The Director of the Institute of Statistical Social and Economic Research (ISSER), Professor Peter Quartey, has emphasized the urgent need for Parliament to reinstate the Fiscal Responsibility Act as a measure to control discretionary spending.
Prof. Quartey warned that failing to do so could exacerbate Ghana’s debt situation, especially as the country approaches the 2024 election year, despite the ongoing implementation of the International Monetary Fund (IMF) US$3 billion loan-support program.
Prof. Quartey conveyed this message during a media interview following a forum held on Monday, September 18, in Accra, which centered on “Ghana’s public debt management: facts, impact, and the way forward.
“The Fiscal Responsibility Act, 2018 (Act 982), mandates the Government to ensure that the overall fiscal balance on a cash basis for a given year does not exceed a deficit of five percent of the Gross Domestic Product (GDP) for that year.
However, the Act was suspended in 2020 due to the outbreak of the COVID-19 pandemic, as the Government anticipated that it would not be able to meet the five percent deficit threshold until at least 2024.
While the primary objective of the Act is to maintain macroeconomic stability and debt sustainability by limiting fiscal deficits within the five percent cap, Ghana had a fiscal deficit of 11.4 percent of GDP at the time of its suspension.
Prof. Quartey highlighted how this situation contributed to Ghana’s substantial debt burden, ultimately leading to the country’s 17th loan-support program with the IMF.
He urged Parliament to reinstate the suspended Act.Prof. Quartey, who is also an Economist, noted that Parliament has the authority to oversee both the Central Bank and the Finance Ministry but fell short in exercising this oversight.
He stressed the importance of establishing rules to govern discretionary spending, as uncontrolled discretionary behavior can lead to financial crises. He also recommended that in times of financial hardship, Parliament should temporarily suspend the Fiscal Responsibility Act but with a predefined timeline for review and renewal.
To ensure accountability, Prof. Quartey proposed punitive measures for individuals who violate the Act.During the forum, Dr. Sam Mensah, a Financial Economist and Investment Banking Consultant, echoed the importance of fiscal prudence in guaranteeing debt sustainability.
He called for a constitutional review to limit the government’s discretionary spending and borrowing powers, alongside policies aimed at fortifying the financial sector.
Dr. Mensah emphasized that such measures were essential because during economic crises, the financial sector tends to suffer more due to its significant exposure to government lending.