Chief Executive of Gold Coast Financial Holding, Mr. Kwame Ofori Asomaning, has called on government to significantly invest in building real assets and productive capacity of the economy, and advancing public purpose for the general well-being of the people.
That, he stressed, was the most fiscal responsible thing to do.
“Government should balance the whole economy not the budget alone, targeting Real impacts, Real benefits, and Real results that fulfill the needs of Real people. This has nothing to do with a measure such as debt-to-GDP ratio at the expense of the actual well-being of the people. While pursuing these goals, government must effectively manage the cedi to ensure that inflation does not get out of control.
…The only real crisis is a crisis of a failing economy, mass unemployment, widespread falling in incomes, and growing economic inequality,” he said.
According to Mr. Asomaning, government’s target to reduce budget deficit to 3% will weaken domestic private sector balance sheet, adding that by accounting identity any government deficit reduction plan will cut the non-government domestic private sector surpluses by that same percentage.
Such a move, he explained, would be a threat to domestic corporate profits and can become dysfunctional, especially when millions remain jobless.
He went on to say that under such a situation the private sector debt will increase and weaken the financial system which will in turn bring about widespread fall in income
Consequently “it leads to high poverty rates, and income inequality will widen the gap between the rich and the poor.
This “old-time deficit religion and myth in budget balance,” according to Mr. Ofori Asomaning, makes it extremely difficult to spend on the necessary “scale to get access to good health care and quality education, and improve deteriorating infrastructure.”
“In fact, mass unemployment, widespread fall of income, increased or above normal insolvencies, massive private debt overhang, companies folding up and falling GNP, are all indications that deficit is too low or there is fiscal austerity.”
Against this background, he indicated that the call on government to be fiscally responsible/reduce deficit to balance its budgets was rather the “height of fiscal irresponsibility.
That approach, he argued, was “prohibitively costly,” especially when idle resources are wasted and the economy performs below capacity.
“It is similar to a parent who wants to save, so he stops buying food for his family, stops paying his children’s school fees and refuses to seek medical care for his sick children.
The theory of “fiscal responsibility,” Mr. Asomaning pointed out, becomes economically irresponsible when Ghana is operating below full employment capacity, “because fiscal responsibility results in most of the increasing economic misery and growing idleness, damaging and wasting skills, competencies, and knowledge of our unemployed graduates who want to work.”
“This bad policy outcome of fiscal responsibility is the cause of decrease in real national wealth compared to what could have been created (huge output gap); slowed economic recovery which results in economic inequality that many Ghanaians have endured for years.”
Again, Mr. Asomaning said following deficit reduction plan in isolation was dysfunctional, especially when Ghana was experiencing a trade deficit, when private investment in production areas is weak, and; when both labour and capital are deteriorating, thereby undermining and reducing the productive capacity of the economy.
“Therefore, any government that pursues this fiscal rule in the current economic climate described would further undermine growth and deny the private domestic sector the income support, which is essential to reduce its massive debt burden.
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