The Institute of Economic Affairs has expressed worry about the repetition of past mistakes by governments which has made the Ghanaian economy unstable over the years.
According to the economic think tank, the indiscipline in managing the country’s finances has caused the high fiscal deficits and consequently high inflation and currency instability, forcing innocent Ghanaians and businesses to pay for the mismanagement.
In a paper on “Institutionalising Fiscal Discipline and Macroeconomic Stability for Sustained Growth in Ghana: The Constitutional Pathway”, Lead Researcher, Dr. John Kwakye said Ghana has a long history of fiscal indiscipline and this is evident in its fiscal deficits being almost consistently higher than those of its peers in Africa.
“Our deficits tend to escalate in election years when we elevate election-related spending. Then we borrow to finance the deficits and cause our public debt to escalate to unsustainable levels. We have been in that situation numerous times. Our debt reached the first crisis situation around 2004, when it ballooned to over 100% of GDP”.
“We had to seek relief under the HIPC Initiative, which caused the debt-to-GDP ratio to drop to a sustainable level of 26% in 2006. Thereafter, we returned to our culture of fiscal indiscipline, which caused the debt to rise yet again. And today, the debt-to-GDP ratio is back to an unsustainable level of over 100%”, he explained.
Dr. Kwakye expressed worry again that the current and past government have not learnt from their past mistakes after almost 20 years of HIPC.
“We are back to where we were almost twenty years ago! We do not seem to learn from our mistakes! We hear the two leading parties blaming each other about who has increased the debt the most. It is not about who has decreased the debt the most, as far as the only direction for the debt is upwards!”
He added that the country must do everything possible to safeguard or institutionalise fiscal discipline under the constitution, else it will always record macroeconomic instability.
Large deficits cause of high inflation, currency instability
Also associated with the high fiscal deficits has been high inflation and currency instability, which the IEA called for immediate action.
According to Dr. Kwakye, Ghana has had much higher inflation rates than its peers, adding, the cedi has experienced much higher depreciation over the years.
Again, he said “government domestic borrowing to finance the deficits has elevated interest rates to levels that have crowded out the private sector, inhibiting investments and stifled economic growth. High fiscal deficits and the associated demand pressures have also spilled over to the external sector, leading to high current account deficits”.
Prevalent fiscal indiscipline, debt crisis reasons for running to IMF
Continuing, Dr. Kwakye said the fiscal indiscipline and associated macroeconomic instability and debt crises have taken the country to the IMF 17 times.
“We have been caught up in an unending cycle of high fiscal deficits, high interest rates, high inflation, high current account deficits, rapid exchange rate depreciation, and unstable growth. It is our prevalent fiscal indiscipline and associated macroeconomic instability and debt crises that have taken us to the IMF seventeen times”.