The Natural Resource Governance Institute, (NRGI) has asked Government not to delay in promulgating the proposed fiscal responsibility law.
According to the Institute the proposed legislation presents a unique opportunity to reform Ghana’s public financial management and put measures in place to make the national budget more credible and ensure fiscal discipline.
“An all-encompassing, realistic, achievable fiscal rule will go a long way to instill investor confidence in the Ghanaian economy and set the stage for accelerated economic growth.”
The Institute in a release authored by its Africa Associate, Aisha Adam and issued in Accra recommends to government and Parliament to review whether it is realistic to reach a 3–5 percent deficit target by next year without cutting into pro-poor or developmental spending.
Government must take steps to avoid a pro-cyclical approach by setting a 4 percent structural deficit target, one that would allow a larger deficit in bad years while ensuring strict compliance with the rule in good years.
This structural balanced budget rules, the release observed Chile and Norway are using.
The NRGI also recommends that government sets up an additional rule that caps recurrent expenditures to ensure that revenue windfalls are used for investment rather than increasing consumption and wages.
Set fiscal rules that “make it difficult to circumvent the deficit target by setting limits to arrears accumulation and off-budget borrowing by various public entities.
Most importantly, this should cover loans that state-owned companies take on for non-commercial activities. In Mexico, for example, a budget balance rule ensures limited borrowing by the national petroleum company.”
The release suggests the inclusion of an escape clause in the fiscal rule for major shocks.
A temporary suspension of the fiscal rule should be conditional upon a limited range of well-defined events.
The escape clause should also include specifications for publishing deviations from the rule and a public plan on measures for putting the economy back on the path to recovery.
“Make a two-thirds majority vote in parliament necessary for invoking the escape clause. This will allow for consensus around the invocation of the clause, as well ensuring that the government follows recovery provisions after invoking the clause.” The release stressed.
Government must also strengthen budget transparency by publishing all relevant budget information in a comprehensive format that citizens can easily understand, providing more information on expenditure classifications over the past and current medium-term expenditure frameworks in the executive’s budget proposal, and publishing detailed annual budget performance reports with information on macroeconomic projections versus actual budget turnouts.
The NRGI also recommends that punitive measures are instituted for non-compliance and arbitrary non-adherence to the fiscal rule in any given financial year.
It noted that provisions for sanctions in the 2016 Public Financial Management Act present a good starting point for instituting punitive measures.
Government must, however, enforce these punitive measures.