Ghana Seeks to Rein In Runaway Spending With New Legislation

ACCRA (Capital Markets in Africa) – Ghana wants to put an end to chronic overspending by making it illegal to propose or implement a budget where the deficit is larger than 5 percent of gross domestic product, Finance Minister Ken Ofori-Atta said.

The West African nation’s government will this year ask lawmakers to amend the Public Financial Management Act to limit the budget deficit from 2018, Ofori-Atta said by phone on Thursday. The Finance Ministry will ensure that the target is adhered to, he said.

Constant overspending prompted Ghana to turn to the International Monetary Fund for almost $1 billion in budget support in 2015 to limit repercussions such as currency weakness and spiraling inflation. After the deficit exceeded 10 percent of GDP for three straight years through 2014, the country recorded a shortfall of 9.4 percent of GDP in 2016 compared with an initial target of 5.3 percent.

“After the law is passed, you can’t go to parliament with your budget and break the law,” Ofori-Atta said. “We have to make sure the target is adhered to.”

The proposed legal limits fall in line with protocols of the Economic Community of West African States and targets under Ghana’s program with the IMF for the deficit not to exceed 6.8 percent of GDP, he said. 

The cedi, which has lost about 3 percent against the U.S. currency this year, traded 0.5 percent stronger at 4.37 per dollar at 12:11 a.m.

The government will move 1.5 billion cedis ($342 million) to 2 billion cedis in state agencies’ cash deposits from commercial lenders to a treasury account at the central bank to consolidate its holdings, Ofori-Atta said. The process will be gradual and allow agencies to meet credit commitments with their bankers, he said.

“When managed well, this can help lessen government’s borrowing burden and put further downward pressure on government yields,” Ofori-Atta said.

Source: Bloomberg Business News