Improving Fiscal Management in Ghana: The Role of Fiscal Policy Rules
This paper discusses the role of fiscal policy rules in promoting fiscal discipline and transparency in Ghana. The adoption of fiscal policy rules and independent fiscal policy councils are investigated and whether it can help improve fiscal performance in Ghana based on international evidence. The econometric analysis draws on a large dataset of about 160 countries. It examines the impact of fiscal rules on fiscal performance, measured by the debt to GDP ratio and using the conditional logit regression approach. 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 Framework with a debt to GDP target of 50 percent of GDP by 2020. Achieving this target requires average fiscal deficit of about 4 percent 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 independent fiscal policy council to provide independent assessment of macroeconomic and revenue forecasts; monitoring and enforcement procedures, and legislative changes to make the fiscal rule legally binding.