AN ASSESSMENT OF FISCAL SUSTAINABILITY IN GHANA

This study examines the sustainability of fiscal policy in Ghana by exploring government’s reaction to rising public debt accumulation via the estimation of a fiscal reaction function. Our findings suggest that government’s fiscal behaviour is consistent with the intertemporal budget constraint, but the fiscal adjustment appears to be very low. In particular, evidence of significant fiscal pressures in recent years persists, largely driven by fiscal excesses during election cycles. To ensure long term fiscal sustainability, the study supports deliberate policies such as fiscal anchors and a Fiscal Responsibility Act that could help to curtail expenditure overruns especially during election cycles, promote less expensive sources of borrowing and engender strong coordination between fiscal and monetary authorities.