Cabinet approves Fiscal Responsibility Law to cap fiscal deficit to 3-5% of GDP

Days after the Vice President, Dr Mahamudu Bawumia, hinted of Government’s desire to place a cap on Ghana’s fiscal deficit as a percentage of Gross Domestic Product (GDP), Cabinet has given its approval for the submission of the appropriate legislation to Parliament to amend the relevant law.

The proposed amendment to the Public Financial Management Act is expected to limit the fiscal deficit to between 3% and 5% of GDP from the year 2018, to ensure greater fiscal discipline.

Fiscal deficit is the difference between the government’s expenditures and its revenues, excluding the money it borrowed. A country’s fiscal deficit is usually communicated as a percentage of its gross domestic product (GDP).

The decision to cap the deficit was taken after a Cabinet meeting on Thursday, July 20, 2017.

Already Government, through the 2017 budget, has put a cap of 25% on its budgetary allocation to statutory funds.

Ghana’s budget deficit has been increasing steadily over the last few years, hitting 9.3% in 2016.

Faced with a high debt-to-GDP ratio, and a generally unfavourable economic outlook from its predecessor government, the Nana Akufo-Addo government has begun introducing a mix of measures designed to ensure fiscal consolidation while stimulating growth.