Ghana's Budget Fiscal deficit to be capped at 5% of GDP – Bawumia

Dr Bawumia explained that government was going to cap the fiscal deficit at 5% to ensure fiscal discipline in the country.

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The Vice President Dr Mahamudu has revealed that government will soon present an amendment to the Public Financial Management Act to Parliament.

This will be to set Ghana’s fiscal deficit at a maximum 5% of Gross Domestic Product (GDP) from the year 2018.

EXPLAINER: Fiscal deficit is the difference between the government's expenditures and its revenues (this excludes the money it has borrowed). A country's fiscal deficit is usually communicated as a percentage of its gross domestic product (GDP).

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A 5% fiscal deficit means if the government has a source of revenue of GHC 100 million, the government can spend GHC105 million. The higher the fiscal deficit, the higher interest payments.

Dr Bawumia was speaking at the launch of Direct Savings and Loans Company in Accra.

He explained that government was doing this to ensure fiscal discipline is adhered to in the country.

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“We have to continue to take measures to deepen the fiscal consolidation and also to institutionalise the fiscal consolidation. At the end of the day, the fiscal discipline matters. And this is why the President has said that we should look at how to bring more fiscal responsibility in the management of our economy going forward.”

“We don’t want to do that dance, one step forward, three steps backwards, as we have been doing. We want to entrench fiscal responsibility. Nana Akufo-Addo has directed, that we should bring an amendment to Parliament, of the Public Financial Management Act, to make sure by law, we set the fiscal deficit at a maximum of 5% of GDP, going forward, from 2018.”

Dr Bawumia was optimistic this measure if implemented will provide better economic stability and instil confidence in the economy.

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“This is going to be very new, and it is something that will bring a lot of confidence in the management of the economy, as we entrench fiscal stability.”

Ghana has recorded some rising budget deficit over the last few years, hitting 9.3% in 2016.

However, the Nana Addo-led government that inherited a debt-ridden economy with a high debt to GDP ratio, has started introducing some measures to ensure fiscal consolidation while stimulating growth.

It has also projected a budget deficit target of 6.5 percent for 2017.

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