Fascinating Idea From Ghana – Impeach Finance Ministers For Deficit Of 6% Of GDP

This is an interesting little piece of macroeconomic management being proposed in Ghana. If the Finance Minister allows a budget deficit of over 5% – so, therefore, of 6% – of GDP then Parliament should impeach him or her at the beginning of the next calendar year. What’s even more interesting about it is that it’s not an attempt to simply deny Keynesian economics, nor to stop the politicos blowing the lot on diversity advisers or whatever.

Rather, the aim is to increase confidence in the fiscal rectitude of the Ghanaian government:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Finance ministers who supervise a budget deficit of more than 6% will now be impeached from office by Parliament beginning the next fiscal year. This is according to the dictates of Fiscal Responsibility Bill,2018 which was passed by Parliament Saturday night. The law seeks to cap budget deficits at a ceiling of 5%. The move according to finance minister Ken Ofori-Atta is to engender confidence in Ghana’s economy even as it exits the IMF program. [/perfectpullquote]

If we tie our hands in such a manner then this will increase the confidence that we’ll not just blow the lot and more. That we’ll work at least reasonably hard to keep government spending in a reasonable relationship with what can be taxed out of the population. It works because we’re not cynical at all when we note that politicians do really, really, like their jobs so they’re unlikely to do things which mean they lose them.

One criticism would be that this prevents the Finance Minister from really ramping up the deficit if it is really, really, necessary to do so. That recent unpleasantness that started in 2008 led to greater than 6% of GDP deficits in a number of countries and rightly so too. The answer being that of course it doesn’t stop said Finance Minister at all.

If he really, really, needs to run such a deficit he can. He’ll lose his job, true, but then which Finance Minister wouldn’t be happy to do that if it were really, really necessary?