Parliament has approved government’s request to suspend the Fiscal Responsibility rules in the Fiscal Responsibility Act, 2018 (Act 982) for the 2020 financial year.
The Minister of Finance, Ken Ofori-Atta, made the request in the Mid-Year Budget presented to parliament in July this year.
The rules forbid the Finance Minister from borrowing to spend beyond a threshold that will push Ghana’s fiscal deficit to over 5% of GDP. But in government’s projections during the presentation of the 2020 Mid-Year Budget, the uncertainties of COVID-19 will push the fiscal deficit above 5%.
Chairman of Parliament’s Finance Committee, Dr. Mark Assibey-Yeboah, explained the suspension on the floor of Parliament.
“As required by Section 33 of the Act, the necessary documentation has been put before the House for approval for the suspension of the Fiscal Rule. Mr. Speaker, the Committee observed that, the COVID-19 pandemic has affected virtually all countries of the world and every aspect of the Ghanaian economy. The pandemic has impacted on economic activities, created uncertainty and weakened growth and there have been massive capital flight from low income countries,” he said.
He further explained that “the committee is satisfied that the conditions presented for granting approval for suspension of the rules under Section 33 have been complied with.
The Covid-19 pandemic and its unforeseen economic effects, has created uncertainty and weakened economic growth, resulting in an expected deficit of 11.7 per cent of Gross Domestic Product (GDP) given rise to the suspension of the rules.
Also, several individuals and businesses have equally been hit hard with significant job losses and reduced incomes. Government revenues have also considerably declined while expenditures were rising.
2020 fiscal deficit revised to 11.4%
In the 2020 Mid-Year Budget, the Finance Minister, Ken Ofori-Atta, revised the budget deficit for 2020 from 4.7 per cent of GDP to 11.4 per cent of GDP due to revisions in the country’s total revenue and expenditure.
The revisions in the Total Revenue and Grants and Total Expenditures resulted in a fiscal deficit (on cash basis) of GH¢44.1 billion (11.4% of GDP) for 2020, up from the original 2020 Budget target of GH¢18.9 billion (4.7 per cent of GDP).
He said the deficit was expected to be financed from both foreign and domestic sources.
The corresponding primary balance is also expected to worsen from a surplus of GH¢2.8 billion (0.7% of GDP) in the original 2020 Budget to a deficit of GH¢17.8 billion (4.61% of GDP).
About the Fiscal Council
As part of efforts to avert the possibilities of getting back to the path of the fiscal slippages that caused the country to seek policy credibility from the IMF in 2015, President Akufo-Addo passed the Fiscal Responsibility Act last year, to anchor fiscal discipline and ensure prudence in the management of the economy.
The Act establishes both the Fiscal Council and the Financial Stability Council.
As part of its duties, the Fiscal Council will among other responsibilities develop and recommend policies for the maintenance of prudent and sustainable levels of public debt, ensuring that the fiscal balance is maintained at a sustainable level, and that the management of fiscal risks is done in a prudent manner, to achieve efficiency, effectiveness and value for money in public expenditure.
In addition, the Fiscal Council will also monitor the performance of the government budget with regards to compliance with fiscal rules and targets.
These include a budget deficit of not more than 5% of GDP, a positive primary balance and a debt to GDP ratio of not more than 65% of GDP.
