Finance Minister Ken Ofori-Atta was successful in convincing the legislature to suspend fiscal responsibility rules contained in the Fiscal Responsibility Act, 2018 (Ac t 982).
The scale of damage and macroeconomic distortions caused by the pandemic is unprecedented in the country’s history, and makes it possible to invoke the escape clause in the Fiscal Responsibility Act (FRA) 2018 to suspend the Act for this fiscal year.
The Act obliges a Finance Minister, upon suspension of the fiscal rules, to within thirty days present before parliament for approval facts and circumstances for the suspension of the rules and plans for restoring the country’s public finances within a reasonable period.
There is no doubt that the outbreak of COVID-19 has distorted projections for the fiscal year.
For instance, at the time of preparing the 2020 budget, petroleum revenue was projected at US$1,568million; but due the pandemic, expected petroleum revenue receipts have been revised to US$660.5million.
The slowdown in economic activity has led to a drastic downward revision for the growth of real GDP – from 6.8 percent to 0.9 percent, an estimated revenue shortfall of GH¢13.41bn.
Government therefore decided to suspend the fiscal rules because of the severe economic impact of COVID-19, which is expected to result in the worst economic growth performance for decades.
Among the circumstances leading to suspension of the Fiscal Responsibility Act for 2020 were the creation of uncertainty and weakened economic growth, significant decline in remittances, and massive capital flight from low-income countries.
The increased spending occurred simultaneously with a decline in revenues, and it is not surprising that the minority abandoned its firm stance to allow suspension of the Act for this fiscal year.
We applaud them for weighing the facts and realising that it was not deliberate or born out of fiscal recklessness, but that it has become inevitable based on the harsh reality on the ground.
Parliament’s Finance Committee Report observed that the COVID-19 pandemic and its unforeseen economic effects creating uncertainty and weakened economic growth, resulting in an expected deficit of 11.7 percent of Gross Domestic Product (GDP) and giving rise to suspension of the rules.
The need for suspension arose as a result of the COVID-19 pandemic, which had led to an unanticipated increase in expenditure.
We are not in normal times, and it is therefore appropriate to respond to the crisis by mitigating the harmful economic effects of the pandemic on the populace – and this comes with unbudgeted expenditures.
Most Ghanaians will understand the abnormal circumstances in which we find ourselves, and justify suspension of the Act for this year. We are hopeful that things will gradually return to normalcy and we can all get back to our usual way of doing things.