No budget, no pay for government workers with dire consequences for economy

While the drama surrounding the 2022 Budget Statement and Economic Policy of Government is expected to be clearer this week, failure to approve the budget can harm economic growth and certainty in 2022.

The 137-member National Democratic (NDC) Minority caucus supported by the Speaker of Parliament on Friday declared the 2022 budget rejected.

However, 138-member New Patriotic Party (NPP) Majority caucus said the decision to reject the budget was unconstitutional because the number required for such a decision was not met – and as such, null and void.

The Majority argued that the motion on the budget had not been pronounced by Parliament and that it is still standing in the name of the Minister Finance.

A government shutdown occurs when there is a failure to pass the necessary funding legislation that will finance the government for its next fiscal year.

Possible negative effects

In case the budget is not approved by the end of this year due to the disagreement, Ghana will be confronted with lost revenue, late fees on interest payments, credibility crisis over ability to service debt, sell-off of Ghana’s dollar bonds, raising the cost of borrowing, lowering the growth in Gross Domestic Product (GDP), among others.

These are negative consequences with far-reaching effects on an economy that is struggling to recover from the havoc caused by the ever-mutating COVID-19 pandemic.

Sell-off of Ghana’s bonds in recent time

Recently, concerns over how Ghana will fund itself amid limited alternatives and weak commitment to fiscal consolidation sparked a sell-off of Ghana’s bonds, making holding Ghana’s bonds expensive.

Recovery from bonds sell-off could be derailed

While Ghana is recovering from the sell-off of its dollar bonds, the sell-off may return with higher acceleration if the budget is not passed by the end of this year.

Ghana’s bond holders may fear default

This is because investors holding Ghana’s bonds may fear default and flee stoking massive sell-off.

New revenue projections could be derailed

That may happen because new revenue projections that give bond investors hope that Ghana’s favourable debt servicing profile will remain intact may now be in doubt if the budget is not approved.

Impact on revenue projections

Achieving revenue projections in the budget depends largely on the ability to start collecting the new taxes, levies and charges from January 1, 2022.

Negative impact on all targets for 2022

In the event that the Minority succeeds in frustrating the passage of the budget till end of first quarter next year, that will impact negatively on all targets for 2022.

Minority MPs on wrong path

Making a set of demands and sticking to them – even at the risk of losing the deal entirely – is not an effective way of addressing Ghana’s fiscal challenges.

Effects of the actions of Minority MPs

It delays the tough decisions and has real costs for the budget, the economy and the ordinary Ghanaian.

What Parliament should do

Lawmakers should work together to create a long-term plan that addresses the growing mismatch between spending and revenue and puts Ghana on a sustainable fiscal path.

Shutdown and essential workers

During a government shutdown, non-essential government offices are unable to remain open even though some essential workers must continue to work.

In a country where a clear definition of essential workers is yet to be agreed on, one wonders which public sector workers will remain at post.

Effects of shutdown on private sector

As government operations slow down, the effects may also spread to businesses in the private sector.

New COVID-19 variant sparks global travel restrictions

A new COVID-19 variant by name Omicron has sparked global travel restrictions, especially on African countries, because it was discovered in South Africa.

This has the potential to further worsen the plight of the already struggling African economies, with a devastating impact on the people.

On Friday, all 137 Minority Members of Parliament (MPS) voted against the motion when the question was put by the Speaker of Parliament, Alban Bagbin.

This happened after the Majority caucus had earlier walked out of the Chamber over a misunderstanding with the Speaker.

The walk-out was occasioned by the Speaker who ruled that the House voted to dismiss an application by the Finance Minister to withhold vote on the budget to allow for further consultation with the leadership of both the Majority and Minority, especially on the introduction of the Electronic Levy (e-levy) and a request to include the Blekusu Sea Defence Project in the budget.

The Speaker of Parliament, Alban Bagbin, before the vote, had called for a headcount of all the members present in the Chamber to know if the House had a quorum.

Satisfied with the numbers, he then put the question on the prayer by the Finance Minister to be allowed to have more discussions with stakeholders on the budget, which was rejected by the House.

The Speaker proceeded to put the question on the motion for the approval of the 2022 Budget Statement and Economic Policy of Government, which was also rejected by the Minority House.

Mr Osei Kyei Mensah-Bonsu, Majority Leader, stated that the decision to reject the budget was unconstitutional because the number required for such a decision was not met – and as such, null and void.

He said the motion on the budget had not been pronounced by Parliament and that it was still standing in the name of the Minister of Finance.

He said a "properly" constituted House would make a decision in the "fullness of time."

Mr Mensah-Bonsu explained that “when it comes to decision making, it is not Article 102 that applies but rather Article 104 that comes to play.

Article 104 says, "Except as otherwise provided in this Constitution, matters in Parliament shall be determined by the votes of the majority of members present and voting, with at least half of all the members of Parliament present. "