News Guide Africa

Tag: Fiscal responsibility

  • Ghana’s Debt Management: Gov’t, experts settle on legislating debt ceiling

     

    “Gov’t to introduce debt ceiling for economic stability.”

     

    Adnan Adams Mohammed

     

    As government declares its resolve to managing Ghana’s debt sustainably, Dr Cassiel Ato Forson, the finance minister has agreed to the proposals of some economists with regards to legislating a public debt ceiling ratio and instituting a fiscal responsibility council.

     

    In his proposal at the National Economic Dialogue 2025, the Director of the Institute of Statistical, Social and Economic Research (ISSER), Professor Peter Quartey, called for the establishment of an independent fiscal responsibility council with real enforcement powers and a legislated debt ceiling of 60% of Gross Domestic Product to ensure prudent economic management.

     

    The revered economist  explained that, Ghana’s borrowing patterns in recent years have been unsustainable, with funds largely spent on recurrent expenditure and interest payments rather than productive investments. Thereby he cautioned that, without stricter fiscal discipline ,the country risks worsening its economic vulnerabilities.

     

    “Ghana spent a greater proportion of borrowed funds on recurrent expenditure and interest payments, especially in the last few years. Therefore a greater part of the debt accumulated was consumed rather than channeled into productive investment”, Prof Quartey further noted at his inaugural lecture at the Ghana Academy of Arts and Sciences, last week, on the topic “Debt, Investment, and Growth in Ghana: Did We Borrow to Consume?”.

     

    “Fund’s investments were not effectively utilized due to a lack of competitive bidding and poor procurement practices. What is the way forward? One is to legislate a debt ceiling – a debt to GDP ratio of 60%. ECOWAS is proposing 70% but I think that is too high because if you slip from 70%, you are likely to get into the 80’s and we will cry for a debt exchange and restructuring.

     

    “We certainly have to practice prudent financial management and establish an independent fiscal responsibility council; an independent one that can bite”, he said.

     

    Consequently, Dr. Cassiel Ato Forson, at a high-profile meeting with managing directors of commercial banks in the country last week, announced that the government will be submitting a fiscal responsibility rule legislation to Parliament, setting a debt ceiling that the Ministry of Finance cannot exceed.

     

    This move, he said, is part of efforts to entrench fiscal discipline and restore macroeconomic stability.

     

    “As part of our commitment to fiscal discipline, we will be submitting to Parliament a fiscal responsibility rule and a debt ceiling that the Ministry of Finance cannot exceed,” he disclosed to the Managing Directors of commercial banks operating in Ghana.

     

    “We are making massive investment cuts and resetting goods and services expenditure to 2023 levels. Our target is clear: achieve a primary surplus of 1.5% as we work to consolidate our gains and rebuild confidence.”

     

    Moreover, Dr. Ato Forson expressed concerns about the country’s external debt service obligations.

     

    Over the next four years, Ghana is expected to pay a total of US$8.7 billion in debt servicing, which represents 10.9% of the country’s GDP. The largest payments are expected to be concentrated in 2027 and 2028.

     

    On the Domestic Debt Exchange Programme (DDEP), the Finance Minister assured that the government has no intention of defaulting.

     

    “We do not intend to default. All outstanding holdouts have been paid, and we have built enough buffers to fully meet our DDEP obligations this year” he emphasized.

     

    He also highlighted efforts to reduce reliance on Treasury bills and enhance policy coordination between fiscal and monetary authorities.

     

    “We are also taking deliberate steps to reduce our reliance on the Treasury bill market and strengthen policy coordination between fiscal and monetary authorities. Stability is our priority, and we will not return to the turbulence of 2022. We will not be reckless,” he assured.

     

    Dr. Forson acknowledged the crucial role of the banking sector in Ghana’s economic transformation and reaffirmed the government’s commitment to working closely with financial institutions.

     

    Meanwhile, Kwamina Asomaning, President of the Ghana Association of Banks (GAB) and CEO of Stanbic Bank Ghana speaking at the meeting applauded the government’s budget for 2025, highlighting positive market reception and pledging the banking sector’s support for financial inclusion and capital market development.

     

    In a related event, the Presidential Advisor on the economy, Seth Terkper, has defended the government’s 2025 budget, calling it a necessary step to implement austerity measures aimed at addressing the country’s external debt.

     

    Terkper highlighted the evolution of Ghana’s debt portfolio over the years and stressed that alternative solutions will be crucial to prevent defaulting on external debt payments between 2026 and 2028.

     

    “As we speak, we’ve just cleared the first (bond debt servicing payment), and three more major ones are ahead. For instance, one of them is an outlier, but the years 2026, 2027, and 2028 will be crucial. We must find a solution—whether through paying down the debt or refinancing”, Terkper said at the farewell ceremony honouring Simon Madjie, the former Executive Secretary of the American Chamber of Commerce-Ghana, now appointed as the Acting CEO of the Ghana Investment Promotion Centre (GIPC).

     

    “Otherwise, there is a rare possibility of defaulting for a third time. That’s the reality, and this is the concern driving the tough austerity measures in the current budget,” the former finance minister stated.

     

     

  • 2025 budget: temporary freeze on public sector employment expected as Mahama instructs expenditure cut

    Mahama announces expenditure cuts in 2025 budget.

     

    Adnan Adams Mohammed

     

    As Ghanaians wait in earnest for the first budget of the Mahama administration, public expectations have been stemmed with plans for a possible huge cut in government spending, especially on the public sector wage bill, in an effort to rebuild the economy.

     

    This means that, there could be no new public sector employment in 2025. This is forthright, as President John Mahama has instructed the Finance Minister to cut expenditure as much as reasonably possible.

     

    Speaking to organized labour in Accra last week, his government approved a 10% salary increase for public sector workers, President Mahama indicated that, the ‘economy was criminally handled by the previous NPP administration’.

     

    “I couldn’t understand how the previous government was so reckless in the handling of the economy”, President Mahama worriedly stated

     

    “One thing that is a cardinal principle for us is to tell the truth at all times. We all knew that the economy was in crisis but some of the things I am discovering myself, have been a criminal handling of our economy, Ghana is a crime scene because how a government can be so reckless I can’t understand it.

     

    “But we are faced with a reality, our options are very few, we can behave like the ostriches and hide our heads in the sand and let the economy crash but then what effect will it have on Ghanaian households and everybody? So I have told the Finance Minister to cut expenditure as much as he likes – even for we ourselves in government machinery – cut as much of our budget as you like because we all must make those sacrifices. A certain distrust for the political class has arisen because it is like when everybody else is tightening their belt, the political class is loosening itself. I want to assure you that we are all going to tighten our belts. and there will be no wasteful expenditure.”

     

    Instructively, Dr. John Kwakye, Director of Research at the Institute of Economic Affairs (IEA), had earlier called on the Mahama administration to close tax loopholes and curb wasteful spending.

     

    Dr. Kwakye said these measures would help the government recover revenue lost from planned tax eliminations.

     

    In a post on X (formerly Twitter) last week, he stated, “Plugging tax loopholes and cutting expenditure waste will be enough to compensate for intended tax eliminations.”

     

    Already, President Mahama has also emphasized the need to strengthen Ghana’s Fiscal Responsibility Act and the Public Financial Management Act, highlighting the importance of reducing waste and tackling corruption.

     

    Speaking at the Africa Business Forum 2025 in Addis Ababa, Ethiopia, President Mahama said, “We must analyze the factors that brought Ghana to this point and implement steps to ensure we do not end up in this situation again. That will entail strengthening the Fiscal Responsibility Act and the Public Financial Management Act.

     

    “We need to cut out waste and reduce corruption. These are some of the critical issues that must be addressed.”

     

     

  • Post IMF programme: Gov’t, economists, build consensus on strict fiscal responsibility adherence

     

    Ghana charts post-IMF fiscal path.

     

    Adnan Adams Mohammed

     

    Consensus is building up among government actors and economists on pursuing strict adherence to the Fiscal Responsibility Rules enshrined in the Fiscal Responsibility Act, 2018 (Act 982) to keep the Ghanaian economy on the track after the end of the International Monetary Fund programme.

     

    Already, President John Mahama, has indicated that the current administration would not extend the current three year Ghana-IMF Balance of Payments improvement programme.

     

    The Fiscal Responsibility Act was introduced to enforce discipline in government spending by preventing excessive borrowing that could widen the fiscal deficit beyond 5% of Gross Domestic Product (GDP). However, the government suspended these rules in the wake of the COVID-19 pandemic, citing the need for increased expenditure to manage the health crisis and its economic impact.

     

     

    Meanwhile, an economist and finance lecturer at the University of Ghana Business School, Professor Lord Mensah, believes that reviving these fiscal rules should be a key focus of the upcoming National Economic Dialogue, a forum expected to shape policy discussions on Ghana’s economic trajectory post-IMF programme.

     

    “I remember at the exit of the 2018 IMF programme, we had the Fiscal Responsibility Act and then also a fiscal responsibility supervision team made up of some economic professors at the University of Ghana and all those places. At the end of the day, we ask ourselves what has been the function of this body and then the Act?

     

    “I think we should bring it back and ensure strict enforcement of the Act. That will be able to help us because within the Act, all the things the IMF may want us to do is in it. If the Act tells you to reduce your budget deficit to about 5% to your GDP, strictly they are telling you to be measured in your expenditure and try to enhance your revenue generation,” he said.

     

    Consequently, President Mahama, in an interview with Bloomberg TV at the Munich Security Conference last week, clarified that while future extensions remain an option, his government is presently committed to adhering to the existing programme.

     

    “We’ve not talked about an extension of the program. We are determined to continue with this programme,” he stated. “If it’s necessary to look at additional funds or to extend the programme, we’ll look at it, but for now we are determined to continue on this trajectory.”

     

    President Mahama also outlined key proposals his administration presented to the IMF during their recent discussions, emphasizing the government’s commitment to addressing Ghana’s economic challenges while ensuring the success of the ongoing Extended Credit Facility arrangement.

     

    The US$3 billion ECF, approved on May 17, 2023, spans three years and is designed to support Ghana’s economic stability and growth. The latest discussions with the IMF focused on tax rationalization, debt management, and fiscal prudence—critical areas for strengthening Ghana’s economic recovery.

     

    A central aspect of the engagement with the IMF was tax rationalization. President Mahama criticized the previous administration’s approach of imposing multiple taxes, arguing that it had led to diminishing returns, as increased tax burdens resulted in lower revenue collection.

     

    “Because of the target of achieving 24 percent revenue to GDP by 2028, the programme required that revenue should continue increasing at a certain rate,” he explained.

     

    “Unfortunately, what the previous government had done was just to slap on more taxes, and we had gotten to a stage where the more taxes that were put on, the less revenue that came in. And so it’s necessary for us to look at the whole tax handle, rationalize them, make them more transparent, easy to understand, so that we can have better compliance.”

     

    To support these efforts, President Mahama revealed that the IMF has agreed to provide technical assistance in streamlining Ghana’s tax system, ensuring efficiency and improved compliance for businesses and individuals.

     

    Addressing Ghana’s ongoing debt restructuring efforts, President Mahama acknowledged the significant repayments due this year, particularly domestic debt obligations exceeding US$15 billion in 2025. He highlighted his administration’s proactive measures to manage these challenges, including reactivating the country’s sinking fund to facilitate debt repayments.

     

    “We also have the issue of the debt restructuring and humps that have been created this year, we have to pay in excess of 15 billion (dollars) on the domestic debt exchange,” he noted. “So what we’ve done is to reactivate the sinking fund and put more resources into it to take care of the repayments that have to be made this year.”

     

    He further emphasized his government’s dedication to fiscal discipline, stating that expenditure rationalization remains a priority. “We must be more prudent in our handling of our finances, we must also look on the expenditure side and see how we can cut waste and also shift resources to more priority programmes,” he stated.

     

    As part of Ghana’s economic roadmap, President Mahama highlighted the upcoming budget presentation in March, which will incorporate insights from the IMF’s latest staff review. The fourth IMF programme review is scheduled for April, and the government is aligning its fiscal policies with recommendations from the ongoing assessments.

     

    “The next review, which will be the fourth review, is due in April, but before that, we’ll present the budget in March,” he explained. “So the budget will take into focus some of the issues that have come out from the staff mission. We’re hoping to receive the aid memoir today or tomorrow, and looking at the issues that IMF raises, we will incorporate them in the budget.”

     

    Despite economic challenges, President Mahama expressed confidence in Ghana’s relationship with the IMF, describing it as “cordial.” He reiterated his administration’s commitment to maintaining this partnership, ensuring the successful implementation of the ECF programme, and steering the country towards economic stability and growth.