Dr. Mahamudu Bawumia, the presidential candidate of the New Patriotic Party (NPP), has detailed his plan to control government expenditure by adjusting the fiscal rule.
The fiscal rule dictates that the budget deficit for a financial year should not go beyond 5% of the GDP and was temporarily suspended due to the impact of the COVID-19 pandemic.
This suspension enabled the government to effectively manage the crisis. Nonetheless, Dr. Bawumia contends that the current fiscal deficit requirement is inadequate in overseeing government spending. In a meeting with the Trades Union Congress in Accra on Wednesday, he suggested a modification to the existing regulation. The proposed adjustment would mandate that the budget deficit does not exceed 105% of the previous year’s revenue.
The fiscal discipline, the fiscal rule that we have before was to make sure that fiscal deficit was not above 5% of GDP. Of course, when COVID came it had to be suspended so that government could respond.
I believe that the fiscal rule needs to come in an amended form, not just to look at the deficit, say 5% in a year. But let us make sure that government expenditure does not exceed 105% of the previous year’s tax revenue.
This gives you more discipline because if you forecast a tax revenue for this year which is overly optimistic and you go and spend thinking you are going to do 5% of GDP you will end up with more than 5% of GDP if those revenues don’t materialize.
Additionally, Dr. Bawumia has committed to creating the fiscal governance council as a separate body, allowing it to review the Ministry of Finance’s decisions.
It should be given independence so that they have an independent oversight over the MoF. Because if you don’t have that independence in terms of oversight then who watches the MoF.
We don’t have that independence and so we need an independent fiscal responsibility council. The current council as constituted in the Act is not independent and we need to have that independence of the fiscal responsibility council.
