He noted that every deficit experienced by the country, particularly in election years, had been attributed to high government spending without giving the government the benefit of the doubt.

Mr Terkper explained that although the pattern over the years had shown an increase in budget deficits during election years, other factors such as external shocks (for instance, the fall in commodity prices), had accounted for some of the overruns.

The setting was the Graphic Business/Stanbic Bank Breakfast Meeting series and the two main protagonists were the Finance Minister and the Director of the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana, Professor Felix Asante.

Initially, it looked as if the discussion, which was on the theme: “Economic implications of budget deficit in an election year”, was going to be moved in two directions: the academician/technocrat explanation and the government’s answers.

As it turned out, however, the answers proffered by Mr Terkper after Prof. Asante’s presentation rather confirmed most of the issues raised by the ISSER director, lending credence to the fact that Mr Terkper had been a technocrat before, having worked in the tax arena before becoming a minister.

Why overruns?

Touching on why the country experienced overruns during election years, Mr Terkper said, “We should not be too hard on ourselves since some of them are due to external shocks such as the fall in commodity prices such as cocoa, gold and crude oil. We experienced a simultaneous drop in the three commodity prices this year.

“For the first time we went to Parliament to reduce the budget because the revenue was simply not going to come.”

Explaining the litany of external shocks which had resulted in budget deficits, the Finance Minister said the price of crude oil, for instance, fell from $90 a barrel to $53, while for the past two and half years there had been no supply of gas from Nigeria to meet the country’s energy needs.

“These are circumstances beyond our control,” he pointed out.

He, however, expressed optimism that if the Sankofa FPSO, which is 80 per cent complete, came on stream, some of the economic challenges would be solved.

Single spine, policies

The minister said another factor that could result in deficits was policies going bad.

“Policies may go bad, but you don’t throw away the baby with the bath water,” he philosophised.

He said there were more controllable factors such as the Single Spine Pay Policy (SSPP) which had resulted in gains to the country because salaries of public sector workers could now be determined.

The Finance Minister said hitherto the government used over 70 per cent of its budget to pay the salaries of public sector alone, which did not auger well for the country’s economic fortunes.

He said since the introduction of the SSPP, the payment of salary arrears alone had cost the government GH¢3 billion.

“It contributed to the deficit, but was misinterpreted as largesse to public sector workers. It is not everything that we should attribute to election year,” he stressed.

Other factors

Mr Terkper said another factor responsible for budget overruns was unreasonable treasury bill and bond rates, adding that the government had adopted the re-financing of projects because treasury bills were only for the short-term.

Effects of deficits and corrective measures

He gave a list of the effects of deficits on the economy, including the lack of differentiation for policy/structural reform failures and exogenous factors, the demand on the country to enter IMF programmes at each turn during post-election years, the slow down in grants and concessional funding among other telling effects.

Mr Terkper said the government had in recent times taken some measures to stem the phenomenon such as the production of a ‘home-grown policy’ that formed the basis of the IMF’s extended credit facility programme and a new Public Finance Management (PFM) Act.