Ghana’s economic instability worsened by fiscal indiscipline, says Think Tank

Ghana’s economy has been facing a chronic problem of fiscal indiscipline, which has resulted in high levels of public debt, inflation, and currency instability. According to a report published by the Institute of Economic Affairs (IEA), Ghana has a long history of fiscal indiscipline, and this is evident in its fiscal deficits, which are almost consistently higher than those of its peers in Africa. This indiscipline is particularly acute during election years, when election-related spending tends to escalate, leading to higher borrowing and unsustainable levels of public debt.

In 2004, Ghana’s public debt reached over 100% of GDP, forcing the country to seek relief under the Highly Indebted Poor Countries (HIPC) initiative. The debt-to-GDP ratio dropped to a sustainable level of 26% in 2006. However, Ghana returned to its culture of fiscal indiscipline, leading to a rise in public debt yet again. Today, the debt-to-GDP ratio is back to an unsustainable level of over 100%. The current and past governments have not learned from their past mistakes, and Ghana’s debt situation remains precarious, with little sign of improvement.

The IEA warns that the prevalence of fiscal indiscipline in Ghana poses a significant threat to macroeconomic stability and sustained economic growth. The country’s high fiscal deficits have resulted in high inflation rates and currency instability, which have had a detrimental impact on the private sector, inhibiting investments and stifling economic growth. The government’s domestic borrowing to finance deficits has also elevated interest rates to levels that have crowded out the private sector, further compounding the problem.

Ghana’s fiscal indiscipline has not gone unnoticed by international financial institutions. The country has had to seek assistance from the International Monetary Fund (IMF) on 17 occasions due to its fiscal and debt crises. The high fiscal deficits, high interest rates, high inflation, high current account deficits, rapid exchange rate depreciation, and unstable growth have left Ghana trapped in an unending cycle of macroeconomic instability, which has proved hard to break.

The IEA has called for immediate action to institutionalize fiscal discipline under the constitution to prevent macroeconomic instability. It is imperative that Ghana breaks the cycle of fiscal indiscipline and unsustainable levels of public debt, which have had a detrimental impact on the country’s economic growth prospects. The government needs to take a long-term view of its fiscal policy and resist the temptation to indulge in election-related spending that it cannot afford. Fiscal discipline is vital for Ghana’s economic future, and it is the responsibility of the government to ensure that it is achieved.

Ghana’s fiscal indiscipline remains a significant threat to macroeconomic stability and sustained economic growth. The country has a long history of fiscal mismanagement, which has resulted in unsustainable levels of public debt, high inflation rates, and currency instability. The IEA’s report highlights the urgent need to institutionalize fiscal discipline under the constitution to prevent macroeconomic instability. It is essential that the government takes a long-term view of its fiscal policy, prioritizes investment in key sectors, and resists the temptation to indulge in election-related spending that it cannot afford. Only then can Ghana break free from the cycle of fiscal indiscipline and achieve sustained economic growth.

Source: norvanreports.com