Bawumia proposes fiscal rule amendment to curb govt spending

Dr Mahamudu Bawumia, the flagbearer of the New Patriotic Party (NPP), has outlined his strategy to curb government spending, which includes modifying the fiscal rule.

The fiscal rule, which stipulates that a financial year’s budget deficit should not surpass 5% of the GDP, was put on hold due to the COVID-19 pandemic. This allowed the government to address the crisis effectively.

However, Dr Bawumia argues that the current form of the fiscal deficit requirement is insufficient to regulate government spending.

During a meeting with the Trades Union Congress in Accra on Wednesday, he proposed an amendment to the existing provision. The proposed amendment would require the budget deficit to not exceed 105% of the previous year’s revenue.

“The fiscal discipline, the fiscal rule that we have before was to make sure that fiscal deficit was not above 5% of GDP. Of course, when COVID came it had to be suspended so that government could respond.

“I believe that the fiscal rule needs to come in an amended form, not just to look at the deficit, say 5% in a year. But let us make sure that government expenditure does not exceed 105% of the previous year’s tax revenue.”

“This gives you more discipline because if you forecast a tax revenue for this year which is overly optimistic and you go and spend thinking you are going to do 5% of GDP you will end up with more than 5% of GDP if those revenues don’t materialize,” he stated.

Furthermore, Dr Bawumia pledged to establish the fiscal governance council as an independent entity, thereby enabling it to scrutinize the Ministry of Finance’s actions.

“It should be given independence so that they have an independent oversight over the MoF. Because if you don’t have that independence in terms of oversight then who watches the MoF.

“We don’t have that independence and so we need an independent fiscal responsibility council. The current council as constituted in the Act is not independent and we need to have that independence of the fiscal responsibility council,” he stated.