IEA proposes 60% GDP debt cap with strong parliamentary oversight

The Institute for Economic Affairs (IEA) proposed strict congressional oversight of borrowing and debt accumulation under Article 181 of the Constitution, a measure that was supposed to significantly reduce unsustainable debt. of the country. The economic and policy advisory group also recommends always applying a debt ceiling of 60% of gross domestic product (GDP), which is often considered a sustainable threshold. In an article on “Institutionalizing fiscal discipline and macroeconomic stability for sustainable growth in Ghana. 

The constitutional path”, he said that it is only in emergencies or crises that the new Parliament should approve the loan beyond the debt ceiling, adding that “even in this case, Parliament should specify a time frame for returning to the ceiling. It will be similar to what is happening in the United States.”

According to the IEA, if this rule is strictly followed, persistent debt crises will be avoided. Again, this rule would also impose fiscal discipline on economic managers as a necessity for operating within borrowing and debt limits, indicating that borrowing and debt limits could be introduced. into the budgetary responsibility law. He continued to seek constitutional support for them.

The IEA has done extensive research in the area of ​​debt sustainability. It is clear that the continuous borrowing to finance the country’s budget deficit has caused long-term debt at an unsustainable level. Indeed, the nation’s debt, which had amounted to more than 100% of GDP before 2004 was reduced to 26% in 2006 after receiving an initial bailout for the heavily indebted poor Country.

However, the debt has once again increased to more than 100% now due to persistent financial waste. The IEA points out that this brought Ghana back to the International Monetary Fund and spurred debt restructuring. IEA wants to institutionalize fiscal rule Due to the Covid-19 pandemic, the fiscal rule established by the Fiscal Responsibility Act (FRA) 2018 (Act 982) has been suspended. The FRA places a 5% cap on the overall deficit and includes a properly protected clause that allows the Secretary of the Treasury to suspend the rule in the event of a series of unforeseen shocks. prescribed.

However, the IEA said that contrary to its recommendation that the cap should be restored quickly after the shock ameliorated, the FRA left the recovery open. Therefore, he called for the institutionalization of the budget rule in the Constitution to protect it.

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