THE Institute of Economic Affairs (IEA), Ghana a leading Accra-based economic and governance think-tank has warned the Mahama-led government against reckless spending particularly in the upcoming 2016 elections.
A renowned Senior Economist of IEA, Dr John Kwakye who gave the warning noted: ” Election years are particularly notable for budget overruns. There is a need for all to hold the fiscal authorities accountable to the proposed fiscal path through election 2016.
We cannot afford further bouts of fiscal profligacy only to be followed by stabilisation that derails the move to a higher growth trajectory capable of generating employment and alleviating poverty”.
At the end of the 2012 elections, Ghana recorded a budget deficit of GHC 8,648.7 million which represented 12% of gross domestic product (GDP) against the target of 6.7% of GDP.
This meant that the government’s outlay was in excess of the revenue received. In short, the government spent more money than it made.
Analysing the 2015 Budget which was presented by the Finance Minister Seth Terkper recently, told journalists in Accra yesterday that the 2015 budget was not growth oriented rather a stabilization one.
He indicated: “As a country, we should have long stabilised the economy to pave way for transformation and sustained growth. Unfortunately, we take one step forward on the path of stabilisation and then we take two steps backwards. This is compounded by the election cycle when we go on a spending spree at considerable cost to the economy”.
As a stabilisation budget, there is probably not much that can be done immediately by way of addressing the fundamental problem of dependence on gold, oil and cocoa exports which renders the economy vulnerable to shocks.
In fact, the only way to sustain stability of the exchange rate is to transform the economy to produce high-value exports. So, this is a matter that deserves our utmost attention going forward, Dr Kwakye stated.
He was quick to add: “The 2015 budget says very little about external sector targets and policies. It indicates that reserves will be built up from 3 to 4 months of import cover over the medium term. This is in the right direction since a reasonable level of reserves is required as a cushion against future shocks to the economy, particular via our export commodities” .
Expenditure
Total expenditure is estimated at GHC41.2 billion (30.5% of GDP) of which comprises compensation of public sector employees: GHC12.3 billion (29.7% of total expenditure, 36.3% of domestic revenue, and 9.1% of GDP); Interest payments: GHC9.6 billion or (24.4% of total expenditure) (7.1% of GDP); capital expenditures : GHC7.0 billion (or 17.8% of total expenditure) (5.2% of GDP), arrears payments: GHC1.6 billion (3.8% of total expenditure) and subsidies: (GHC 50 million).
The renowned senior economist observed: The wage bill, as usual takes a chunk of revenue and accounts for nearly 30% of total expenditure. There is a need to contain the wage bill through strict management of the public sector payroll.
Also public sector reform, including possible downsizing, may be needed to increase productivity and reduce cost. Donor or other funding could be sought to pay for the cost of possible retrenchment of excess labour”.
The level of interest payments is disproportionately high. This is the price we have to pay for high borrowing. The capital budget as always bears the brunt of stabilization. It is even less than interest payments. This is incompatible with our long-term growth goal. A deliberate process of rebalancing experience over the medium-term is called for.
Public debt
The public debt as a ratio of GDP is reported to be 26% in 2006-post HIPC and Multilateral Debt Relief Initiative (MDRI); 36% in 2009; 56% in 2013; and 61% in 2014 (GHC70 billion) as of September 2014.
60% is considered by many analysts to be the sustainability threshold for Ghana and countries at similar stage of development.
Even in the context where we are reducing the budget deficit, borrowing will still continue, but may be at a reduced pace. The debt can only be reined in through sustained fiscal prudence to reduce borrowing.
Further, it is important that we spend most of the loans on projects that enable the economy to grow to reduce the debt servicing burden.
African Eye News.com
