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Weak Fiscal Management Affecting Economy -IEA

By Daily Guide
Economy & Investments Weak Fiscal Management Affecting Economy -IEA
JUN 17, 2015 LISTEN

Dr. John Kwakye
The Institute of Economic Affairs (IEA) says weak fiscal management is undermining Ghana's economic progress by exacerbating macroeconomic instability which has created a looming debt crisis and crowded out private sector operators.

IEA therefore called for the adoption of a fiscal rule to enhance transparency and improve fiscal performance.

A Senior Economist at IEA, Dr. John Kwakye, who disclosed this while presenting a paper on 'Improving Fiscal Management in Ghana: The Role of Fiscal Policy Rules,' said borrowing to finance the high deficits has led to high public debt, currently at about GHc88 billion, which is close to 70 percent of GDP.

The high deficits emanate from revenue and expenditure gaps, and an ambitious fiscal consolidation strategy will be required to rein in the debt, he said.

Dr. Kwakye said adopting some kind of fiscal rule could help achieve fiscal consolidation and debt sustainability.

A number of supporting arrangements and mechanisms, which include strengthened budget preparation and an independent Fiscal Council or Parliamentary Budget Office to provide independent assessment and monitoring of the budget would have to be put in place in order to make the Fiscal Rule effective, he said.

He called for legislative amendment and enactment of a Fiscal Responsibility Law to give legal backing to the rule binding, adding that escape clauses would ensure flexibility in dealing with unanticipated shocks.

He said discretionary fiscal policy has failed the country, stating that adopting a fiscal policy rule embedded in legislation would help to entrench the much-needed fiscal discipline in Ghana.

'To ensure the effectiveness of the Fiscal Rule, it may have to be embedded in legislation, a kind of Fiscal Responsibility Law (FRL) as Chile did.

'The FRL will back the FR by providing for enforcement and sanctions provisions, among others,' Dr. Kwakye said.

By Cephas Larbi
[email protected]

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