -7.4% is more than twice the lower limit of the range of -3%, implying under-collection of revenue below the threshold.”
IFS further cautioned the government not to look for the least opportunity to return to the international bond market.
It explained that since 2000, Ghana has suffered two debt crises. The first, the HIPC crisis in 2001, was caused by an excessive build-up of external debt during the 1980s and 90s. Ultimately, it took debt forgiveness under the HIPC Initiative to save the country from a complete meltdown.
The second crisis, which emerged in 2022, resulted from build-up of both external and domestic debts after HIPC, which accelerated over the past decade. However, its trigger was external, because it was precipitated by, as stated earlier, a loss of access to the international bond market in early 2022 after the country’s credit ratings had been downgraded to junk status. Furthermore, during the recent debt restructuring to tackle the crisis, negotiations over external debt were more complex and protracted than those over domestic debt.
“So, while the nation must avert a return to excessive debt build-ups of any form at all costs, past experience shows it is especially imperative to avoid sliding back into another foreign debt entanglement,” IFS said.
“The government should not therefore look for the least opportunity to return to the international bond market. To ensure this: “The government should learn lessons from the past three years in which the country has carried on without borrowing from the international bond market. During this period, the government was compelled to pursue steps to ensure lower fiscal deficits. This stance should be maintained into the future, since low deficits imply low borrowing.
“Since the crisis moved the central bank to more vigorously seek non-debt-creating avenues to increase its international reserves (the Gold Purchase Program), this should teach the government a lesson that the nation’s natural resources can be leveraged for self-reliance.”
