ACCRA, Ghana needs to break the cycle of high fiscal deficit through the institutionalization of reforms which will make fiscal expansion more difficult, Razia Khan, the Chief Economist for Africa at Standard Chartered Bank Global Research.

Stressing that there is a need for consensus to be reached that fiscal deficits need to be subject to some rules, she says:

The shape of that rule could be that the deficit never exceeds three to five per cent of GDP 9gross domestic product.

Where Ghana needs to be is whether with the IMF (Internatioal Monetary Fund) without IMF, there is no longer going to be fiscal slippage and it is not going to happen because these are Public Financial Management reforms in place.

She told a media conference here Thursday that last year’s fiscal slippage was such a disappointment because Ghana was under an IMF programme and it became clear that something additional was needed like the tightening up of legislation and the broad-based willingness of all parties involved to agree that there was never going to be a departure from fiscal discipline as otherwise it would become difficult to break the cycle of debt.

Khan said Ghana’s debt management so far had been good but warned that there had been times over the past years when the fiscal deficit seemed to be brought under control only for it to be blown out by uncontrolled expenditure.

On the issue of Ghana quitting the IMF programme, Khan said investors were going to look for external signals to have confidence or be willing to buy Ghanaian government debt but said Ghana would have to show that it was doing enough on its own to institutionalize reforms, to legislate them and keep them in place.

For Ghana to win the confidence of the investors, it was important that the gains so far achieved were consolidated through trust and transparency in the system, she said. Debt management gains are for real. It is difficult to see what will move Ghana to be reliant on short-term debt instruments, she added.

Referring to the banking sector, Khan said that for the long term health of the country, it was important for the public to have faith in the institutions which had been licensed. They should be meeting capital adequacy requirements, participants in the economy should have trust in them and the regulators should always enforce the level of financial supervision and keep in touch with what was going on in the economy.

The regulators must be comfortable with the soundness of the entire banking system so that if they identified institutions that were inadequately capitalised, different actions to resolve capitalisation of the institutions should be seen as overwhelmingly positive thing.