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Improving Fiscal Management in Ghana : The Role of Fiscal Policy Rules

In this paper the role of fiscal policy rules are discussed in the promotion of fiscal discipline and transparency in Ghana. It investigates whether the adoption of fiscal policy rules and independant fiscal policy councils can help improve fiscal performance in Ghana based on international evidence. The results show that fiscal rules, particularly budget balance and debt rules are strongly associated with a higher probability of reducing the public debt to GDP ratio. The paper then calibrates an illustrative simple fiscal rule for Ghana based on the debt sustainability approach with a debt to GDP target of 50% of GDP by 2020. Achieving this target requires average fiscal deficits of about 4% of GDP. The paper argues that fiscal rules do not operate in isolation and require supporting institutions and reforms to deliver the anticipated outcome. Key reforms to make fiscal rules effective in Ghana include strengthening budget preparation, apportionment and execution; establishing an independant fiscal policy council to provide independant assessment of macroeconomic and revenue forecasts; monitoring and enforcement procedures and legislative changes to make the fiscal rule legally binding.