DI Head of Research, Dr. Frank Bannor
Policy think tank Danquah Institute (DI) has underscored the prudent fiscal management exhibited by the governing New Patriotic Party (NPP) in contrast to the opposition National Democratic Congress (NDC) administration.
In a second edition of the Institute’s planned monthly media encounter held on Wednesday, April 17, 2023, dubbed “Profiling & Analysis of Ghana’s Debt from 2009 to 2023”, DI Head of Research, Dr. Frank Bannor, explained that an analysis of government expenditure relative to the Gross Domestic Product (GDP) reveals a significant disparity between the two administrations.
Relying on statistics and data from the Bank of Ghana and the Ministry of Finance to make his argument and provide explanations, Dr. Bannor pointed out that the highest government expenditure as a percentage of GDP, reaching 26.8%, was recorded during the fiscal year ending in 2012 under the NDC’s tenure.
Expenditure-to-GDP ratio
Conversely, he noted that under the current government, the highest expenditure-to-GDP ratio stood at 24.6% in the year 2020. This comparison, according to him, highlights the contrasting approaches to financial stewardship between the two political regimes.
Dr. Bannor believes that it has become necessary to redirect criticisms frequently directed at the current government for purportedly lacking fiscal prudence compared to its predecessor.
“Remarkably, since 2009, the lowest levels of expenditure relative to GDP have been achieved under the current administration, with figures of 19.1% in 2017, 18.9% in 2018, and 19% in 2019, respectively.
“We have so far looked at debt to GDP ratio and its composition. However, an important question a lot of Ghanaians ask every day is, why do we need to borrow. Is it even necessary at all?he quizzed.
Fiscal deficit
Dr Bannor recounted that upon Ghana’s independence in 1957, there was a transition from the private to the public sector as the primary driver of economic growth.
He stated that this shift was motivated by a strong aspiration to rapidly advance and modernize the country. “Consequently, the government pursued expansionary policies, heavily investing in import substitution industries alongside extensive infrastructure projects,” he said.
“Just two years after gaining independence, Ghana experienced its first fiscal deficit in 1959. Since then, fiscal deficits have remained a significant challenge in Ghana’s economic management history”, he indicated.
He argued that fiscal deficit arises when the expenditure of government is more than the revenue generated by the government in a given fiscal year.
The fiscal deficit, he explained, is determined by deducting the total revenue (excluding borrowing) acquired by the government in a fiscal year from the total expenditures it incurred during the same period.
Deficit factors
He added that a fiscal deficit occurs as a result of factors such as a significant increase in capital expenditure or a deficit stemming from revenue. “It acts as a gauge of the government’s effectiveness in managing its finances”, he stated.
Dr. Bannor pointed out that fiscal deficit as a percentage of GDP saw significant improvement from 9.7 percent in December 2000 to 2.7 percent at end of December 2005.
However, he indicated that by December 2006 the fiscal deficit had increased to 7.8 percent due to non-recurring expenditures such as the CAN 2008, Golden Jubilee celebrations, among others.
He further noted that the fiscal deficit further increased to 9.5% of GDP in 2009; and declining to 3.6% in 2010, and 4% in 2011. Surprisingly, he mentioned that by the end of 2012, the fiscal deficit which stood at 4 percent in 2011, had astronomically increased to 11.6%.
“Friends from the media, I know you are all wondering why this quantum jump occurred? And I’ll tell you why. As is common during election years, the government increased spending significantly, resulting in a fiscal deficit of 11.6% of GDP, nearly double the projected 6.7% deficit announced during the 2012 mid-year budget review”, he stated.
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